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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.
Coming this Fall: Improved Data Collection
Process
for MSRB Form G-37
What’s Changing?
This fall, the MSRB is enhancing its electronic
Form G-37 to improve the overall data collection process. Among other things, the
changes will add definitions of key terms to the submission portal; will allow
multiple users at a regulated entity to enter and edit data, and save and
submit Form G-37; and eliminate duplication in the process for providing
information about municipal entities with which the regulated entity has
engaged in municipal securities business or municipal advisory business. These
changes will be reflected on Form G-37 in October 2018 and, beginning in
September, regulated entities will be notified about their ability to submit
test submissions to preview and test the new submission process. The MSRB is hosting a virtual compliance workshop on completing Form G-37 on September 14, 2018 (details below).
Compliance Tips for Form G-37 Submitters
As a reminder, dealers and municipal advisors must
submit a Form G-37 to the MSRB for a calendar quarter — even if they do not
have any reportable contributions for that quarter —unless they have a valid
Form G-37x on file. This means that if a firm engaged in any municipal
securities or municipal advisory business with a municipal entity, the
regulated entity must file a Form G-37 with the MSRB unless it has a valid Form
G-37x on file. When submitting Form G-37, remember:
- Only an
officer of the regulated entity may submit Forms G-37 and G-37x, and designated
officers must have access rights in MSRB Gateway to submit Form
G-37.
- Consult the text
of Rule
G-37 for definitions of terms found on Form G-37 to ensure the information submitted is accurate.
- The ability
to manually enter in the municipal entities with which a regulated entity has
engaged in business is an alternative to uploading the same information.
Regulated entities are not required to do both and also should not upload supporting
information (e.g., engagement
letters, etc.).
- In addition
to disclosing information about certain contributions to issuer officials and
state or local political parties, dealers and municipal advisors are required
to submit to the MSRB information about certain contributions to bond ballot
campaigns. See MSRB
Rule G-37(e) and associated
interpretive guidance to learn more the required disclosure.
Additional Resources
If
you have questions after consulting the submission manual and other resources,
contact MSRB Support at MSRBSupport@msrb.org or 202-838-1330.
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Compliance Concerns with Issuer-Directed
Charitable Donations
Dealers and municipal advisors are sometimes asked by issuers or
their officials to make donations to charitable organizations. As stated in a 1994
FAQ on MSRB Rule G-37, such donations are not “political contributions”
under Rule G-37. However, such donations may trigger obligations or
prohibitions under other rules.
MSRB Rule
G-17
requires dealers acting as underwriters in a negotiated underwriting to
disclose actual or potential material conflicts of interest with respect to the
issuance. It would be a violation of Rule G-17 for an underwriter to compensate
any undisclosed third party in order to secure municipal securities business.
If an underwriter makes a charitable donation for these purposes, the
underwriter must disclose the donation to the issuer as a conflict of interest.
MSRB Rule
G-42
generally prohibits municipal advisors from making payments for the purpose of
obtaining or retaining an engagement. If a municipal advisor makes a charitable
donation for these purposes, it would violate Rule G-42.
Finally, subject to exceptions, MSRB Rule
G-20 prohibits any regulated entity or its associated persons
from directly or indirectly giving any thing or service of value in excess of
$100 to a person if such payments or services are in relation to the municipal
securities or municipal advisory activities of the recipient’s employer. Where
a regulated entity makes a directed donation to a charity that is closely
aligned with the third party requesting the donation, it may be deemed an
indirect gift or gratuity under Rule G-20. If that person is an official of an
issuer and the donation is in excess of $100, the regulated entity may be in violation
of Rule G-20.
Compliance FAQs
Get answers to commonly asked questions about compliance with MSRB rules.
Q: Where
can I learn about the grounds for exemptive relief from the prohibition on
business under MSRB Rule G-37?
A: The
MSRB recently added to its website information regarding exemptive relief
under MSRB
Rule G-37, on political contributions and prohibitions on municipal
securities business and municipal advisory business. The information includes an overview of the grounds that may warrant an
exemption from the ban on business and a complete list of summaries of certain
decisions issued since 1996 in response to applications for an exemption. Find
this information in the Compliance Center on
MSRB.org and on the Compliance
Resources tab of Rule G-37.
Compliance Tip
Underwriters
are required to honor their commitments to the issuer with respect to priority
provisions in a negotiated primary offering of municipal securities. MSRB
Rule G-11 and related guidance issued in 2010
and 2012
address this obligation of underwriters, which applies equally to a sole
underwriter, a syndicate manager or a syndicate member. While an underwriter
must balance a number of competing interests in allocating securities in a
primary offering and be able to quickly determine when it is appropriate to
allocate away from the priority provisions, the underwriter must accept, give
priority to or allocate orders in conformance with the priority provisions, if
any, specified by the issuer. It would be inconsistent with the principles of
fair dealing for an underwriter, absent the issuer’s consent, to allocate
securities in a manner that was inconsistent with the priority provisions
specified by the issuer.
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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 2018.
 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.
July 16, 2018: Submit
Comments on Draft MSRB Rule G-36, on Discretionary Transactions in Customer
Accounts, and Related Draft Amendments (BD)
Share your input
regarding the MSRB’s draft proposal to re-establish a standalone rule governing
the handling of transactions in discretionary accounts—those customer accounts
in which a dealer is authorized to determine what municipal securities will be
purchased or sold. Read
the request for comment and submit your response by Monday, July 16, 2018.
July 31, 2018:
Quarterly Political Contribution Disclosures (MA/BD)
All dealers and
municipal advisors must submit disclosures to the MSRB, on a quarterly basis,
regarding political contributions under MSRB Rule G-37. The quarterly
disclosures must be submitted through Form G-37 by January 31, April 30, July
31 and October 31 of each year. See
MSRB Rule G-37.
August 6, 2018: Submit
Comments on Retrospective Review of 2012 Interpretive Notice Concerning the
Application of MSRB Rule G-17 to Underwriters of Municipal Securities (MA/BD)
Share your input
regarding the MSRB’s existing interpretive guidance that addresses the
application of the MSRB’s fair-dealing rule to underwriters of municipal
securities. The 2012 guidance established obligations for underwriters,
including requirements to disclose information to issuers about the nature of
their relationship and risks of transactions recommended by the underwriters,
among other information. Read
the request for comment and submit your response by Monday, August 6, 2018.
August
29, 2018: Form G-45 Submission Deadline for Period Ending June 30, 2018 (BD)
Underwriters of 529 savings plans or ABLE programs
must make certain submissions to the MSRB by August 29, 2018 for the period
ending June 30, 3018. Please note,
this is the first submission deadline for ABLE program reporting. Submissions
must be made through Form G-45, which was recently amended to 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. Refer to the manual and
specifications document for submitting Form G-45.
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 Upcoming Events
To submit questions in advance of any workshop or to suggest
topics for future workshops, email MSRBEvents@msrb.org.
Compliance Workshop on MSRB Rule G-17: Making Disclosures to Issuers
(MA/BD)
June
22, 2018, 12:30 p.m. – 1:30 p.m. ET
Register
to attend this free, virtual compliance workshop. MSRB staff will conduct
an in-depth discussion about guidance establishing underwriters’ obligations to make
disclosures to issuers under MSRB Rule G-17 on fair dealing. The workshop will
follow a question-and-answer format based on questions and suggestions from
regulated entities and other stakeholders.
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Compliance Workshop on MSRB Rule G-37:
Completing Form G-37 (MA/BD)
September 14, 2018, 12:30 – 1:30 p.m. ET
Register
to attend this
free, virtual compliance workshop. MSRB staff will conduct an in-depth
discussion about key provisions of MSRB
Rule G-37 on Political Contributions and Prohibitions on
Municipal Securities Business and Municipal Advisory Business related
to Form G-37. The workshop will follow a question-and-answer format based on questions and suggestions from regulated entities and other stakeholders.
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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) 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.
Municipal Advisors’ Fiduciary Duty: In May 2018, a municipal
advisor firm and its sole associated person, Mario Hinojosa, consented to an
SEC administrative proceeding to settle claims stemming from conduct related to
three bond offerings between January 2013 and December 2014. Mr. Hinojosa
established a municipal advisor firm and represented that the firm had
municipal finance experience in multiple municipal bond issuances and Mr.
Hinojosa had four years of municipal finance experience, but failed to disclose
that such experience was limited to administrative and paralegal services to
bond counsel for municipal bond issuances.
The SEC alleged that this conduct violated
Section 15B(a)(5) of the Securities Exchange Act of 1934, which prohibits any
fraudulent, deceptive, or manipulative act or practice while providing advice
to a municipal entity with respect to municipal financial products or the
issuance of municipal securities. In addition, the SEC alleged that the firm
and Mr. Hinojosa each willfully breached its fiduciary duty under the federal securities
laws and failed to deal fairly in violation of MSRB Rule G-17. The sanctions
imposed by the SEC against the firm and Mr. Hinojosa included disgorgement and civil
penalties totaling more than $562,120 and a bar against Mr. Hinojsa from
association with any broker, dealer, investment adviser, municipal securities
dealer, municipal advisor, transfer agent, or nationally recognized statistical
rating agency. Read more.
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Guidance: New and Updated FAQs on Confirmation Disclosure and Prevailing Market
Price (BD)
The MSRB provided
new and updated interpretive guidance on MSRB rules related to confirmation
disclosure and prevailing market price, which went into effect on May 14, 2018.
To facilitate compliance with the new requirements, in July 2017, the MSRB
published guidance in the form of answers to frequently asked questions (FAQs).
The updated FAQs address new questions and clarify existing FAQs. Read
the FAQs.
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Informational Notice: Investor Education Resources on New Mark-Up Disclosure Requirements (BD)
The MSRB provided new and updated investor
education resources to support investor awareness and understanding of
information about mark-up and mark-down disclosure. Municipal securities
dealers, particularly retail broker networks, that work with individual
investors may find the documents helpful as they adapt to the new disclosure
standard.
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Compliance Resource: Municipal
Advisor Outsourcing of Compliance Functions (MA)
This resource is designed to enhance
understanding of provisions related to outsourcing compliance
tasks, including the role of Chief Compliance Officer (CCO) under MSRB
Rule G-44, on supervisory and compliance obligations of municipal
advisors.
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Compliance Resource: Written
Supervisory Procedures for Municipal Advisors (MA)
This document is designed to assist municipal advisors in establishing
and maintaining written compliance policies and written supervisory procedures
(WSPs), under MSRB
Rule G-44. The template illustrates one possible format for
developing WSPs, and the checklist can be used as an aid in assessing whether
WSPs address the applicable rules.
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Issue Brief: Regulatory
Framework for Municipal Market Derivatives (MA/BD)
Read about the regulatory framework for swaps
and other derivatives under the Dodd-Frank Act, and where that framework
intersects with the MSRB’s regulatory framework for municipal advisors.
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RTRS Resources: Updated Manuals,
Specification Documents and Tutorial Videos for Real-Time Transaction Reporting
System (RTRS) (BD)
At the end of May, the MSRB launched enhancements to RTRS, including
the Data Subscription Service and the RTRS Web interface. RTRS users can access
updated tutorial videos, user manuals and specification documents on msrb.org.
Coming Soon
Compliance Resources:
- FAQs on MSRB Rule G-42 and the Making of Recommendations (MA)
- Compliance
Resource: Summary of Questions and Answers from Compliance Workshop on
Supervision for Small Municipal Advisors (MA)
- Guidance:
New MSRB Rule G-40 on Advertising by Municipal Advisors (MA)
- Compliance
Resource: Mergers and Acquisitions by MSRB-Registered Firms (MA/BD)
Professional
Qualification:
- Content Outline for the Municipal Advisor Principal
Qualification Examination (Series 54) (MA)
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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.
June 5, 2018: Request
for Comment: Retrospective Review of 2012 Interpretive Notice Concerning the
Application of MSRB Rule G-17 to Underwriters of Municipal Securities
May 16, 2018: Request
for Comment on Draft MSRB Rule G-36, on Discretionary Transactions in Customer Accounts,
and Related Draft Amendments
May 10, 2018: Federal
Register Notice of Approval for Proposed Rule Change Consisting of Amendments
to Rule G-21, on Advertising, Proposed New Rule G-40, on Advertising by
Municipal Advisors, and a Technical Amendment to Rule G-42, on Duties of
Non-Solicitor Municipal Advisors
May 10, 2018: SEC
Approval Order for Proposed Rule
Change to Revise the Language of Certain Administrative Rules to Continue to
Help Ensure that They Reflect MSRB Practices and Improve Consistency Among the
Rules
April 30, 2018: MSRB
Response to Comments during SEC Comment period for Proposed Rule Change
Consisting of Amendments to Rule G-21, on Advertising, Proposed New Rule G-40,
on Advertising by Municipal Advisors, and a Technical Amendment to Rule G-42,
on Duties of Non-Solicitor Municipal Advisors
April 18, 2018: Federal
Register Notice of Approval for Proposed Changes to the MSRB's Facility for the
Real-Time Transaction Reporting System
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