Underwriters’ duties to state and local government muni issuers under G-17 on fair dealing


Role of the Underwriter/Conflicts of Interest: An underwriter is required to provide robust disclosures as to its role, its compensation and any actual or potential material conflicts of interest.


Representations to Issuers: All representations made by underwriters to state and local governments must be truthful and accurate and may not misrepresent or omit material facts.


Required Disclosures to Issuers: Underwriters of municipal bond issues that recommend complex municipal securities transactions or products are required to disclose all material financial risks and characteristics, incentives and conflicts of interest regarding the transactions or products.


Underwriter Duties in Connection with Issuer Disclosure Documents: An underwriter’s duty to have a reasonable basis for the representations it makes to a state or local government extends to representations made in connection with the preparation by the state or local government of its disclosure documents.


New Issue Pricing and Underwriter Compensation: The duty to treat state and local governments fairly includes an implied representation that the price an underwriter pays to a state or local government is fair and reasonable, taking into consideration all relevant factors.


Conflicts of Interest: Underwriters are required to disclose potential conflicts of interest, including the existence of third-party payments, values, or credits made or received, profit-sharing arrangements with investors, and the issuance or purchase of credit default swaps for which the underlying reference is the state or local government whose securities are being underwritten.


Retail Order Periods: Underwriters are reminded not to disregard the state and local governments’ rules for retail order periods by accepting or placing orders that do not satisfy the state and local governments’ definitions of “retail.”


Dealer Payments to Issuers: Certain lavish gifts and entertainment might be in violation of MSRB Rule G-17 and/or MSRB Rule G-20.


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