MSRB Proposes and Requests Comment on Standard of Conduct Rule (with link to SIFMA Statement)

The MSRB proposed a standard of conduct rule regarding the duties of advisors when providing advice on municipal securities transactions and related products to their clients. In its statement, the MSRB explained that Dodd-Frank charged the MSRB with developing standards of conduct and qualification for municipal advisors to help safeguard the interests of state and local government that engage in municipal securities. The new draft of Rule G-42 ("Duties of Non-Solicitor Municipal Advisors") elaborates on the fiduciary duties of a municipal advisor towards its municipal entity clients. Additionally, the rule provides further guidance on topics including: aspects of the duty of care, aspects of the duty of loyalty, responsibilities if a client should pursue an action that is independent of or contrary to the advice provided by a municipal advisor, limitations of the scope of the municipal advisory engagement, and the requirements to provide certain disclosures to investors.

The MSRB is seeking comments on the new proposed rule and associated draft amendments to Rule G-8 ("Books and Records to Be Made by Brokers, Dealers and Municipal Securities Dealers") and Rule G-9 ("Preservation of Records"). Comments for all proposals must be submitted by March 10, 2014. SIFMA has issued a statement expressing concern that, under the proposed rule, if a bank or broker-dealer serves a municipal entity or an obligated person served as a municipal advisor, then that firm and all its affiliates would be barred from engaging in any principal transactions with that client, including transactions that are unrelated to the municipal advisory assignment. SIFMA further noted that the proposal is also inconsistent with the SEC staff's recommended uniform fiduciary standard of conduct, which would permit acting as a fiduciary and a principal under certain situations.

See: MSRB Regulatory Notice 2014-01; Press Release.See also: SIFMA Statement.