WASHINGTON - The Municipal Securities Rulemaking Board filed amendments to its Rule G-23 with the Securities and Exchange Commission on Wednesday that would prohibit dealer-financial advisers from switching roles and becoming underwriters in the same muni transactions.
The board also filed interpretative guidance explaining when a dealer providing advice to an issuer would be considered to be acting as an underwriter rather than a financial adviser.
The SEC would have to seek public comments on the proposed amendments and approve them before they become effective. The MSRB proposed that the amended rule take effect for new muni issues six months after SEC approval.
“We have come to believe that the conflict of interest — whether actual or perceived — inherent in switching roles from financial adviser to underwriter is not in the best interest of the municipal market,” said MSRB executive director Lynnette Hotchkiss. “By eliminating the potential for role-switching, the MSRB is supporting an environment that will ensure the dealers operate with the highest professional standards when acting in either of these distinct roles.”
The proposal would prohibit a dealer that serves as an FA for a bond issue from serving as remarketing agent for the same issue. However, the dealer could serve as a successor remarketing agent for the issue if its financial advisory relationship with the issuer had been terminated for at least one year.
The MSRB said it will continue to monitor the new-issue market to see if the amended rule has adverse effects on small issuers, some of which complained that they could not afford to hire separate FAs and underwriters for deals.
