By Tim Dulaney, PhD, FRM
Late last week, the Securities and Exchange Commission (SEC) voted to adopt rules requiring municipal advisors to register with the commission if the advisor "provides advice on the issuance of municipal securities or about certain 'investment strategies' or municipal derivatives." This permanent registration requirement was required by Dodd-Frank (Section 975) and replaces the temporary registration requirement (PDF) previously implemented by the SEC.
The registration requirement is meant to standardize the conduct and qualifications of the advisors hired by municipalities to determine what sort of bonds to issue, when to issue them and whether or not to use derivative products to alter their exposure to market conditions. During the financial crisis, municipalities "were often unaware of any conflicts of interest the [advisors] may have had" and therefore were unable to determine the objectivity of the advice offered.
The final rule (PDF) provides for several exemptions that circumvent unintented implications (public officials providing internal advice need not register) as well as duplicative registration requirements (e.g. registered investment advisors, swap dealers, registered commodity trading advisors are each already required to be registered with a regulatory agency). Individuals involved in municipal securities transactions that are not providing investment advice (e.g. underwriters, engineers involved with feasibility studies, accountants, attorneys) are also exempt from registration as long as they act within the confines of their duties.
Broker-dealers and bond lawyers have voiced their general approval for the form of the final rule, but others remain concerned about the rules broad exemption of underwriters. "We continue to be concerned that the registration rule will not capture those underwriter firms who provide advice to municipal entities [...] and we fear that this will lead to a continuation of [pre-Dodd-Frank Act] market abuses," said National Association of Independent Public Finance Advisors president Jeanine Rodgers.
Firms will have to file a Form MA to register as a municipal advisor and individuals will have to file Form MA-I through SEC's EDGAR. Advisors will be required to be registered "on a staggered basis beginning July 1, 2014."
- Expert Testimony
- Valuation Services
- Structured Products
- Free Tools