Thanks to a Securities and Exchange Commission order issued Wednesday, some municipal market professionals will soon be able to work from their vacation homes or other non-primary residence locations for much longer than they had been allowed to previously.
The Sept. 16 order granted approval of a proposed rule change the Municipal Securities Rulemaking Board filed with the commission in late July to amend MSRB Rule G-27 on dealer supervision.
The MSRB received SEC approval to amend Rule G-27 to exclude certain public finance activities from the term "structuring of public offerings or private placements" as used within the rule, extend the length of the exclusion for non-primary residences from municipal branch office designation and make a technical update to the rule's title.
"We welcome the SEC's approval of the amendments to Rule G-27 as we continue the ongoing retrospective rule review process and look for ways to provide more flexibility in a changing work environment," Ernesto Lanza, the MSRB's chief regulatory and policy officer, said in a statement provided to The Bond Buyer on Wednesday.
The rule amendments extend the exclusion within the rule for non-primary residences used for municipal securities activities from municipal branch office designation from less than 30 business days per calendar year to up to 90 business days per calendar year. The compliance date for the rule amendments is Jan. 1, 2027, a Sept. 16 MSRB notice said.
"This increase from less than 30 business days per calendar year to up to 90 business days per calendar year will provide dealers with greater latitude in permitting their associated persons to work at non-primary residential locations, such as a vacation home or the home of a partner or family member," the MSRB's notice said.
A municipal branch office is defined within the rule "as any location where one or more associated persons of a dealer regularly conducts the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of any municipal security, or is held out as such," with certain exclusions.
One such exclusion from the municipal branch office definition is for any location other than a primary residence that is used for municipal securities activities for a limited number of business days per calendar year assuming certain conditions are met, the notice said.
The MSRB in its notice reminded dealers that the new limit of up to 90 business days per year "is optional for dealers, and that dealers should conduct their own risk analysis to determine if this type of remote work, and the 90-business day limit, is appropriate for their business model, supervisory structure and overarching supervisory system."
In its July 27 filing with the SEC, the MSRB said additional compliance and regulatory obligations exist for locations classified as an office of municipal supervisory jurisdiction or a municipal branch office. MSRB Rule G-27 requires dealers to inspect every OMSJ and supervisory municipal branch office at least annually and inspect every non-supervisory municipal branch office at least every three years.
Rule G-27 requires dealers to designate any office where certain activities occur as an OMSJ. Those activities include "the activity of 'structuring of public offerings or private placements,'" the MSRB's Sept. 16 notice said.
"The meaning of the term 'structuring of public offerings or private placements' has never been publicly defined by the MSRB," the notice said.
Therefore, the rule amendments address the definition of the term by adding new Supplementary Material .06 and .07 to Rule G-27, the MSRB's notice said.
New Supplementary Material .06 specifies that a location would not meet the definition of an OMSJ under the rule solely by engaging in excluded public finance activities — as defined in new Supplementary Material .07 – as long as the location doesn't engage in any other activities that would qualify the office as an OMSJ.
New Supplementary Material .07 defines "excluded public finance activities" as activities linked to the structuring of public offerings or private placements. Excluded activities include but aren't limited to "debt modeling, financial analysis, number running, and the solicitation of issuers or obligated persons for the dealer's investment banking services in connection with municipal securities," the notice said.
"Finally, new Supplementary Material .07 expressly states that the final approval of a public offering or private placement transaction would be explicitly outside of the scope and definition of excluded public finance activities, since such final approval of a public offering or private placement transaction is deemed structuring for purposes of the OMSJ definition, pursuant to Rule G-27(g)(i)," the MSRB's notice said.
