Frequently Asked Questions – Municipal Advisors | MSRB

FREQUENTLY ASKED QUESTIONS
(Click On Any Question For An Answer)

MUNICIPAL ADVISOR

MSRB – MUNICIPAL SECURITIES RULEMAKING BOARD

RECENT MSRB RULES


MUNICIPAL ADVISOR

Question: Definition of a Municipal Advisor

Answer:

According to FINRA – Financial Regulatory Authority
Section 15B of the Securities Exchange Act defines the term “municipal advisor” to mean a person that (i) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues, or (ii) undertakes a solicitation of a municipal entity. The definition includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors that engage in municipal advisory activities.

TOP

Question: What types of activities do municipal advisors handle

Answer:

The three principal types of municipal advisors:

  • “Financial advisors including broker-dealers and municipal securities dealers already registered with the SEC, providing advice to municipal entities regarding their issuance of municipal securities and their use of municipal financial product;
  • Investment advisors that advise municipal entities on the investment of public monies, including proceeds of municipal securities; and
  • Third-party marketers and solicitors.”   “Unless exceptions apply, any third-party solicitor (seeking business on behalf of a broker-dealer, municipal securities dealer, municipal advisor, or investment advisor must register as a municipal advisor.”
TOP

Question: Who should register as a Municipal Advisor – Rule 15Ba1-1(d)(1)(ii)

Answer:

You are required to register if you are a “municipal advisor.” A municipal advisor is a person (who is not a municipal entity or an employee of a municipal entity) that provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, or that undertakes a solicitation of a municipal entity or obligated person.

TOP

Question: Who is excluded from registering as a municipal advisor

Answer:

The following types of people are excluded from the definition of municipal advisor, but only if they engage in the specific activities set out in Rule 15Ba1-1(d)(2):

  • Broker, dealer, or municipal securities dealer serving as an underwriter of a particular issuance of municipal securities.
  • Investment adviser registered under the Investment Advisers Act of 1940 or persons associated with a registered investment adviser.
  • Commodity trading advisor registered under the Commodity Exchange Act or persons associated with a registered commodity trading advisor.
  • Attorney.
  • Engineer.

The Commission has exempted the following types of people from the definition of municipal advisor, but only if they engage in the specific activities set out in Rule 15Ba1-1(d)(3):

  • Accountant.
  • Official and employee of a municipal entity or obligated person.
  • Bank.
  • Person responding to a request for proposals or qualifications from a municipal entity or obligated person in connection with a municipal financial product or issuance of municipal securities.
  • Swap dealer registered under the Commodity Exchange Act or associated persons of the swap dealer.
  • Person engaging in municipal advisory activities where a municipal entity or obligated person is represented by an independent registered municipal advisor.
  • Person providing advice with respect to investment strategies that are not plans or programs for the investment of the proceeds of municipal securities or the recommendation of and brokerage of municipal escrow investments.
  • Person undertaking a solicitation of a municipal entity or obligated person for or in connection with municipal financial products that are investment strategies to the extent that those investment strategies are not plans or programs for the investment of the proceeds of municipal securities or the recommendation of and brokerage of municipal escrow investments.

The Commission has also exempted natural person municipal advisors if the advisor is an associated person of a SEC-registered municipal advisor and engages in municipal advisory activities solely on behalf of the registered municipal advisor.

TOP

Question: Other requirements for municipal advisors

Answer:

All registered municipal advisors are required comply with the books and records requirements set out in Rule 15Ba1-8.

TOP

Question: Municipal Advisor Examinations – National Exam Program (“NEP”)

Answer:

National Exam Program (“NEP”) is administered by the Office of Compliance Inspections and Examinations (“OCIE”) as part of the SEC. NEP staff will contact Municipal Advisors separately if their firm is selected for an examination. The exam is intended to detect if the Municipal Advisor is operating in compliance with federal securities laws.

TOP

Question: Municipal Series Registrations

Answer:

Municipal Series License Registrations include

Series 50 – (Pilot program Jan 2016)  Municipal Advisor Representative: The municipal advisor representative is a natural person associated with a municipal advisor who engages in municipal advisory activities on the municipal advisor’s behalf. The exam covers basic knowledge of the internal workings and regulations of the municipal advisory system.

Series 51 – Limited Principal for Managers of Broker/Dealers: The Series 51 was established for principals who do not otherwise deal in municipal securities, and do not have the Series 53 designation. It covers the management of registered representatives who market municipal fund securities to clients such as Section 529 plans for college education.
Series 52 – Municipal Securities Representative qualifies a financial professional to  obtain certification for selling municipal securities such as municipal bonds, agency bonds and Section 529 plans for college education.

Series 53 – Municipal Securities Principal: Principals manage, direct or supervise the municipal securities activities of a securities firm or bank dealer.

TOP

MSRB – Municipal Securities Rulemaking Board

Question: What is the MSRB – Municipal Securities Rulemaking Board

Answer:

The MSRB is a self-regulatory organization subject to oversight by the Securities and Exchange Commission (SEC). The MSRB makes rules regulating dealers of municipal securities. Rules established by the MSRB must be followed by securities firms, banks, and municipal advisors when engaging in municipal securities transactions or advising investors and state or local governments. The MSRB Rule book is 376 pages long as of January 2016 covering general rules, administrative rules, and definitional rules..

  • Section 1  MSRB General Rules – covers the G rules G-1 through G-48
  • Section 2  MSRB Administrative Rules – covers the A rules A-1 through A-18
  • Section 3 MSRB Definitional Rules – covers the D rules D-1 through D15
TOP

Question: How and when was the MSRB created

Answer:

Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act makes several changes to the oversight of the municipal securities market. As most applicable to SEC rulemaking, it amends section 15B of the Securities Exchange Act of 1934 to require the registration of municipal advisors with the Commission and provide for their regulation by the Municipal Securities Rulemaking Board (MSRB).

TOP

Question: What is EMMA – Electronic Municipal Market Access

Answer:

EMMA is the official repository for information on virtually all municipal securities. EMMA provides free public access to official disclosures, trade data, credit ratings, educational materials and other information about the municipal securities market. The EMMA website was established to increase public access to disclosure and transparency information in the municipal securities market.

TOP

Question: CCO designation for municipal securities

Answer:

The CCO (“Chief Compliance Officer”) is responsible for the development (or overseeing the development) of the policies and procedures and the program to test the policies and procedures for compliance. Therefore, a thorough understanding of the activities that are subject to the policies and supervisory procedures is vital. Generally a Series 51 or Series 53 registration is needed to qualify as having the expertise needed for CCO designation.

TOP

Question: FINOP Designation for municipal securities

Answer:

Official designation of MSRB’s FINOP Requirement was amended to eliminate the FINOP classification and the requirement that certain dealers designate at least one such principal. Previously, MSRB Rule G-3(d) required that every dealer, excluding bank dealers or certain other dealers identified by reference to the SEC net capital rule, designate at least one FINOP, including its chief financial officer. Although the FINOP requirement has been eliminated in Rule G-3, a dealer’s municipal securities principal remains responsible for supervising its municipal securities activities, including operations such as processing, clearance and safekeeping of municipal securities, pursuant to Rule G-3(b)(i) and G-27(b)(ii)(C). The amendment does not affect a dealer’s obligation to comply with FINRA’s registration requirements pertaining to the “Limited Principal-Financial and Operations”.

TOP

Recent MSRB Rules

Question: MSRB Rule G-42 – The Fiduciary Duty Rule – Effective June 23 2016

Answer:

December 23 2015 the Securities and Exchange Commission approved MSRB new rule G-42 setting forth required standards of conduct and duties when engaging in municipal advisory activities, other than solicitation activities.

G-42 – Duties of Non-Solicitor Municipal Advisors

(a) Standards of Conduct.

(i) A municipal advisor to an obligated person client shall, in the conduct of all municipal advisory activities for that client, be subject to a duty of care.

(ii) A municipal advisor to a municipal entity client shall, in the conduct of all municipal advisory activities for that client, be subject to a fiduciary duty that includes a duty of loyalty and a duty of care.

Additional duties and conduct described includes:

  • Disclosure of Conflicts of Interest and Other Information
  • Documentation of Municipal Advisory Relationship
  • Recommendations and Review of Recommendations of Other Parties

Read the Rule

TOP

 

The team at RND Resources Inc provides professional solutions for broker-dealers looking to add municipal securities to their line of activities, municipal advisors registering for the first time, and firms needing an interim municipal securities principal. Call us for more information at (818) 657-0288 or visit Municipal Securities Broker Services