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Contact: Jennifer A. Galloway, Chief Communications Officer
              (703) 797-6600
              jgalloway@msrb.org

MSRB REQUESTS COMMENT ON DRAFT MUNICIPAL ADVISOR FIDUCIARY DUTY RULE
AND FAIR DEALING OBLIGATIONS

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today issued, in a series of three requests for comment, proposals addressing the key new regulatory mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the fiduciary duty of municipal advisors and the expansion of the MSRB’s investor protection mission to include the protection of municipal entities and obligated persons.

MSRB Notice 2011-14 would establish a new municipal advisor fiduciary rule, MSRB Rule G-36, and provide interpretive guidance to municipal advisors in connection with their fiduciary duty to their municipal entity clients. MSRB Notice 2011-13 would provide further guidance to municipal advisors on additional fair dealing obligations under MSRB Rule G-17 when providing advice to obligated persons or soliciting business from municipal entities or obligated persons. Finally, MSRB Notice 2011-12 would significantly expand existing interpretive guidance on the MSRB Rule G-17 fair dealing obligations of broker-dealers and banks serving as underwriters to issuers of municipal securities.

The Dodd-Frank Act expanded the MSRB’s jurisdiction to include the regulation of municipal advisors. The Dodd-Frank Act also expanded the MSRB’s mission to include the protection of municipal entities, such as state and local government issuers and public pension plans, and obligated persons, such as universities and hospitals. Today’s rule proposals are aimed at fulfilling this expanded mandate.

As of October 1, 2010, municipal advisors owe a federal fiduciary duty to their municipal entity clients. The Dodd-Frank Act requires the MSRB to adopt rules aimed at prohibiting municipal advisor conduct that is inconsistent with a municipal advisor’s fiduciary duty.

The MSRB is seeking comment on draft Rule G-36, which would require municipal advisors to act in accordance with their fiduciary duty to state and local government clients, which includes a duty of loyalty and a duty of care. The MSRB would require municipal advisors to act in good faith and in the best interests of a municipal entity, to provide written disclosure of any possible conflicts of interests to the municipal entity and to receive written consent to any such conflicts. The MSRB also would require municipal advisors to provide their services in a competent manner, to consider alternative financing options and to conduct a reasonable inquiry into a municipal entity’s financial circumstances before providing advisory services.

“This proposed fiduciary duty rule seeks to ensure that municipal advisors honor their obligation to municipal entities to act in their best interest and refrain from self-dealing,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “Acting in the best interest of municipal entities will be in the best interest of investors and the public as well.”

The MSRB also is requesting comment on a draft interpretive notice regarding the application of MSRB Rule G-17 to municipal advisors in their dealings with obligated persons or their solicitations of business from municipal entities on behalf of others. As of December 22, 2010, the MSRB’s core fair dealing rule, MSRB Rule G-17, covers municipal advisor conduct. Although the Dodd-Frank Act does not impose a fiduciary duty on municipal advisors in their solicitation of municipal entities on behalf of third parties, such activities are covered by the MSRB’s fair dealing rule.

The MSRB will hold an informational webinar for municipal advisors and other interested market participants on draft MSRB Rule G-36 and the Rule G-17 interpretive notice on March 1, 2011 at 3:00 p.m. Click here to register.

Finally, the MSRB is also requesting comment on a draft interpretive notice regarding underwriters’ fair dealing duties to municipal entity clients, including disclosure of transaction or product risks, and conflicts of interest. In 2009, the MSRB issued detailed guidance on dealers’ fair practice obligations under MSRB Rule G-17 to their investor clients and launched a review of the application of the fair practice principles of that rule to the relationship between underwriters and issuers. Today’s request for comment is a result of that review and also reflects the new MSRB mandate under the Dodd-Frank Act to protect municipal entities.

“These rule initiatives, taken together, will ensure that the MSRB has a solid regulatory foundation to rely upon in protecting issuers of municipal securities, public pension plans and obligated persons,” Hotchkiss said. “These proposals are a significant step toward fulfilling our Dodd-Frank responsibilities.”

Comments on the three proposals must be submitted by April 11, 2011 to CommentLetters@msrb.org and contain the appropriate notice number in the subject line.

The Municipal Securities Rulemaking Board (MSRB) protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in tens of thousands of communities across the country. MSRB fulfills this mission by creating trust in our market through informed regulation of dealers and municipal advisors that protects investors, issuers and the public interest; building technology systems that power our market and provide transparency for issuers, institutions, and the investing public; and serving as the steward of market data that empowers better decisions and fuels innovation for the future. MSRB is a self-regulatory organization governed by a board of directors that has a majority of public members, in addition to representatives of regulated entities. MSRB is overseen by the Securities and Exchange Commission and Congress.

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