MSRB's Kelly: G-17 Guidance Causing Problems

The Municipal Securities Rulemaking Board’s interpretive guidance to its G-17 fair-dealing rule that took effect last year was “over-lawyered” and has caused widespread criticism from issuers of municipal bonds, the head of the Municipal Securities Rulemaking Board said Thursday.

“The people we seek most to protect, [issuers], are almost the ones [that have] complained the most loudly about not liking this rule,” MSRB executive director Lynnette Kelly told participants at an education and outreach event for market participants held in Dallas with the Municipal Advisory Council of Texas.

The meeting was webcast for market participants. The MSRB’s guidance to Rule G-17, was approved last May by the Securities and Exchange Commission. It requires underwriters  to make a number of disclosures to issuers.

Kelly stressed that the board “is committed to the principles outlined” in the guidance, which requires underwriters to disclose their role, the nature of their “arm’s length relationship,” conflicts of interest, risks of transactions and other information to issuers.

But, she said, “This has been over-lawyered.”

In recent months, many issuers have said the guidance has led underwriters to present them with multi-page disclosures, which can be difficult to understand.  Some issuers have been unsure of the legal implications of signing the documents.

The board spent the last several months looking at problems associated with the guidance and will release additional “guidance and clarification on the implication of these new disclosure practices,” said Kelly.

The board has said it plans to simplify and clarify the G-17 guidance in new or revised rules and has been collecting comments on the guidance from market participants.

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