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9.18 Municipal Securities

<< Title IX Overview

9.18 Municipal Securities

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9.18.     Municipal Securities.  This Act creates a new registration requirement for persons who fall within the definition of a "municipal advisor"; changes the composition of the Municipal Securities Rulemaking Board ("MSRB"); requires the Comptroller General to conduct studies of municipal disclosure and municipal markets; creates a funding mechanism for the Government Accounting Standards Board ("GASB"); and elevates the office within the SEC that is responsible for oversight of the municipal securities markets.

9.18.1.  Registration of Financial Advisors. A new category of registrant will be created by the legislation – "municipal advisor."  Firms that seek business from, or provide advice to a municipal entity "with respect to municipal financial products or the issuance of municipal securities" fall within the definition.  In addition, a "municipal advisor" includes a financial advisor who is a "guaranteed investment contract broker", "third party marketer", "placement agent", "solicitor", "finder", or "swap advisor". The definition specifically does not include other persons, including registered broker-dealers and investment advisers, already subject to SEC or CFTC registration. Municipal advisors now must register with the SEC and become members of FINRA.  They also will be subject to specific new rules of the MSRB. 

The legislation creates a fiduciary relationship between a municipal advisor and any municipal entities to whom it provides services, specifying that the municipal advisor may not engage in any act, practice, or course of business which is not consistent with a municipal advisor's fiduciary duty or that is in contravention of the rules of the MSRB. [§975]

9.18.2.  Reorganization of the Municipal Securities Rulemaking Board. The new legislation will reconfigure the MSRB to create greater public representation.  The newly constituted MSRB Board will be comprised of 15 individuals, with only seven affiliated with the dealer community.   The legislation also will expand the authority of the MSRB to regulate municipal advisors, cooperate in enforcement actions with FINRA and the SEC, and permit the Board to charge fees for the submission or retrieval of disclosure and trade information maintained in its databases. In addition there must be at least one representative of issuers, one representative of retail or institutional investors and one municipal securities expert. A separate provision will require FINRA to share with the MSRB one-third of any fines that it collects for violations of MSRB rules. [§975]

9.18.3.  Comptroller General Study of Disclosure in the Municipal Markets. The Act mandates that the Comptroller General conduct a study of the municipal securities markets, including the adequacy of disclosure provided to investors; and compare the quality of disclosure in the municipal markets to that in the corporate market.  The Comptroller General is required to make recommendations, including specifically whether or not the controversial "Tower Amendment", which prevents the SEC from regulating the issuance of municipal securities, should be repealed.   The report must be provided to Congress within 24 months of enactment of the Act. [§976]

9.18.4.  Comptroller General Study of the Municipal Securities Markets. Within 18 months after enactment, the Comptroller General must conduct a study of the municipal securities markets, including quality of trade execution, market transparency, trade reporting, price discovery, settlement clearing, and credit enhancements, and make recommendations for improvements. The SEC has 180 days to respond to the study indicating the action the Commission has taken in response to the recommendations of the report. [§977]

9.18.5.  Funding for GASB. FINRA will be required to establish fees to support the GASB in establishing standards of financial accounting and reporting for state and local governments.  The legislation also mandates a study by the GAO within 180 days of effectiveness, addressing the role and importance of GASB in the municipal markets, and the adequacy of its funding. [§978]

9.18.6.  Creation of an Office of Municipal Securities within the SEC. Currently, the SEC has only a small staff located within the SEC's Division of Trading and Markets that is devoted to full time policy oversight of the municipal markets.  The legislation would elevate the importance of this function within the SEC by creating a separate Office of Municipal Disclosure whose director would report directly to the Chairman of the SEC. [§979]