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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.
Compliance in Focus: Responding to COVID-19
By Donna Simonetti, MSRB Board Member and Chair of the Compliance Advisory Group
All organizations – the MSRB included – have had to adjust their operations as a result of stay-at-home orders designed to slow the spread of COVID-19. Effective municipal market regulation requires flexibility in times of crisis, while holding firm to the principles of investor protection and market transparency that ensure a fair and efficient municipal market. The MSRB sought input from our Compliance Advisory Group and other market stakeholders to identify opportunities to provide targeted, temporary regulatory relief that would allow MSRB-regulated entities to prioritize resources toward meeting the needs of their employees and clients during the pandemic.
The MSRB’s temporary regulatory relief, which is detailed in MSRB Notice 2020-09, provides an extension of time for:
- Completing certain supervisory functions,
- Completing certain professional qualification and continuing education requirements, and
- Preparing to comply with recently amended fair-dealing guidance and an updated primary offering disclosure form.
Additionally, the MSRB is temporarily waiving late fees for any registration, annual and market activity-based fees billed for the period of March 1, 2020 to July 31, 2020 under MSRB Rules A-11, A-12 and A-13.
The MSRB quickly jumped into action at the onset of the COVID-19 outbreak by suspending price variance alerts for dealers, extending the comment deadline on request for comment on proposed governance enhancements and reminding regulated entities of application of supervisory requirements in light of coronavirus.
The MSRB has created a dedicated COVID-19 information page and has begun publishing a daily Municipal Securities Market Trading Summary and weekly Municipal Securities Market COVID-19-Related Disclosure Summary based on public filings made to the MSRB’s free Electronic Municipal Market Access (EMMA®) website.
Donna Simonetti is a member of the Board of Directors of MSRB and serves on the Steering Committee, the CEO Search Special Committee and the Governance Review Special Committee. With a deep background in creating a culture of compliance at regulated firms prior to her retirement, Donna is the only former Chief Municipal Compliance Officer to serve on the Board. Her perspective is unique among public members on the Board, most of whom represent investors and issuers, as well as academic institutions and other non-regulated organizations. Donna has served as Board liaison to the Board’s Compliance Advisory Group (CAG) since its creation in FY 2018. CAG advances the Board’s strategic focus on facilitating compliance by providing input to the Board on the development of compliance resources and tools to assist regulated entities with meeting their important regulatory obligations to investors, issuers and the public interest.
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Compliance Frequently Asked Questions (FAQs)
Get answers to commonly asked questions about compliance with MSRB rules.
Q: After a position has been exited from Continuous Net Settlement (CNS) by the Depository Trust & Clearing Corporation (DTCC), in order to resolve an inter-dealer fail, what is the resulting time period for completing a close out?
A: Pursuant to Rule G-12(h), on close outs, an inter-dealer fail must be resolved within 10 calendar days of the purchasing dealer’s original settlement date. The buyer has the option to grant the seller a one-time 10-calendar-day extension. Hence, inter-dealer fails must be closed out in a maximum of 20 calendar days after the purchasing dealer’s original settlement date notwithstanding the date a position is exited from CNS.
Read the MSRB’s FAQs resource regarding MSRB Rule G-12 on close-outs.
Compliance Tip: Don’t Forget Your Time of Trade Disclosures!
Does your firm have a process for calculating market discount to see if the De Minimis Rule applies for a customer’s trade?
Bonds with a de minimis amount of market discount are subject to more favorable tax treatment than bonds with a non-de minimis amount of market discount. Under MSRB Rule G-47, which requires brokers, dealers and municipal securities dealers to disclose to their customers all material information known about the transaction, this discount may be considered to be material.
Read the IRS Investment Income and Expenses publication for additional information.
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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 2020.
April 29, 2020: RFC on Draft Amendments to MSRB Rule A-3 (MA/BD)
The MSRB seeks comment from interested persons on draft amendments to MSRB Rule A-3, on membership on the board, designed to improve Board governance. The amendments would tighten the independence standard required of public representatives, reduce the size of the Board, impose a limit on the number of years a Board member may serve, require that Board committees responsible for assisting the Board in overseeing critical governance functions be led by public representatives, and make certain other changes. Read the notice.
April 30, 2020: 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, 2020: Annual Municipal Advisor Professional Fee (MA)
Payment is due by April 30 for the MSRB’s municipal advisor professional fee, which is equal to $750 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. NOTE: The MSRB is temporarily suspending late fees for any fees billed for the period March 1, 2020 to July 31, 2020.
May 31, 2020: Annual 529 Plan Underwriting Fee (BD)
Payment is due by May 31, 2020 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. NOTE: The MSRB is temporarily suspending late fees for any fees billed for the period March 1, 2020 to July 31, 2020.
July 31, 2020: 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.
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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 March 25, 2020, FINRA and Ameritas Investment Company, LLC (the “Firm”) agreed to a Letter of Acceptance, Waiver, and Consent (“AWC”) for conduct that violated MSRB Rule G-23, regarding activities of financial advisors. Between February and August 2018, Ameritas provided underwriting services on three separate issuances of municipal securities for a municipal issuer (the “Issuer”) with which it had an active "blanket" financial advisory agreement. This conduct violated MSRB Rule G-23 because the dealer firm acted simultaneously as the Issuer's financial advisor and underwriter. The Firm agreed to accept a censure and a fine in the amount of $10,000.
Rule G-23 provides that a financial advisory relationship exists when a dealer enters into an agreement with an issuer to provide financial advisory services regarding the issuance of municipal securities. The rule specifically precludes a dealer with a financial advisory relationship for an issuance of municipal securities from acting as an underwriter for the same issuance (i.e., role switching). The MSRB has previously stated that role switching is such a significant conflict that it cannot be cured through disclosure and consent.
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