The Municipal Securities Rulemaking Board, or MSRB, today filed amendments to its proposal regarding the duties of underwriters to state and local government issuers under the MSRB’s “fair dealing” rule.  The proposal is a key piece of the MSRB’s rulemaking initiatives to protect issuers in the municipal market, which is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Our analysis on the original proposal can be found here.

The MSRB’s proposal, which is awaiting approval from the SEC, would for the first time establish detailed obligations of underwriters of municipal securities to their state and local government clients regarding clear disclosure of risks and conflicts of interest, among other things.

The amendments, which in part address comments received from market participants, would enhance certain disclosure requirements for underwriters as well as clarify the risks disclosure part of the proposal. The amendments would require more robust disclosures from underwriters to state and local government issuers regarding the underwriter’s role, compensation and actual or potential conflicts of interest. 

Among the required disclosures would be a statement that, although the underwriter has a duty to deal fairly with the issuer, unlike a municipal advisor, the underwriter does not have a federal fiduciary duty to the issuer. An underwriter would also be required to disclose whether its compensation is contingent upon the closing of the transaction and that contingent fee compensation presents a conflict of interest, as it may cause the underwriter to recommend a transaction that it is unnecessary or larger than necessary.

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