MSRB advertising guidance needs clarifications, groups say

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WASHINGTON - Dealers and municipal advisors think the Municipal Securities Rulemaking Board's guidance on new advertising requirements could use some clarifications and may not present realistic scenarios.

The Bond Dealers of America, Securities Industry and Financial Markets Association, and National Association of Municipal Advisors contributed those and other comments in response to the MSRB’s request last month for input on draft guidance to its new Rule G-40 governing muni advisor advertising.

Only 30 days were allowed for comment, which the MSRB said was to give the board time to produce two other sets of guidance before G-40 becomes effective on Feb. 7, 2019.

Only BDA, SIFMA, and NAMA submitted comments as of the July 27 due date.

The 13-page draft guidance, presented in a “frequently asked questions” format, focuses on the use of client lists and case studies in municipal advisor materials and whether such materials qualify as “advertisements” under the rule.

Whether material released by a municipal advisor qualifies as an advertisement is a significant issue because communications deemed to be advertisements are subject to restrictions, including a ban on the use of testimonials and a requirement that they not be misleading.

BDA complained that the hypothetical scenarios were not as helpful as they could have been because they are fairly obvious examples. In Example 1, for instance, a muni advisor posts a list of clients on its website including a quote from a client praising the services the municipality got from the advisor. The MSRB concluded that such an example would be an advertisement in violation of the rule for including a testimonial.

“We did not find that Example 1 presented a realistic fact pattern because a statement by a client that a municipal advisor ‘gave us great advice’ is a relatively obvious example of a testimonial, and municipal advisors are undoubtedly aware that the posting of the statement on a website makes it an advertisement,” BDA Chief Executive Officer Mike Nicholas wrote.

BDA further requested an FAQ on the use of “pitch books” to make clear that a book of promotional materials brought to a meeting with a prospective client would not be considered an advertisement under the rule so long as it was not sent to more than 25 persons within a period of 90 consecutive days.

Both BDA and SIFMA requested clarification on how the MSRB is defining a “form letter,” which the rule states is “any written letter or electronic mail message distributed to more than 25 persons within any period of 90 consecutive days.”

Both groups urged the MSRB to view responses to requests for proposals as a whole, rather than potentially treat sections of such responses as “form letters” (and therefore advertisements) if some part of an RFP response is used more widely and sent out to more than 25 recipients in 90 days.

“SIFMA believes that RFP responses that are tailored for issuers in any way should not be considered form letters, even if some of the language used therein has been used in other RFP responses,” wrote SIFMA managing director, associate general counsel, and co-head of munis Leslie Norwood.

SIFMA also asked for clarification on whether the publication of a “tombstone” promoting the underwriting of a single or series of related new issuances constitutes the publication of a “partial client list.” The MSRB guidance said that such partial lists can be allowed so long as they do not contain false information.

NAMA’s comments zeroed in on how the rule will apply to muni advisor websites, which the group said is probably the most crucial point facing muni advisors.

“The notice does a good job of discussing compliance considerations where client lists include testimonials and making clear that, generally speaking, client lists and case studies are not in and of themselves testimonials,” wrote NAMA Executive Director Susan Gaffney. “However, the notice does not clearly address scenarios where more straightforward client lists and case studies are used in advertisements, including on websites.”

The MSRB has said it hopes to release two additional rounds of G-40 guidance prior to the rule’s effective date.

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Securities law MSRB rules Financial regulations Primary bond market Broker dealers Municipal advisors MSRB SIFMA BDA NAMA Washington DC