WASHINGTON — The Government Finance Officers Association has adopted revised best practices to adjust for a municipal advisor rule that takes effect on July 1.
The GFOA executive board approved 14 new best practices on Feb. 28, including revisions to recommendations on choosing the method of bond sale, selecting underwriters, and engaging municipal advisors. The GFOA also issued additional MA rule guidance for its members, who are in the midst of adjusting to the Securities and Exchange Commission's new regulatory regime that will alter the way they interact with broker-dealers.
The best practices address issues that will be affected by the final MA rules. For example, the best practice on underwriter selection makes reference to the underwriter engagement exemption in the municipal advisor rule, which states that a dealer firm does not have to register as an MA and can offer certain types of advice after the firm has been selected to underwrite a particular bond issue. Issuers doing a negotiated deal should consider signing "a non-binding letter of intent with the underwriter(s) at an earlier stage of the transaction to assist the underwriter in complying with certain provisions of the SEC's municipal advisor rule," that guidance states.
The best practices on selecting MAs recommend that issuers' request for proposals for advisory services include a component requiring prospective MAs to be registered with both the SEC and with the Municipal Securities Rulemaking Board. Any person or firm providing advisory services with respect to muni bonds or the investment of muni proceeds is required to register under the rule, which codifies provisions of the Dodd-Frank Act.
The best practices on method of sale state that issuers need to familiarize themselves with the MA rule so they can fully understand its implications on underwriter responsibility. Dealers and some sophisticated issuers have complained that the rule may not allow for the free exchange of information between investment bankers and issuers, though the rule provides exemptions for responses to requests for proposals and for cases in which issuers have hired their own MAs and said they will rely on their advice.
The GFOA also issued an updated information sheet on the rule, noting the extension of the effective date to July 1 from Jan. 13 and expanding on issues clarified when the SEC released further guidance in January. The document notes that RFPs must be for a specific objective, and must be sent to at least three firms. The GFOA guidance also alerts members that the independent MA exemption can be established on an issuer website if the issuer posts a statement to the effect that it has its own advisor and will rely on that MA's advice in order to establish an exemption for outside advice.
