The Municipal Securities Rulemaking Board unveiled an online toolkit for muni issuers Monday, telling state and local governments that underwriters, unlike muni advisors, do not have a fiduciary duty to issuer clients.
The board’s move comes a few days after it filed with the Securities and Exchange Commission amendments to its proposed G-17 interpretive guidance for underwriters on fair dealing. That guidance would, for the first time, require underwriters to disclose that, unlike muni advisors, they do not have a fiduciary duty to issuers and would prohibit underwriters from telling issuers not to hire municipal advisors.
“This is the first time, in my knowledge, we’ve had a specific focus on providing these materials,” Lynnette Hotchkiss, the MSRB’s executive director, said in an interview. “This is the real basic stuff that we’re going to build upon.”
The toolkit features two videos and several fact sheets about the board and its EMMA website, and overviews of continuing disclosure. It also includes a video and a written summary called “Six Things to Know When Issuing Municipal Bonds.” The document and the video explain the roles of underwriters and financial advisors, as well as applicable MSRB rules.
For example, the document contains a paragraph stating that municipal advisors have a fiduciary duty to issuers and must put the issuer’s interests ahead of their own.
Similarly, the video says that, under MSRB rules, underwriters must provide accurate information to issuers and deal fairly with state and local governments. Muni advisors, the video also says, have a fiduciary duty to state and local government clients, but underwriters do not.
In an interview, Hotchkiss and Ritta McLaughlin, the MSRB’s senior director of market leadership, said the board developed the materials to educate small and infrequent issuers about the muni market after consulting with issuers and issuer groups, including the Government Finance Officers Association.
According to McLaughlin, the board sought to create “user-friendly” resources.
An issuer group and a dealer group welcomed the board’s efforts.
“The educational materials that the MSRB has developed — and will continue to develop — are a tremendous resource for muni issuers,” Susan Gaffney, director of GFOA’s federal liaison center, wrote in an email. “We will cite the toolkit in all of the relevant GFOA best practices, and we look forward to working with the MSRB to send out information encouraging our members to visit the EMMA website and use these important new tools.”
The toolkit “will be a help especially to smaller and infrequent issuers,” William Daly, senior vice president of government relations at the Bond Dealers of America, wrote in an email.
Separately, on Monday the board issued a notice reminding broker-dealers that effective that day, individuals who engage in muni activities other than buying and selling for customers — such as underwriting, trading and investment banking — must pass the Series 52 exam, the qualifications exam for muni securities representatives.
Previously, an individual could qualify to become a muni securities representative by taking the Series 7, which is more general. The board’s move comes after the Financial Industry Regulatory Authority pared the focus of the Series 7, de-emphasizing munis and MSRB rules.
Individuals who passed the Series 7 before Nov. 7, without letting their licenses lapse, would not be required to pass the Series 52, the board said.