MSRB seeks rule to bar dual adviser/underwriter role for new issues

By Jennifer Chiou

New York, Feb. 9 - The Municipal Securities Rulemaking Board announced that it is looking to prohibit a broker, dealer or municipal securities dealer from acting both as a financial adviser to an issuer of municipal securities and as an underwriter for the same new issue.

The MSRB said it filed the proposal with the Securities and Exchange Commission on Wednesday, along with interpretive guidance on the proposed role-switching prohibition.

Also on Wednesday, the board filed a proposed rule change with the SEC for possible amendments to MSRB Rule G-23, which involves new issues for which the time of formal award occurs more than six months after SEC approval. The change would allow issuers of municipal securities time to finalize any outstanding transactions that might be affected by the proposed rule change.

According to the MSRB, the changes to the first proposal affect financial advisers and underwriters on new issues of municipal securities with a final award date of six months or more following SEC approval.

As it stands now, MSRB rules allow a financial adviser to a municipals issuer to resign from that role and be the underwriter for the same issuer if certain disclosure, relationship termination and consent requirements are met.

Further, the MSRB's proposal would prohibit such role-switching for new issues sold on both a negotiated and competitive bid basis, according to a board news release.

"We have come to believe that the conflict of interest, whether actual or perceived, inherent in switching roles from financial adviser to underwriter is not in the best interest of the municipal market," MSRB executive director Lynnette Kelly Hotchkiss said in the release.

"By eliminating the potential for role-switching, the MSRB is supporting an environment that will ensure dealers operate with the highest professional standards when acting in either of these distinct roles."

The MSRB's proposal additionally would prohibit a dealer from being both the financial adviser for a particular issue and a remarketing agent for the same issue.

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