MSRB Rule G-17: Interpretive Notice on Duties of Underwriters to Issuers. Webinar Part 1: Background and Statements and Representations

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1 MSRB Rule G-17: Interpretive Notice on Duties of Underwriters to Issuers Webinar Part 1: Background and

2 About the MSRB A self-regulatory organization that oversees the municipal securities market Mission is to protect investors, state and local governments, other municipal entities and the public interest by promoting a fair and efficient market through: Establishment of rules for dealers and municipal advisors Collection and dissemination of market information Market leadership, outreach and education 1

3 Background on Rule G-17 Interpretive Notice Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 expanded MSRB s jurisdiction to protect state and local governments In light of this, the MSRB prioritized a reassessment of existing duties of underwriters to state and local governments Determined that expanded requirements were necessary Developed new interpretive notice on MSRB Rule G-17 to ensure state and local governments are properly protected in securities transactions 2

4 Rule G-17 Interpretive Notice MSRB Notice on Rule G-17, on fair dealing, was approved by the Securities and Exchange Commission on May 4, 2012 SEC-approved interpretive notice carries the force of federal law Notice is effective August 2, 2012 Note: Slides regarding this interpretive notice provide only a brief overview. Refer to for the full interpretive notice. 3

5 Rule G-17 Interpretive Notice Goals of the notice: Clarifies the relationship of an underwriter to its clients Creates affirmative obligations for underwriters Requires an underwriter to disclose important information to an issuer to help the issuer assess proposed financial transactions 4

6 Duties of Underwriters to Issuers Fair practice duties outlined in the notice fall into three broad areas: Statements and representations to issuers Disclosures to issuers Financial aspects of underwriting transactions 5

7 Rule G-17 Interpretive Notice 6

8 All provisions in the interpretive notice arise from the same fundamental duty of fairness to an issuer already required under MSRB Rule G-17 However, the interpretive notice more clearly articulates the specific nature of an underwriter s fair dealing obligations in order to: Assist an underwriter with conforming to the expectation of fairness, and Assist enforcement agencies in assessing an underwriter s compliance with this expectation 7

9 All representations made in writing or orally by underwriters to issuers must: Be truthful and accurate Not misrepresent or omit material facts Not be misleading Have a reasonable basis Not misrepresent knowledge or expertise Requirements apply to representations made in documents such as responses to requests for proposals, issue price certificates and materials used in official statements 8

10 Notice provides more detailed direction on an underwriter s obligation to honor an issuer s retail order period An underwriter that agrees to conduct retail order periods must take reasonable measures to ensure that retail clients are bona fide An underwriter would violate its fair dealing duty if it knowingly accepts an order framed as a retail order but which does not meet the issuer s requirements for retail Dealer placing a false retail order also would be in violation of MSRB Rule G-17 9

11 The notice also requires that an underwriter: Must act consistently with its representations to issuers of the level of effort it will put toward new issue pricing and not misrepresent the nature of investor demand Cannot recommend that an issuer not retain a financial advisor 10

12 MSRB Rule G-17: Interpretive Notice on Duties of Underwriters to Issuers Webinar Part 1: Background and