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Stay on Municipal Advisor Rules Expires July 1, 2014

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

The temporary stay previously imposed on the SEC’s final municipal advisor rules expires July 1, 2014.  Accordingly, municipal advisors will be required to register with the SEC on Form MA on a phased-in schedule beginning July 1, 2014, and ending October 31, 2014.

Registration of “municipal advisors” under Section 15B of the Exchange Act was mandated by Section 975 of the Dodd-Frank Act.  The SEC’s final municipal advisor rules not only impose registration requirements, but also define this statutory term and provide certain exclusions and exemptions from the registration requirement.

Under the SEC’s final rules, a municipal advisor is generally defined as a person who:

  • provides advice to a “municipal entity” (i.e., any state, political subdivision of a state or municipal corporate instrumentality of a state or political subdivision) or an “obligated person” (i.e., any person who is committed by contract or other arrangement to support the payment of all or part of the obligations on municipal securities or municipal financial products) with respect to the issuance of municipal securities or municipal financial products (e.g., derivatives);
  • provides advice on behalf of a municipal entity or an obligated person with respect to the issuance of municipal securities or municipal financial products; or
  • solicits a municipal entity or obligated person.

Certain persons, including broker-dealers acting as underwriters of municipal securities, registered investment advisers, registered commodity trading advisers and attorneys offering legal advice or services, are excluded from the requirement to register as municipal advisors.  Other entities, such as banks and registered swap dealers, however, may be subject to the rules depending upon their involvement in certain identified activities related to municipal securities.

Municipal advisors have been required to register under a temporary SEC rule since October 2010.

Municipal advisors are required to register with both the SEC and the Municipal Securities Rulemaking Board (MSRB), and all municipal advisors will be subject to supervision by the SEC and MSRB.  Firms should keep a close eye on the MSRB, which is expected to issue additional rules and guidance related to municipal advisors in the coming months.

Firms involved with the issuance of municipal securities or with municipal financial products should evaluate their interactions with potential municipal entities and obligated persons and consult with counsel to determine whether they are subject to registration.

Entities that previously registered under the temporary rules will either need to re-register on the new forms or, if they are no longer actively providing advice to or soliciting municipal entities or obligated persons, may consider withdrawing their registration.

For additional information on the new rules, see our client alert.