SEC Sets Rule for Muni FAs

WASHINGTON — The Securities and Exchange Commission Thursday announced that it has adopted a temporary rule requiring municipal advisers to register with it by Oct. 1 to comply with the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act.

“We have acted expeditiously to create a temporary registration system to gather key data and provide transparency about municipal advisers,” SEC chairman Mary L. Schapiro said in a press release. “As a result, regulators, investors, and state and local governments will have a much better understanding of those who provide services in the municipal market.”

The temporary rule is effective Oct. 1 through Dec. 31, 2011. The SEC said it expects to implement a permanent rule later this year. The commission is seeking public comments on the temporary rule and asks that they be submitted within 30 days after the temporary rule is published in the Federal Register later this week or next week.

Robert Doty, president of Sacramento-based muni advisory firm American Governmental Financial Services Co., said while he has not studied the SEC release, he applauds the  action.

“I think the registration is an important step. I’ve been advocating it for years and I’m very pleased to see it’s here,” Doty said

Peter Shapiro, managing director of Swap Financial Group in South Orange, N.J., said, “We think the SEC is doing the right thing …. The steps they are taking will safeguard the market without imposing an overly burdensome set of procedures on municipal and swap advisers.”

The temporary rule applies to all municipal advisers who provide advice to state and local governments and other borrowers involved in the issuance of municipal securities. The advice may be related to derivatives, guaranteed investment contracts, investment strategies, or the issuance of municipal securities. It also applies to advisers who solicit business from a state or local government for a third party.

The SEC estimates about 1,000 municipal advisers will be required to complete the form. It said advisers should begin registering as soon as possible because of the fast-approaching Oct. 1 deadline. Under the new law, advisers must be registered by that date to continue their muni advisory services.

The commission has provided a temporary registration form for municipal advisers on its website at http://www.sec.gov/info/municipal/form_ma-t.htm.

The SEC is cautioning that advisers need to secure access credentials and establish an account before completing the registration form. The information filed by municipal advisers will be publicly available on the site by the Oct. 1 deadline, the agency said.

The temporary form requires advisers to provide their name, mailing address, phone, email, organization and employer ID number. It also requires they list a contact person, check a list of the activities they provide, and answer a yes-or-no list of questions about the disciplinary history of the adviser and all associated municipal adviser professionals.

The SEC said it is seeking the information “to better understand the activities of municipal advisers” and “to better plan and prepare for inspections and examinations” of advisers.

The temporary rule specifies who should sign the forms for the adviser. A muni adviser is defined as “a person (who is not a municipal entity or an employee of a municipal entity) that (i) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms and other similar matters .... or (ii) undertakes a solicitation of a municipal entity.”

The definition specifically includes financial advisers, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisers that provide municipal advisory services.

The definition does not include: a broker, dealer, or municipal securities dealer serving as an underwriter; a registered investment adviser registered under the Investment Advisers Act of 1940 or associated persons; commodity trading advisers registered under the Commodity Exchange Act or persons associated with them who provide advice related to swaps; attorneys offering legal advice or providing traditional services; or engineers providing advice.

The temporary rule also contains definitions of associated municipal adviser professionals and affiliates, as well as associated persons of a municipal adviser.

The rule defines a municipal entity as including a state or local government or political subdivision, a municipal corporate instrumentality, or any plan, program or pool of assets sponsored or established by the state or local political subdivision or municipal corporate instrumentality. Municipal financial products are defined as muni derivatives, GICs and investment strategies.

A solicitation of a municipal entity or obligated person is defined as “a direct or indirect communication with a municipal entity or obligated person made by a person, for direct or indirect compensation, on behalf of a broker, dealer, municipal securities dealer, municipal adviser, or investment adviser … that does not control, is not controlled by, or is not under common control with the person undertaking such solicitation for the purpose of obtaining or retaining an engagement.”

Steve Apfelbacher, president of both the National Association of Independent Public Finance Advisors and Ehlers & Associates in Roseville, Minn., said in a statement that NAIPFA understood the financial advisers of its member firms would need to register as municipal advisers.

“NAIPFA has forwarded this information on to our members,” he said. “We are prepared to work with the SEC and MRSB as other elements of registration are developed.”


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