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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 provides 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.
Mark-Up Implementation and Resources for Dealers
The MSRB’s new requirements for dealers that will provide retail
investors with additional information about the cost of their municipal bond
transactions on customer confirmations
are scheduled to go into effect May 14, 2018, a date established in
November 2016 by an order from the Securities and Exchange Commission (SEC).
The disclosure of mark-up on a municipal bond is an important step in the evolving
transparency of the municipal securities market and is consistent with the
MSRB’s investor protection mandate. Similar disclosure requirements set by the
Financial Industry Regulatory Authority (FINRA) for other areas of the fixed
income markets take effect the same day.
The MSRB recognizes that implementing the mark-up rule poses challenges
for dealers and has responded by supporting market understanding of the rule’s
provisions and the technical aspects of implementation, including methods of
calculating prevailing market price. In July 2017, the MSRB published initial
implementation guidance on the amendments to MSRB Rules G-15
and G-30
related to mark-up disclosure and in November 2017 held an implementation forum
to further support understanding of and compliance with the requirements. In
February 2018, the MSRB made available an online course for dealers that
focuses on applying the mark-up rule to real-world scenarios. The course is
part of the MSRB’s MuniEdPro® catalog
and is available for free through the rule’s implementation date.
During the
implementation period, the MSRB has worked to address dealers’ questions and is
finalizing, with the SEC and FINRA, another set of implementation FAQs that
respond to the most common questions received from dealers and vendors.
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Compliance FAQs
Get answers to commonly asked questions about compliance with MSRB rules.
Q: How
can municipal advisors distinguish between providing “advice” and
“recommendations” for purposes of compliance with MSRB Rule G-42?
A: The
MSRB has received many questions from municipal advisors on the topic of advice
versus recommendations under MSRB Rule G-42. To enhance understanding of the difference
between these two activities and compliance with the rule’s provisions, the
MSRB developed a draft compliance resource that addresses frequently asked
questions (FAQs) and illustrates the application of the rule in scenarios
municipal advisors may encounter. Municipal advisors are encouraged to provide
feedback on the draft FAQs and scenarios by April 16, 2018 in advance of the
publication of a final document. Read the request for comment. The draft FAQs are not meant to be
interpretive guidance and all proposed answers are derived directly from the
rulemaking record. Watch a recording of the MSRB’s
Compliance Workshop: MSRB Rule G-42 Advice and Recommendations.
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Compliance Calendar
Dealers and municipal advisors should note the following key compliance dates and deadlines relevant through the second quarter of calendar year 2018.
 April 23, 2018: Annual Certification of
Supervisory and Compliance Procedures (MA)
Effective April 23, 2016, municipal advisor firms must, on an annual basis,
complete a written certification that the municipal advisor has in place
processes to establish, maintain, review, test and modify written compliance
policies and written supervisory procedures designated to achieve compliance
with applicable rules. See MSRB Rule G-44(d).
April 30, 2018: 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.
April 30, 2018: Annual Municipal
Advisor Professional Fee (MA)
Payment is due by April 30 for the MSRB’s municipal advisor professional fee,
which is equal to $500 per associated person who is qualified as a municipal
advisor representative and for whom the firm has a Form MA-I on file with the
SEC as of January 31 of each year. Invoices are sent the first week of April. See MSRB Rule A-11.
May 14, 2018: New Mark-Up Disclosure
and Prevailing Market Price Requirements (BD)
Effective date for
new mark-up disclosure requirements under Rule G-15 and the determination of prevailing
market price under Rule G-30. View the MSRB Notice.
May 31, 2018: Annual 529 Plan
Underwriting Fee (BD)
Payment is due by May 31, 2018 for the MSRB’s annual 529 plan underwriting fee,
which is $.005 per $1,000 of the total aggregate plan assets as of December 31
of each year as reported on MSRB Form G-45. Invoices are sent the first week of
May. See information on dealer assessments
and fees.
June 14, 2018: New Requirements on
CUSIP Numbers Effective (MA/BD)
Amended Rule G-34, on CUSIP numbers, reflects the
MSRB’s long-standing interpretation that municipal securities dealers acting as
placement agents in private placements of municipal securities, including
direct purchase transactions, must obtain a CUSIP number. In addition, the
amendments extend to non-dealer municipal advisors the requirement that a
municipal advisor obtain a CUSIP number when advising on a competitive transaction
in municipal securities. The amended rule is effective June 14, 2018. View the MSRB notice.
June 30, 2018: New Form G-45
Submission Requirements for 529 Plans/ABLE Programs (BD)
Amended requirements for data reporting take effect for underwriters of
programs established to implement the Stephen Beck, Jr., Achieving a Better
Life Experience Act of 2014 (ABLE) and to underwriters of 529 savings plans.
Under amended Form G-45, the MSRB will collect data about the transactional
fees primarily assessed by ABLE programs and about any variance in the account
maintenance fee due to the residency of the account owner. Access an updated manual and
specifications document for submitting Form G-45 that reflects the
amendments.
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 Upcoming Events
Compliance Workshop on MSRB Rule G-42: Documenting Your Relationships and Making Disclosures (MA)
March 9, 2018, 12:30 p.m. – 1:30 p.m. ET
Register to attend the second of a series of free virtual compliance workshops. MSRB staff will conduct an in-depth discussion about key provisions of MSRB Rule G-42 on Duties of Non-Solicitor Municipal Advisors related to relationship documentation and making disclosures. The workshop will follow a question-and-answer format based on questions and suggestions from regulated entities and other stakeholders. To submit questions in advance of any workshop or to suggest topics for future workshops, email MSRBEvents@msrb.org.
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Enforcement Insight
This
periodic feature summarizes a recent enforcement matter brought by an examining
authority, which includes the Securities and Exchange Commission (SEC), Financial
Industry Regulatory Authority (FINRA) and bank regulators. Enforcement matters
can, when applicable, inform firms and help identify potential compliance
risks. Read about the MSRB’s regulatory
coordination and enforcement support.
Municipal Advisors’ Fiduciary Duty: In August 2017, the SEC settled
claims against a municipal advisor and two of its associated persons for breach
of fiduciary duty under the federal securities laws. The municipal advisor
agreed to provide services to a municipal entity client that included reviewing
and commenting on all legal documents related to the issuance of the client’s
bonds and assist the client in complying with its continuing disclosure
agreements. The SEC alleged that the firm’s associated persons failed to advise
the client of its obligations under existing continuing disclosure agreements
and failed to ensure that the client complied with such agreements – services
that the firm specifically agreed to provide. The sanctions imposed by the SEC
included civil penalties against the firm and the two associated persons
totaling $66,000. Read more.
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Regulatory Reminder: MSRB Reminds Dealers of Existing
Guidance on Filtering of Bids and Offers (BD)
In light of developments in the use of ATSs and the role of broker’s brokers,
as well as almost two years of experience since the implementation of MSRB Rule
G-18, on best execution, which has been a regulatory and examination priority
for enforcement agencies, the MSRB published a regulatory reminder for dealers about previous guidance related to certain aspects
of the practice of filtering (or screening), which may have a negative impact
on dealers’ customers, particularly retail investors, and market efficiency.
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Compliance
Resource: Information on Exemptive Relief under
MSRB Rule G-37 (MA/BD)
This
page contains information to assist dealers and municipal advisors with guidance on the scope and limitations
of exemptive relief available under MSRB Rule G-37, including summaries of letters from FINRA that
respond to applications for exemption. The letters are intended to help dealers and municipal advisors understand the decision to grant or deny exemptive relief.
Coming Soon
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Compliance Resource: Written Supervisory Procedures for Municipal Advisors (MA)
This sample checklist and template will be designed to assist municipal advisors with developing their written procedures for supervision and compliance pursuant to MSRB Rule G-44, on Supervisory and Compliance Obligations for Municipal Advisors.
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