What MSRB says about municipal advisor advertising

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WASHINGTON -- The Municipal Securities Rulemaking Board on Monday released final and draft guidance on issues related to its G-40 advertising rules for municipal advisors.

The final guidance reflects the public comments the MSRB received on municipal advisory client lists and case studies in MA advertising materials under G-40, according to the board.

The draft compliance paper is on the application of content standards for MA advertisements under G-40 and the MSRB is seeking public comments on that paper by Oct. 17.

“For the last nine months we have taken the opportunity to solicit public comment on draft guidance," said MSRB President and CEO Lynnette Kelly. "We recognize the value of industry and public input and will continue to seek it to the extent possible."

MSRB’s new Rule G-40 on MA advertising as well as changes to its Rule G-21 on advertising in general, were approved by the Securities and Exchange Commission on May 7 amid complaints from muni market groups and are to take effect on Feb. 7 of next year.

Rule G-40 requires MA principals to approve in writing MA advertisements before their first use. The rules also: define key terms, including “advertisement;” provide content standards; and provide general standards such as that an MA shall not publish or disseminate an advertisement that it knows or has reason to know contains an untrue statement of material fact or is otherwise false or misleading.

MSRB has been developing guidance that it says was requested by market participants during the development of G-40 on three areas: the use of municipal advisory client lists and case studies; content standards for advertisements; and the use of social media by MAs as well as dealers.

The MSRB issued draft guidance in August on social media in the format of frequently-asked-questions and public comments on that were due Sept. 14.

On June 27, the board published draft guidance, also in an FAQ format, on potential permissible and impermissible uses of municipal advisory client lists and case studies in light of the prohibition on the use of testimonials in advertising under G-40. Dealer and MA groups in comments that were due on draft on July 27 said the guidance needed clarifications and did always reflect realistic scenarios.

The final guidance released today addresses some of those concerns and responds to several suggestions by commenters.

Asked for additional straightforward examples, the MSRB said it has added seven examples to illustrate the use of a client list or a case by an MA. Asked whether a response to a request for proposals would be an advertisement, the MSRB said an MA should review the entire response to determine whether it is an advertisement.

The MSRB was also asked about the use of advisory client lists and case studies in “pitch books” and the publication of tombstones promoting new muni issues.

The board said a “pitch” book would not be an advertisement if it is tailored and only distributed to an actual or potential MA client.

However, a single tombstone to promote the issuance of a new muni that the MA and underwriting syndicate jointly prepare, publish, and widely disseminate would be an advertisement, the MSRB said. If the tombstone only provides general factual information about the issuance of the munis, does not contain an endorsement from an MA client, and only identifies the MA, it would not run afoul of the testimonial ban.

The draft compliance paper on G-40’s content standards analyzes mock advertisements to provide guidance.

The content standards require, among other things, that an advertisement be based on the principles of fair dealing and good faith, be fair and balanced, and provide a sound basis for evaluating the muni security, produce or service. The advertisement also may not contain any false, exaggerated, unwarranted, promissory or misleading claims, the board said.

In its release on the draft guidance, the MSRB asks for comments on whether the mock advertisements are useful and whether they add to the understanding of G-40. The board also asks if other formats would be more helpful or if there are additional issues in the mock advertisements that need to be addressed.

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