Potential Applicability of MSRB Rules to Certain “Direct Purchases” and Bank Loans” (Notice)

MSRB Notice No. 2011-52

September 12, 2011

The MSRB published a regulatory notice to address the potential applicability of its rules, and the federal securities laws generally, to direct purchases of municipal securities or bank loans, which may be used by state and local governments as alternatives to public offerings of their securities.  The notice states that certain of these financings may be considered "municipal securities," and thus would subject the transactions and participants to a number of federal securities laws.  In particular, the notice states that a broker-dealer that serves as a placement agent for (i) a "direct purchase" by a bank of municipal securities or (ii) a "bank loan" that is actually a municipal security will be subject to all MSRB rules, even where the broker-dealer is an affiliate of the bank.  The notice contains only minimal guidance as to when a bank loan will be considered a "security," only setting forth the Reves factors and stressing that the SEC and the courts have ultimate authority as to definition of the term "security."

For more information about this document, you may contact one of the following Cadwalader attorneys:  Steven  Lofchie; Lary Stromfeld.

Cross References

MSRB Notice No. 2011-37 (Aug. 3, 2011) (regarding muni private placements)

Reves v. Ersnt Young, Inc., 494 U.S. 56 (1990)