SEC Municipal Advisor Rule Regulatory Next Steps & Issuer ReacCon

Transcription

1 SEC Municipal Advisor Rule Regulatory Next Steps & Issuer ReacCon Monday, June 1, :40 3: CPE Moderator: Speakers: Jonas Biery, City of Portland, OR Peggy McCarty, City of Tukwila, WA Rebecca Olsen, SEC Office of Municipal SecuriCes Michael L. Post, Municipal SecuriCes Rulemaking Board

2 Intro to Topic & Speakers o SEC approved Municipal Advisor Rule in September 2013, formal implementacon on July 1, 2014: MAs have fiduciary duty to their government clients New regulatory framework regarding MA & UW communica=on with issuers Tes=ng and registra=on requirements for MAs o Today s Speakers: Rebecca Olsen, Chief Counsel, SEC Office of Municipal Securi=es Michael Post, Deputy General Counsel, Municipal Securi=es Rulemaking Board Peggy Mcarthy, Finance Director, City of Tukwila, WA B. Jonas Biery, Debt Manager, City of Portland, OR 2

3 REBECCA OLSEN, SEC OFFICE OF MUNICIPAL SECURITIES 3

4 Municipal Advisor Rulemaking GFOA Annual Conference June 1, 2015 Philadelphia, PA

5 Michael Post, General Counsel Regulatory Affairs Municipal Securities Rulemaking Board

6 Presentation Outline Municipal Advisor Regulatory Framework Status of Municipal Advisor Rulemaking What to Expect from Your Municipal Advisor 6

7 Municipal Advisor Regulatory Framework

8 About the MSRB A self-regulatory organization created by Congress in 1975 Protects investors, municipal entities and the public interest Promotes a fair and efficient municipal market 8

9 Municipal Advisor Regulation Dodd-Frank Act of 2010 charged the MSRB with regulating professionals that provide advice to issuers on municipal finance transactions and products in order to: Protect state and local governments and other municipal entities that engage the services of a municipal advisor Promote a fair and efficient market Preserve municipal market integrity 9

10 Regulatory Framework MSRB is developing a comprehensive regulatory framework that includes: Development of rules governing the professional conduct of municipal advisors Establishment of a professional qualifications program that ensures municipal advisors are qualified in their duties Extensive education and outreach to municipal advisors, issuers and other stakeholders on what to expect 10

11 Status of Municipal Advisor Rulemaking

12 Recent Municipal Advisor Rulemaking Rule Latest Action Next Steps Establishing Supervision and Compliance Obligations New MSRB Rule G-44 Effective April 23, 2015 Creating Professional Qualifications Requirements Amended MSRB Rules G-2, G-3 and D-13 Effective April 27, 2015 Establishing Core Standards of Conduct New MSRB Rule G-42 Filed with SEC April 15, 2015 Prohibiting Pay-to-Play in Municipal Advisory Business Regulating Gifts and Gratuities in Municipal Advisory Business Amended MSRB Rule G-37 Amended MSRB Rule G-20 Preparing for SEC filing Preparing for SEC filing 12

13 MSRB Rule G-44 Supervisory and Compliance Obligations Requires municipal advisors to implement policies, processes and procedures reasonably designed to prevent or promptly detect rule violations In writing Regularly reviewed Municipal advisor principals have supervisory responsibility Single chief compliance officer Effective April 23,

14 MSRB Rule G-3 Professional Qualification Requirements New qualification examination (Series 50) required for all municipal advisor representatives and principals Content outline for Series 50 exam now available Pilot to be administered this fall MSRB seeking volunteers to take the pilot exam pilot Municipal Advisors: Click the Updates link on MSRB.org to sign up for updates about the 14

15 MSRB Rule G-42 Duties of Non-Solicitor Municipal Advisors Proposed rule filed with SEC Aims to ensure that municipal advisors are fulfilling their fiduciary duty to their municipal entity clients, and their duty of care toward all clients Duties under the proposed rule include: Standards of conduct Disclosure of conflicts of interest Documentation of the relationship Recommendations Principal transactions Prohibitions related to compensation, fees and other activities 15

16 Draft Amendments to MSRB Rule G-37 Political Contributions MSRB plans to file draft amendments that seek to extend anti-pay-to-play provisions of existing rule for dealers to municipal advisors Two-year ban on business if certain contributions made to official of a municipal entity Disclosure of certain contributions on EMMA 16

17 Draft Amendments to MSRB Rule G-20 Gifts and Gratuities Draft amendments to MSRB Rule G-20 would apply existing gifts and gratuities rule to municipal advisors $100 limit per person per year in relation to the municipal securities or advisory activities of the recipients employer Exclusion from the $100 limit of: Normal business dealings and Contracts of employment and contracts for compensation for services Draft amendments would prohibit regulated entities from requesting or obtaining reimbursement from the proceeds of an offering of municipal securities for certain entertainment expenses 17

18 What to Expect from Your Advisor

19 What to Expect from Your Advisor ü Registration with SEC and MSRB ü Federal fiduciary duty to municipal entity clients ü Fair dealing with all clients (municipal entities and obligated persons) ü Supervisory system in place to reasonably ensure rule compliance Coming Soon: ü Proposed Rule G-42 duties including disclosure, documentation and suitability ü Professional qualification exam requirement in 2016 ü Proposed prohibitions on pay-to-play activities ü Proposed limitations on gifts 19

20 Contact the MSRB MSRB Online msrb.org emma.msrb.org MSRB Updates Subscribe at msrb.org MSRB Support Hours of Operation: 7:30 a.m. - 6:30 p.m. ET MSRBsupport@msrb.org Follow the MSRB on 20

21 SEC Municipal Advisor Rule Next Steps & Issuer Reaction City of Tukwila, Washington Small Issuer Focus June 1, GFOA Conference 21

22 Small Issuer Focus 1. Effect of MA Rule on Small, Less Frequent Issuers 2. City of Tukwila s Experience 3. Advice to Small Issuers on Acquiring an MA and Managing the MA process June 1, GFOA Conference 22

23 What is an MA? New SEC Municipal Advisor Rule became effective July 1, 2014 o Establishes regulatory regime for municipal advisors (previously unregulated) o Prohibits underwriters/banks from providing advice except in very limited circumstances Municipal advisors (MA s, or financial advisors) must register with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) Fiduciary responsibility to act in the client s best interest, before, during, and after any transaction March 13, 2014 Community Budget Forum 23

24 Effect on Small, Less Frequent Issuers Underwriters/banks can no longer provide advice except in very limited circumstances; removes potential conflict of interest MA s are regulated, held to higher professional standards as fiduciaries Benefits issuer has a partner to get the best deal Challenges best deal comes at a cost in terms of MA fees After using an MA, it s clear there is value, even if it can t be easily quantified June 1, GFOA Conference 24

25 City of Tukwila s Experience June 1, GFOA Conference 25

26 About the City of Tukwila Nighttime Population of 19,795 Daytime population of over 150,000 Major employment center Retail mecca Transportation hub June 1, GFOA Conference 26

27 Recent Debt Issues Post MA Rule Pre MA Rule Year Purpose Type Size 2015 Arterial street projects competitive sale $ 5,825, Urban renewal 3- year note bank placement 2,250, year bond bank placement 3,850, Local Improvement District negotiated sale 6,687, Park District capital improvements bank placement 1,000, Refinancing negotiated sale 4,620, Arterial street & emergency management equipment negotiated sale 5,870,000 June 1, GFOA Conference 27

28 Initial Steps Retaining a Municipal Advisor o o Understand the difference between an MA and an underwriter Ask your peers chance are some of them have experience and/or recommendations Adopting a Debt policy June 1, GFOA Conference 28

29 Initial Actions 1. About Tukwila Washington 2. Deciding on a Municipal Advisor 3. Debt policy June 1, GFOA Conference 29

30 Urban Renewal Debt Issues Four crime ridden motels purchased for redevelopment Taxable versus tax exempt debt RFP 5 respondents Creative approach to maximize efficiency Private placement two issues, two banks o o Short term line of credit 3 year, 1.23% indicative rate based on 1% over LIBOR Long term 20-year bonds- 3% indicative rate, fixed and variable rate components,10-year call option June 1, GFOA Conference 30

31 Capital Projects Debt Issue Preliminary Official Statement (POS), then final OS Continuing disclosure compliance Credit rating Competitive sale 2.54% on $5.85M 20-year bonds Wrap-up with Council June 1, GFOA Conference 31

32 Advice to Small Issuers in Acquiring an MA and Managing the MA Process June 1, GFOA Conference 32

33 Advice to Issuers Strongly consider using a municipal advisor Interview and select based on competence, responsiveness and character Fully utilize MA services; benefits include: o Expertise o Access to and knowledge of debt market o Additional resources devoted to process o Ability to present and explain complex issues and ideas to Council/Board and committees June 1, GFOA Conference 33

34 Contact Information Peggy McCarthy, CPA Finance Director City of Tukwila Tukwila The City of opportunity; the community of choice. June 1, GFOA Conference 34

35 CITY OF PORTLAND, OR LARGE ISSUER FOCUS 35

36 Large Issuer MA Rule ImplementaCon o Large issuers are more likely to: Have in- house exper=se Understand debt markets and roles/responsibili=es of service providers Operate within the spirit of the Rule (prior to Rule implementa=on) Have awareness of looming regulatory changes o Other large issuer consideracons: Complex and evolving rela=onships with UWs and MAs Mul=ple Municipal Advisors o What did the City of Portland do? Posted blanket IRMA Excep=on Le]er on City website prior to July 1, 2014 Subsequently received wri]en acknowledgement from some UWs ** Note that different banks have different compliance perspec=ves! Receive addi=onal wri]en communica=on, but somewhat of a non- event Con=nue to monitor market and internal communica=on to ensure we are facilita=ng compliance 36

37 PotenCal NegaCve Impacts to Issuers o Increased costs to issuers More use of MA than previously; poten=al MA contract modifica=ons MAs & UWs are paid by the issuer compliance costs ul=mately passed through to issuer Are fee increases just a new cost of doing business? o MAs are likely less willing to provide informacon free- of- charge or on a non- formalized basis o Possible reduccon to market of eligible MAs o Some issuers may be pursuing direct engagement le^er with UW, rather than engaging an MA which is NOT consistent with GFOA Best PracCce. 37

38 Future Areas to Monitor o What happens when staff changes at either an UW or an MA? o How might MAs change procedures or requirements as registracon/ tescng begins? o Investment of bond proceeds (if commingled) o Guidance related to providing assistance with direct placement of loans, capital leases, lines/le^ers of credit, etc. 38

39 GFOA Debt Commi^ee AcCvity o MA Rule Resource Center 10- page issue brief and shorter MA Alert Links to important documents (including SEC guidance/faqs) Model language for IRMA Exemp=on Le]er o February 2014 updates to 4 Best PracCces Selec=ng and Managing Municipal Advisors Selec=ng and Managing Method of Sale of Bonds Selec=ng Underwriters for Nego=ated Bond Sales Investment of Bond Proceeds o GFOA concnues to monitor developments, and advocate for members as implementacon and interpretacon of the Rule evolves. 39

40 SEC Municipal Advisor Rule Regulatory Next Steps & Issuer ReacCon

41 Please provide feedback on the session o Quick Text Feedback 1. Step 1 - Text GFOA to Step 2 - Did the session meet your expecta=ons for being high quality and relevant to your job? Exceeded Expecta=ons Text M15EXC Met Expecta=ons Text M15MET Did Not Meet M15NOT o To provide more detailed evaluacon on the session or full conference go to