MSRB Rule G-17: Interpretive Notice on Duties of Underwriters to Issuers

Transcription

1 MSRB Rule G-17: Interpretive Notice on Duties of Underwriters to Issuers Webinar Part 4: Required Manner and Timing of Disclosures, and Financial Aspects of Underwriting Transactions

2 Required Manner of Disclosures Disclosures required by MSRB Notice on Rule G-17 are to be made to issuers: In writing In a manner that makes the subject and implications clear to the issuer To an official with appropriate authority to bind issuer by contract 1

3 Required Manner of Disclosures Conflicts of interest disclosures cannot be made to an official who is party to such conflicts An underwriter must request written acknowledgment of receipt of disclosures from issuer and document any failure to receive such acknowledgement Syndicate managers may provide disclosure on behalf of other syndicate members except in the case of conflicts disclosures, which must be made by the particular underwriters subject to such conflicts 2

4 Required Timing of Disclosures Timing requirements for disclosures ensure issuers have information they need when they need it to make informed decisions Disclosure of arm s-length nature of underwriting transaction must be made at earliest stage of the underwriter s relationship with the issuer Corresponds with MSRB Rule G-23 requirements that issuer understands a firm is seeking to serve as an underwriter, not financial advisor 3

5 Required Timing of Disclosures Disclosures concerning role of underwriter, compensation and conflicts of interests must be made when underwriter is formally brought into transaction Such disclosures may not be made later in process, such as at the signing of a bond purchase agreement 4

6 Required Timing of Disclosures Disclosures concerning material financial characteristics and risks of complex financings and applicable routine financings, and newly identified conflicts of interest, must be made prior to execution of bond purchase agreement Issuers must have sufficient time to evaluate recommendation Underwriters should view timeframes in light of fair dealing goals of Rule G-17 5

7 Rule G-17 Interpretive Notice Financial Aspects of Underwriting Transactions 6

8 Financial Aspects of Underwriting Transactions MSRB does not establish specific compensation standards for underwriters However, an underwriter s compensation for a new issue must not be so disproportionate as to constitute unfair practice under Rule G-17 Compensation includes both direct compensation paid by issuer and separate payments from issuers or third parties in connection with underwriting 7

9 Underwriter Compensation Factors to consider when evaluating whether underwriter s compensation is disproportionate: Credit quality of the issue Size of the issue Market conditions Length of time spent structuring the issue Whether underwriter is paying fee of underwriter s counsel and other relevant costs 8

10 Pricing of New Issues of Municipal Securities Pricing of a new issue is one factor in determining whether an underwriter has treated the issuer fairly Price paid by underwriter must be fair and reasonable, considering all relevant factors Competitive bids must be bona fide based on dealer s best judgment of fair market value In negotiated offering, underwriter has duty to negotiate in good faith with issuer 9

11 MSRB Rule G-17: Interpretive Notice on Duties of Underwriters to Issuers Webinar Part 4: Required Manner and Timing of Disclosures, and Financial Aspects of Underwriting Transactions