Why dealer, MA groups dislike MSRB advertising proposals

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PHOENIX - Dealer and municipal advisor groups are urging the Securities and Exchange Commission to reject both the Municipal Securities Rulemaking Board's proposed new rule restricting the advertising practices of MAs as well as its changes to an existing rule governing dealer advertising.

The Securities Industry and Financial Markets Association, Bond Dealers of America, and the National Association of Municipal Advisors voiced their disapproval in comment letters filed with the commission this week.

The MSRB filed the proposals -- amendments to G-21 for dealers and new Rule G-40 for MAs -- with the SEC in January after originally floating them in February 2017. If the filing is approved by the SEC, it would establish a set of rules for municipal advisor advertising as part of the MA regulatory framework the MSRB was tasked with creating after the Dodd-Frank Act.

SIFMA managing director and associate general counsel Leslie Norwood said that while her group appreciates the MSRB’s efforts to update its rules and to create an advertising rule that would apply to non-dealer MAs, the SEC should disapprove the proposal because it fails to harmonize MSRB rules with Financial Industry Regulatory Authority Rules and will create confusion and undue costs for firms.

Norwood told The Bond Buyer that SIFMA is “very disappointed” that the proposed amendments to Rule G-21, the dealer advertising rule, do not achieve the MSRB’s stated goal of harmonizing that rule with FINRA Rule 2210.

While FINRA’s rule creates different standards for institutional and retail communications, the MSRB’s proposal “continues to treat all advertisements as subject to one-size-fits-all pre-use approval by a principal, regardless of the audience,” Norwood wrote, suggesting that the MSRB should adopt the language used in the FINRA rule.

SIFMA also contends that the MSRB is taking the wrong approach in making firms registered as dealers and as MAs subject to both G-21 and the proposed G-40, while non-dealer MAs would be subject only to G-40. The group wants G-21 to apply to dealer advertising activity and G-40 to apply to MA advertising activity regardless of how a firm is registered. It also is urging that exceptions from the advertising rule be made for all issuer disclosure and offering documents, rather than just the few documents that are specifically exempted under the proposals.

The Bond Dealers of America also found fault with the MSRB’s attempt to harmonize with FINRA rules.

“If MSRB has a rule that applies different definitions and different sets of responsibilities to municipal securities and does not differentiate between communications sent to retail and institutional customers, it will have created a new and unnecessarily increased regulatory burden along with considerable confusion for broker-dealers,” wrote BDA chief executive officer Mike Nicholas. “With the lack of harmonization with FINRA Rule 2210, we underscore that the proposed rule change will require unnecessary and significant regulatory burdens for both dealers and municipal advisors alike.”

The National Association of Municipal Advisors has repeatedly denied that there is even a need for a Rule G-40, as the principles of fair dealing and good faith are already covered by the MSRB’s Rule G-17, which requires all regulated entities to deal fairly in their businesses.

In the event the G-40 is not withdrawn, NAMA executive director Susan Gaffney wrote, the proposal needs a lot of clarification and should allow MAs to use customer testimonials in their advertisements. As submitted, G-21 allows testimonials but G-40 does not. MAs could benefit greatly from MSRB guidance on how the rules apply to social media, Gaffney wrote, since many firms use social media but do not engage in traditional advertising.

“We call on the SEC to not approve proposed Rule G-40 until the rulemaking is further refined and clarified as described and is accompanied by interpretative guidance especially in areas related to advertising and the use of web sites and social media,” wrote Gaffney.

The MSRB has asked the effective date be nine months from approval. The SEC could approve the rules as submitted, or could require the MSRB to make changes before signing off on them.

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Securities law MSRB rules SIFMA NAMA BDA MSRB SEC Washington DC