MSRB Files Muni Adviser Rule Changes With SEC

WASHINGTON — The Municipal Securities Rulemaking Board on Thursday filed proposed rule changes with the Securities and Exchange Commission that would subject municipal advisers to similar restrictions on gifts and gratuities that already apply to broker-dealers.

The proposed amendments to the board’s Rule G-20 on gifts and gratuities would have to be approved by the SEC, which would first have to put them out for public comment. But the MSRB requested that the SEC not make them effective until after the commission defines the term municipal adviser in its final registration rules.

The Dodd-Frank Act gave the SEC and MSRB regulatory oversight over muni advisers, which are required to register with the commission and self-regulator. However, the SEC is still in the process of finalizing its registration rules and plans to define municipal advisers in those rules. The SEC’s definition will affect the MSRB’s rules. The board, which regulates broker-dealers, has been revising many of its rules so that they can be applied to muni advisers.

In its release on Thursday, the MSRB said: “The proposed amendments to Rule G-20 would help to ensure that engagements of municipal advisors, as well as engagements of dealers, other municipal advisors, and investment advisors for which municipal advisors serve as solicitors, are awarded on the basis of merit and not as a result of gifts made to employees controlling the award of such business.”

The proposed rule changes generally would prohibit muni advisers, in connection with their advisory activities, from directly or indirectly giving, or permitting the giving of, a gift of more than $100 per year to an issuer official or others if the gift relates to the activities of the issuer or other employer of a recipient. 

Exemptions from this prohibition would include occasional gifts of meals or tickets to theatrical, sporting or other entertainment hosted by the adviser, as well as legitimate business functions sponsored by the adviser that are recognized by the Internal Revenue Service as deductible business expenses.

The proposed rule changes also would permit advisors to contract with others for employment or compensation for services as long as there were written agreements beforehand.

The MSRB did not exempt certain promotional gifts from the gift prohibition, saying these will fall under the rules and guidance of the NASD, now Financial Industry Regulatory Authority. 

The board also proposed amendments to its Rule G-8 to require muni advisers to create and maintain records of gifts, as well as its Rule G-9, which would require advisors to maintain such records for at least six years.

The rule changes filed with the SEC differ from an earlier proposal the board floated in February by referring to “gifts” rather than “payments” so that it is clear the restrictions do not apply to advisers’ expenses such as salaries or rent.

One muni adviser had complained that the earlier version, which had prohibited muni advisers them from making certain “payments ... in relation to [their] municipal advisory activities” could be interpreted broadly to cover, not just salaries and rent, but also firms’ market data and software.

Other muni advisers had complained the rule changes would not go far enough by permitting advisors “occasional gifts.” Market participants in the past have made the same complaints about this exception in the board’s gift rules that pertain to broker-dealers.

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Washington
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