The Securities and Exchange Commission last week approved a Municipal Securities Rulemaking Board proposal to extend its Rules G-17 on fair dealing and G-5 on disciplinary actions to muni advisers.
The fair-dealing rule, which previously only applied to muni dealers, prohibits advisers from engaging in any deceptive, dishonest or unfair practices.
Meanwhile, the extension of the disciplinary rule requires advisers to abide by any penalties imposed on them by the SEC for breaking MSRB rules.
“The MSRB’s fair-dealing rule is an essential rule of conduct for protecting investors in municipal securities and the municipal entities that issue them,” said MSRB executive director Lynnette Hotchkiss. “We are pleased that we now have this fundamental rule in place.”
Muni advisers became subject to SEC registration and MSRB oversight beginning Oct. 1, under provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Also last week, the retiring chairman of the Senate Banking Committee, Christopher Dodd of Connecticut, entered testimony into the Congressional Record praising the MSRB and Dodd-Frank’s expansion of the board’s authority to include advisers.
He noted the new law contained limited exceptions, including one for “commodity trading advisers” who provide swap advice to municipal borrowers and will be under the oversight of the Commodity Futures Trading Commission instead of the MSRB.
Dodd said he does not want two sets of rules for the same municipal bond transactions.
“I expect that the regulators of municipal swap advisers would adopt rules governing advisory practices that are consistent with each other as well as relevant and appropriate for the municipal markets,” Dodd said.
“Thus, municipal swap advisers would be subject to practice rules embodying common principles, since they have the same types of clients,” he added.
