PHOENIX - The Municipal Securities Rulemaking Board has filed with the Securities and Exchange Commission a proposed rule change which the MSRB said would codify its longstanding interpretation that dealers are required to obtain CUSIP numbers for new issue securities sold in private placement transactions.
The MSRB filed the change to its Rule G-34 on obtaining CUSIP numbers Wednesday evening, setting the stage for the SEC to review it. The MSRB has contended that this change, which it has twice requested comment on, would primarily clarify existing requirements. Dealers, however, have contended that such a requirement is new. The MSRB is also proposing to require, for the first time, that non-dealer municipal advisors be subject to the CUSIP requirement for new issue securities that are sold in a competitive offering. The board agreed to file the amendment to G-34 during its final meeting of the fiscal year in July.
The rule change includes an exception for dealers and municipal advisors from the CUSIP number requirements. Under the exception, CUSIP numbers are not needed for direct purchases by banks, their non-dealer control affiliates and consortiums, where the dealer or municipal advisor reasonably believes the purchaser’s intent is to hold the securities to maturity.
Municipal advisors have also opposed requiring non-dealer MAs to be subject to the CUSIP requirement because, saying that to do so does not align with the regulatory structure or roles and responsibilities of MAs. The requirement would create confusion when a competitive deal doesn’t have an MA involved and blur the line between MA and dealer activity, the National Association of Municipal Advisors has told the MSRB.
The proposed rule change comes at a time of increasing scrutiny of muni debt not offered publicly, including private placements of bonds as well as bank loans. There has been confusion over private placements, with some market participants operating under the belief that CUSIP numbering is contingent on the underwriter’s intent to distribute the new issuance. The MSRB has publicly said that the term “underwriter” covers placement agents in the context of G-34, and that private placements are generally subject to the rule.
The board requested in its filing that the revised rule take effect sixth months from the date of SEC approval. The SEC will offer another public commentary period, and then can choose whether to reject the change, to approve it as submitted, or to require the MSRB to amend its proposal.