MSRB says that Build America Bonds are treated like regular municipals

By Jennifer Chiou

New York, April 24 - The Municipal Securities Rulemaking Board said that Build America Bonds are municipal securities because they are issued by states and their political subdivisions.

MSRB made its announcement because some municipal market participants requested guidance on whether the board's rules are applicable to Build America Bonds.

According to a news release, MSRB previously said that the American Recovery and Reinvestment Act of 2009 added a provision to the Internal Revenue Code that authorizes state and local governments to issue two types of Build America Bonds as taxable governmental bonds with Federal subsidies for a portion of their borrowing costs.

Accordingly, all of the MSRB's rules apply to transactions effected by brokers, dealers and municipal securities dealers in Build America Bonds, including rules regarding uniform and fair practice, political contributions, automated clearance and settlement, the payment of MSRB underwriting and transaction assessment fees, and the professional qualifications of registered representatives and principals.

For example, MSRB said that dealers in the primary market should note that current Rule G-36 requires underwriters to submit official statements to the MSRB, accompanied by completed Form G-36 (OS), for most primary offerings of municipal securities.

Dealers also have official statement delivery responsibilities to customers under Rule G-32. Once final, recently proposed revisions to Rule G-32 will require underwriters to satisfy their official statement submission obligations electronically through use of the MSRB's Electronic Municipal Market Access system and will allow dealers to satisfy their official statement delivery obligations by means of appropriate notice to customers, the release said.

As already reported, the first type of Build America Bond provides a Federal subsidy through Federal tax credits to investors. The tax credits may also be stripped and sold to other investors.

The second type of Build America Bond provides a Federal subsidy through a refundable tax credit paid to state or local governmental issuers by the Treasury Department and the Internal Revenue Service. The Treasury Department refers to this type of Build America Bond as "Build America Bonds (Direct Payment)."

MSRB added that the following additional types of tax credit bonds are also municipal securities subject to MSRB rules: Recovery Zone Economic Development Bonds, Qualified School Construction Bonds, Clean Renewable Energy Bonds, New Clean Renewable Energy Bonds, Midwestern Tax Credit Bonds, Energy Conservation Bonds, and Qualified Zone Academy Bonds.

MSRB is based in Alexandria, Va. It was established in 1975 by Congress to develop rules regulating securities firms and banks involved in underwriting, trading and selling municipal securities.

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