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 Compliance Corner is a quarterly electronic newsletter published by the MSRB to support the compliance obligations of brokers, dealers and municipal securities dealers (collectively "dealers") and municipal advisors. Compliance Corner highlights recent regulatory updates and resources to facilitate understanding of MSRB rules. Items below labeled “MA” are for municipal advisors; “BD” for dealers; “MA/BD” for all.
Compliance in Focus
Changes to the MSRB’s advertising rule for dealers, together with the effective date for MSRB’s new advertising rule for municipal advisors, are right around the corner. On August 23, 2019, amendments to MSRB Rule G-21, on advertising by brokers, dealers and municipal securities dealers, and the new and amended MSRB Rule G-40, on advertising by municipal advisors, (collectively the “MSRB advertising rules”) go into effect. The MSRB advertising rules reflect several years of stakeholder engagement, public comment and rule writing to ensure that the rules reflect current market practices and are appropriately tailored to achieve their intended purpose.
To assist regulated entities in complying with the upcoming changes, the MSRB has developed guidance and resources for dealers and municipal advisors. The interpretive guidance clarifies the application of MSRB’s advertising rules to the use of social media by regulated entities as part of their municipal securities business or municipal advisory activities under Rule G-21 and Rule G-40.
In addition, the MSRB issued compliance resources to enhance understanding of the application of content standards to advertisements by municipal advisors and address frequently asked questions to illustrate the permissible and impermissible uses of municipal advisory client lists and case studies by municipal advisors under Rule G-40.
See below for a full list of available resources related to Rules G-21 and G-40.
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Compliance Frequently Asked Questions (FAQs)
Get answers to commonly asked questions about compliance with MSRB rules.
Q: What is a dealer’s obligation under MSRB Rule G-18, on best execution, when there is limited pricing information available about a municipal security?
A: The absence or limitation of accessible quotations or pricing information is not uncommon for many municipal securities, but it does not relieve a dealer of its best-execution obligations. Indeed, Supplementary Material .06 to Rule G-18 specifically requires dealers to have written policies and procedures in place that address how the dealer will make its best-execution determinations with respect to securities with limited quotations or pricing information, and address when those policies and procedures are triggered by establishing what it means to have limited quotations or pricing information. See Rule G-18 Interpretive Guidance.
Compliance Tip
The Municipal Securities Rulemaking Board (MSRB) has enhanced its Municipal Advisor Registrants webpage to include links to required municipal advisor firm disclosures made to the U.S. Securities and Exchange Commission (SEC).
Municipal advisors may wish to review their SEC filings to ensure that the information being made accessible on the MSRB website is complete and accurate.
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Compliance Calendar
Dealers and municipal advisors should note the following key compliance dates and deadlines relevant through the third quarter of calendar year 2019.
July 31, 2019: Political Contributions Quarterly Disclosures (MA/BD)
MSRB-regulated entities must submit information to the MSRB through Form G-37 on their municipal securities and advisory business and related political contributions to municipal entity officials, state and local political parties, and bond ballot campaigns. Read instructions for Form G-37.
August 19, 2019: Comments Due on MSRB Rule G-23 on Activities of Dealers Acting as Financial Advisors (MA/BD)
The MSRB is seeking comment on MSRB Rule G-23, on activities of financial advisors, in connection with its ongoing retrospective review of MSRB rules and guidance. This request for comment is intended to elicit input on whether Rule G-23’s requirements on brokers, dealers and municipal securities dealers acting in a financial advisor capacity to issuers with respect to the issuance of municipal securities, and related MSRB interpretive guidance, continue to achieve the rule’s intended purpose and reflect current practices in the municipal securities market. Read the notice.
August 23, 2019: Effective Date for Advertising Rules (MA/BD)
Effective date for the amendments to Rule G-21, on advertising by brokers, dealers and municipal securities dealers and new Rule G-40, on advertising by municipal advisors. Read the notice.
Events and Virtual Workshops
To submit questions in advance of any workshop or to suggest topics for future workshops, email [email protected].
MSRB Rule G-40: Advertising by Municipal Advisors - Part II of II
June 27, 2019, 3:00 PM - 4:00 PM ET
During this free virtual compliance workshop, staff from the MSRB will provide information on new Rule G-40, on advertising by municipal advisors effective Friday, August 23, 2019. This workshop will address frequently asked questions regarding the new rule and the content standards of advertisements. This is the second of a two-part compliance workshop on municipal advisor advertising. View Part I of II on-demand here.
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Enforcement Insight
This periodic feature summarizes a recent enforcement matter brought by an examining authority, which includes the SEC, FINRA or applicable bank regulator, relevant to the municipal securities market. Enforcement matters can, when applicable, inform firms and help identify potential compliance risks. Read about the MSRB’s regulatory coordination and enforcement support.
On April 11, 2019, the U.S. Securities and Exchange Commission (SEC) issued an order, In the Matter of Clear Scope Advisors, Inc. (the”Order”) in a settled administrative proceeding against a registered municipal advisor. Clear Scope Advisors, Inc. (CSA) had registered with the SEC and the Municipal Securities Rulemaking Board (MSRB) in 2010 and had filed a SEC Form MA-I with the SEC for its sole municipal advisor professional (MA Professional).
MSRB Rules G-2 and G-3 provide that no municipal advisor shall engage in municipal advisory activities, unless such municipal advisor and every natural person associated with such municipal advisor are qualified in accordance with the rules of the MSRB. Specifically, Rule G-3 requires individuals that engage in municipal advisory activities on behalf of a municipal advisor firm, as well as those individuals who engage in the management, direction or supervision of the municipal advisory activities of the municipal advisor firm or its associated persons (MA professionals) must take and pass the MSRB’s Municipal Advisor Representative Qualification Examination (Series 50 Exam). When the MSRB launched the permanent Series 50 Exam in 2016, firms were given a one-year grace period, until September 12, 2017, to have their MA Professionals take and pass the Series 50 Exam. The MSRB conducted outreach to municipal advisors before the grace period ended, including reminding firms that MA professionals would not be able to continue to engage in municipal advisory activities after September 12, 2017 if they had not taken and passed the Series 50 Exam.
While CSA received several notifications before the September 12, 2017 deadline, CSA and their MA professional failed to meet the applicable professional qualification standards under Rules G-2 and G-3 until May 16, 2018. During this eight-month period, at which time the MA professional had not taken and passed the Series 50 Exam, CSA provided advisory services to two separate schools, including advising on the price of the potential bond offerings, participating in weekly conference calls with the other professionals engaged to work on the bond issuances, participating in investor presentations and participating in a ratings call. In addition, CSA failed to amend its Form MA-I for the MA professional to reflect that, at that time, the MA professional was no longer permitted to engage in municipal advisory services on behalf of CSA because the MA professional had not passed the Series 50 Exam.
The Order censured and enjoined the firm from committing or causing any future violation of Section 15B(c)(1) of the Securities Exchange Act of 1934 (Exchange Act), Exchange Act Rule 15Ba1-5, and MSRB Rules G-2 and G-3. The firm was also ordered to pay disgorgement of $20,000, prejudgment interest of $678.64, and a fine of $5,000, of which $1,250 is related to MSRB rule violations.
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Regulatory Roundup
Keep up with current requests for comment, updated regulatory requirements and upcoming rule filings, and learn about opportunities to provide input at various stages of the MSRB’s rulemaking process.
August 19, 2019: Request for Comment Due on MSRB Rule G-23 on Activities of Dealers Acting as Financial Advisors
June 6, 2019: MSRB Response to Comments on SR-MSRB-2019-07; Proposed Rule Change to Amend Rules G-11 and G-32 and Form G-32 Regarding a Collection of Data Elements Provided in Electronic Format to the EMMA Dataport System in Connection With Primary Offerings
May 28, 2019: Request for Comment Closed on MSRB Rule G-34 Obligation of Municipal Advisors to Apply for CUSIP Numbers When Advising on Competitive Sales
May 14, 2019: SEC Request for Extension of Time on Proposed Rule Change to Amend Rules G-11 and G-32 and Form G-32 Regarding a Collection of Data Elements Provided in Electronic Format to the EMMA Dataport System in Connection with Primary Offerings
May 6, 2019: Federal Register Notice of Immediately Effective Rule Change to Eliminate MSRB Rule G-29, on Availability of Board Rules
April 30, 2019: SEC Approval Order on Proposed Rule Change to Eliminate MSRB Rule G-29, on Availability of Board Rules
April 26, 2019: Federal Register Notice of Immediately Effective Rule Change to Amend Certain MSRB Rules to Update Cross-References to the Rules of Other Self-Regulatory Organizations, to Amend Rules with Grammatical or Typographical Errors and to Delete Certain Sections of MSRB Rules that are Outdated or No Longer Relevant
April 22, 2019: SEC Approval Order on Proposed Rule Change to Amend Certain MSRB Rules to Update Cross-References to the Rules of Other Self-Regulatory Organizations, to Amend Rules with Grammatical or Typographical Errors and to Delete Certain Sections of MSRB Rules that are Outdated or No Longer Relevant
April 19, 2019: SEC Filing on Proposed Rule Change to Eliminate MSRB Rule G-29, on Availability of Board Rules
April 12, 2019: Federal Register Notice of Filing on Proposed Rule Change to Amend Rules G-11 and G-32 and Form G-32 Regarding a Collection of Data Elements Provided in Electronic Format to the EMMA Dataport System in Connection with Primary Offerings
April 10, 2019: SEC Filing on Proposed Rule Change to Amend Certain MSRB Rules to Update Cross-References to the Rules of Other Self-Regulatory Organizations, to Amend Rules with Grammatical or Typographical Errors and to Delete Certain Sections of MSRB Rules that are Outdated or No Longer Relevant
April 2, 2019: SEC Filing on Proposed Rule Change to Amend Rules G-11 and G-32 and Form G-32 Regarding a Collection of Data Elements Provided in Electronic Format to the EMMA Dataport System in Connection with Primary Offerings
March 28, 2019: Federal Register Notice of Immediately Effective Rule Change to Amend MSRB Rule A-13 to Temporarily Reduce the Rate of Assessment for the MSRB's Underwriting, Transaction and Technology Fees on Brokers, Dealers and Municipal Securities Dealers
March 22, 2019: SEC Approval Order on Proposed Rule Change to Amend MSRB Rule A-13 to Temporarily Reduce the Rate of Assessment for the MSRB's Underwriting, Transaction and Technology Fees on Brokers, Dealers and Municipal Securities Dealers
March 14, 2019: SEC Filing on Proposed Rule Change to Amend MSRB Rule A-13 to Temporarily Reduce the Rate of Assessment for the MSRB's Underwriting, Transaction and Technology Fees on Brokers, Dealers and Municipal Securities Dealers
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