SEC approves changes to guidance, cutting down duplicate disclosure

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The Securities and Exchange Commission approved changes to Municipal Securities Rulemaking Board fair dealing rule interpretive guidance, making a reality the MSRB’s goal to slim down and eliminate certain duplicative disclosures.

The SEC approved amendments to Rule G-17’s 2012 interpretive guidance last week after first seeking public comment over a year ago. The approval will enact changes that will reduce the volume of disclosures issuers receive from underwriters at the beginning of a deal, which many in the market agreed had become too voluminous and wordy to be useful.

“Feedback from stakeholders made it clear that this guidance, originally established in 2012, was a prime candidate for retrospective rule review,” said Gail Marshall, MSRB chief compliance officer. “Through multiple rounds of public comment, we have refined the guidance so that it more efficiently achieves the objective of providing issuers with fair and complete information when working with underwriters on a transaction.”

Changes to the guidance will cut down on duplicative disclosures through concentrating some responsibilities with the sole underwriter or syndicate manager.

One of those changes will be to assign the syndicate manager the fair dealing obligation of delivering standard disclosures and eliminate the fair dealing obligation of other syndicate members to make that same disclosure.

The MSRB will also require an underwriter in a syndicate making recommendations to an issuer to provide transaction-specific disclosures in complex financing structures. In the MSRB’s original proposal, only the syndicate manager would be required to make those disclosures.

Changes to the guidance will also require the sole underwriter or syndicate manager to highlight the fiduciary obligation of a municipal advisor. The guidance incorporates a new standard disclosure, added after feedback from issuers, that “the issuer may choose to engage the services of a municipal advisor with a fiduciary obligation to represent the issuer’s interest in the transaction.”

The new disclosure will require underwriters to inform issuers that they could get advice from an MA, instead of relying solely on the underwriter.

The MSRB also excluded underwriters of 529 and ABLE plans from delivering standard disclosures in the guidance, but made clear that underwriters would still have a fair dealing obligation to issuers.

In an August 2019 letter, the Investment Company Institute asked for the guidance to be better tailored to 529 savings plans.

A 529 plan is similar to a mutual fund in that it has a single underwriter, and offerings of municipal fund securities are continuous and not for a fixed amount as in a bond offering.

“We continue to be pleased that the MSRB revised the proposed guidance to address our concerns with the original version,” Tamara Salmon, ICI associate general counsel, wrote in an email.

Changes to the new guidance will also mean a new “reasonably likely” standard to determine underwriters’ potential conflicts of interest.

The Securities Industry and Financial Markets Association had asked the MSRB to only include disclosures of actual conflicts of interests rather than those likely to become conflicts at a later date. The MSRB had said that the standard would still reduce a dealer’s burden by narrowing dealer-specific disclosures from all potential material conflicts.

The MSRB will announce the effective date of the revised guidance in a notice within 90 days after the SEC approval order is published in the Federal Register.

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Municipal disclosure Securities law Broker dealers Municipal advisors Primary bond market SEC MSRB SIFMA ICI Washington DC