SIFMA preps underwriters for changes in fair dealing rule guidance

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The Securities Industry and Financial Markets Association released updated model documents to help dealers comply with changing guidance on decreasing duplicative disclosures in response to revised Municipal Securities Rulemaking Board guidance on Rule G-17.

“In the spirit of the revised guidance, the updated documents are designed to streamline the disclosures made to issuers to more narrowly focus on the risks and conflicts most relevant to a given transaction,” said Bernard Canepa, vice president and assistant general counsel at SIFMA. “The updated documents also incorporate new requirements of, and clarifications to, the revised guidance.”

The effective date for changes to a fair dealing rule were postponed due to the pandemic, which was appreciated given burdens dealers are facing due to the virus, said Leslie Norwood, SIFMA's managing director, associate general counsel.

The Securities and Exchange Commission approved amendments to the MSRB's fair dealing Rule G-17’s 2012 interpretive guidance in November. Changes 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.

Due to the coronavirus, the compliance date for the updated interpretive guidance has been pushed to March 31, 2021 from Nov. 30, 2020.

“The delay in the effective date for the rule amendments is appreciated,” said Leslie Norwood, SIFMA’s managing director, associate general counsel. “Our members have been singularly focused on the market events, the market dislocation and the other burdens of the pandemic."

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

One of the approved changes was 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.

SIFMA released two new documents on Wednesday — the model sole or senior managing underwriter’s letter and the model co-managing underwriter’s letter.

The two new documents reflect the senior managing underwriter’s role to make standard disclosures as well as its own dealer transaction specific disclosures, Canepa said.

“This structure reflects that the senior managing underwriter has to make the standard disclosures now and its own dealer transaction-specific disclosures, and then the co-manager would make their own disclosures as well,” Canepa said. “So this structure is in line with the new guidance to streamline or reduce the amount of information that issuers are getting.”

Standard disclosures will now be in the senior managing underwriter’s letter, not in the co-manager’s letter, Canepa said. The co-manager’s letter will now only disclose dealer or transaction-specific disclosures.

“We tried to draft in a clear and concise manner, as a requirement of the revised guidance,” Canepa said. “We presented the most relevant disclosures upfront, which is the dealer and transaction-specific disclosures, and then the standard disclosures were presented after in their own specific sections that are easily identifiable.”

Under the amended guidance, underwriters have to disclose potential material conflicts of interest that are “reasonably likely” to turn into actual ones. That disclosure was included in the model documents as well.

Last year, SIFMA had asked the MSRB to only include disclosures of actual conflicts of interest rather than those likely to become conflicts at a later date. The MSRB had said the “reasonably likely” standard would still reduce a dealer’s burden by narrowing dealer-specific disclosures from all potential material conflicts.

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