SEC and MSRB Rules Regarding Municipal Advisors

MSRB Rule G-17

"fair dealing rule" -requires advisors to treat all of their clients fairly and forbids them from engaging in deceptive, dishonest or unfair practices -at or before the sale, all material information concerning the transaction should be disclosed to a customer, including a description of the security -violation: a dealer consistently recommends that customers invest in municipal securities in which the dealer earns the highest compensation

Antifraud Rule

(Securities Act of 1933) prohibits fraud in connection with the sale of any new issue -no parties are exempt - Dodd-Frank Act extended antifraud provisions to swap transactions

MSRB Rule G-44: Each Advisor's Written Supervisory Procedures (WSP) Should Take into Consideration

-firm size -number of offices -organizational structure -nature and scope of its activities -disciplinary & regulatory history of its associated personnel -likelihood that its personnel may have outside business activities -signs of irregularities or misconduct (red flags)

Enforcement of MSRB Rules Regarding: Securities Firms

-Financial Industry Regulatory Authority (FINRA) and/or the SEC The MSRB does not enforce its own rules

MSRB Rule G-37: MSRB Interpretations- Solicitation of Contributions

-MSRB's political contribution rule also prohibits municipal securities firms or MAPs from soliciting any person or PAC to make a contribution to an issuer official -coordinating (bundling) contributions to an official is also prohibited -firms may not engage in any other acts that violate the rules regarding contributions or solicitations of contributions to candidates for public office -a violation of this part of the rule doesn't set off the two-year business ban, it can result in a disciplinary action against the MFP or the firm -there's no allowance in this part of the rule for contributions of $250 or less (if an MFP solicits a person to give even a few dollars, it's a violation)

Securities Exchange Act of 1934: Exempt Securities

-Municipal securities -US govt securities

Securities and Exchange Commission (SEC)

-Responsible for enforcing federal securities laws -MSRB's rule proposals are ordinarily subject to approval by the SEC prior to becoming effective

SEC's Review of Registration Statements: what they do and their limitations

-SEC will not allow the sale to proceed if it believes the doc is incomplete or misleading Limitations: -does not pass judgement on the accuracy of the disclosures in the registration statement -does not approve issues or pass on the investment merit of any security

MSRB Rule G-20 Gifts & Gratuities

-a municipal securities firm or professional is prohibited from giving gifts & gratuities to a person who's not affiliated with that firm in excess of $100 per person, per year, if the gift is given in connection with the municipal securities activities of the recipient's employer -sponsoring of legitimate business functions that are recognized by the IRS as deductible business expenses are permitted -gifts of reminder advertising (e.g., a pen with the company's name) are permitted -in no instance may a gift be so frequent or so expensive as to raise a suggestion of conduct that's inconsistent with high standards of professional ethics in the municipal securities industry

MSRB Rule G-3: Waiver of Qualification Requirements

-a waiver of qualification by examination is given only in extraordinary cases -the person must demonstrate extensive experience and the knowledge necessary to perform the functions evaluated in the qualification exam

Registering as a Municipal Advisor: with the MSRB

-advisor files the A-12 electronically -must indicate if it intends to register as a municipal advisor, municipal securities dealer, or both -all advisors must provide a Primary Regulatory Contact (a registered principal who will receive all official communications from the MSRB), Compliance Contact, Master Account Admin, Billing Contact & Primary Data Quality Contact (the same person can be more than one contact if they are able) A-12 must be complete and fees must be received -advisors must review & affirm the info on Form A-12 annually (separate from filing annual MA update for SEC) -must amend Form A-12 within 30 days if they stop doing business as an advisor or have changes in contact info or registration status

Registering as a Municipal Advisor: with the SEC

-advisor registers with SEC by completing Form MA online the advisor will need to disclose info about its business structure, services, client, compensation, other financial industry affiliations, and disciplinary history -advisor files Form MA-1 with the SEC for each individual representative (or principal) it employs who provides municipal advisory services SEC has 45 days to review -all advisors must file an annual update to Form MA every year within 90 days of the end of its fiscal year -advisors must amend Form MA within 30 days if any material info changes

Professional Liability Insurance

-also referred to errors and omissions insurance and protects municipal advisors against client claims of negligence, malpractice, or misrepresentation

Comprehensive Annual Financial Report (CAFR): Financial Section

-contains: 1) the entity's basic financial statements as well as notes to the statements 2) The Statement of Net Position -reports what a municipality owns (assets) and owes (liabilities) at a specific point in time (typically the end of the fiscal year) -[Net position = Assets + Deferred Outflows of Resources - Liabilities - Deferred Inflows of Resources] -the net position represents the remaining resources that are available for use by the municipality -Deferred outflow (prepaid item) is a consumption of net assets by the government that's applicable to a future reporting period while a deferred inflow (advance collection) is an acquisition of net assets by the government that's applicable to a future reporting period > a deferred outflow is a type of future asset and a deferred inflow is a type of liability 3) Budgetary Comparison Schedule (includes information from the original budget and the final budget, including any adjustments made to the budget, and the actual amounts which were received as revenues or spent as expenditures) -municipalities are encouraged to include variances in a budgetary comparison schedule, but it's not required 4) the independent auditors' report -the Auditor's report is found at the beginning of the Financial Section and reflects the extent to which a financial statement is reported fairly in conformity to generally accepted accounting principles (GAAP) > An auditor's report is not an opinion of the financial health of a government.

MSRB Rule G-37: Excluded Contributions

-contribution to an official of a municipal entity is not subject to this prohibition if the contribution is made by a MFP or MAP who's entitled to vote for the official and total contributions don't exceed $250 per election (this exception is tied to the election cycle) -MFP who's entitled to vote for an issuer official is permitted to contribute up to $250 for costs related to transition or inaugural expenses and payment of debt related to the election without causing a ban on municipal securities business if the MFP made no contributions prior to the election (if an MFP contributes $250 to the general election of an issuer official, the MFP is not permitted to make any contributions to pay for these expenses without causing a ban on municipal securities business with the issuer) -a municipal securities dealer or MFP who's employed by a dealer is not allowed to solicit or coordinate contributions for an official of an issuer with which the dealer is or is intending to do business

MSRB Rule G-20: Non-Cash Compensation in Connection with Primary Offerings

-gift rules also apply in connection with underwriters that distribute municipal securities in a primary offering -non-cash compensation includes any form of compensation other than cash that's received in connection with the sale and distribution of municipal securities -issuer may reimburse the underwriters for meetings held in order to train or educate associated persons -Non-cash compensation between the firm and its associated persons is allowed if the: > non-cash compensation is based on the total production for sales and distribution of specific product types > compensation that's received is equally weighted for each municipal security within a product type > Any person, other than associated persons, is not allowed to participate in the distribution or receive any non-cash compensation

SEC Rules: Financial Responsibility

-having enough net capital (liquid net worth) to maintain solvency -requires firms that have custody of consumer funds and securities to safeguard those assets under the Consumer Protection Rule Broker-dealers registered under the Exchange Act are required to adhere to these rules

MSRB Rule G-42: Recommendations and Review of Recommendations of Other Parties

-if a municipal advisor makes a recommendation it must have a reasonable basis to believe that the recommended transaction or product is suitable for the client, based on the information obtained through the reasonable diligence -if the review of a recommendation of another party is requested by a client, the advisor must determine whether the transaction or product is suitable for the client & the municipal advisor must inform the client of: > the advisor's evaluation of the material risks, potential benefits, structure, and other characteristics of the recommended transaction or product > the basis upon which the advisor reasonably believes the recommended transaction or product is, or is not, suitable for the client > whether the advisor has investigated or considered other reasonably feasible alternatives that may serve the client's objectives **if a client of a municipal advisor elects a course of action that's independent of or contrary to the advice provided by the advisor, the municipal advisor is not required to disengage from the municipal advisory relationship

The Advice Standard: Examples of General Information

-info about professional qualifications & experience -general market & financial info -info about what investments or services the institution currently offers -factual info describing various types of debt financing structures -educational materials regarding govt programs & incentives

Accounting Standards: Comprehensive Annual Financial Report (CAFR)

-most larger issuers will create a Comprehensive Annual Financial Report (CAFR) that contains three main sections: 1) Introductory 2) Financial 3) Statistical

Registering as a Municipal Advisor: under SEC rules

-municipal advisor must register with the SEC (and it must happen its registration with the MSRB) -firms that are broker-dealers must also notify FINRA of their intent to become municipal advisors

Accounting Standards: Municipal Advisors are Regulated by...

-municipal advisors are regulated by the MSRB and SEC -issuers are exempt from regulation and registration with FINRA, MSRB, and the SEC > the Governmental Accounting Standards Board (GASB) sets accounting standards for municipal issuers

MSRB Rule G-44: Designation of an Appropriate Principal & Chief Compliance Officer (CCO)

-municipal advisors must designate at least 1 Municipal Advisor Principal and appoint a person as their Chief Compliance Officer (CCO can be an employee or can be from outside the firm) to administer the firm's compliance policies & procedures -Supervisory principals must have the authority & expertise to carry out their responsibilities (a person not formally designated as a supervisory principal may be deemed a supervisor by regulators if they are able to impact the actions of an employee under investigation)

MSRB Rule G-44: Bank Exemption

-municipal advisors that are federally regulated banks or a separately identifiable department or division of a bank are exempt from the requirements of G-44 -to take advantage of this exemption, advisor must annually certify in writing it's subject to federal supervisory, compliance, and recordkeeping regulations that are similar to those in G-44

Comprehensive Annual Financial Report (CAFR): Introductory Section

-orients and guides the reader through the report -contains: 1) a list of principal officers 2) an organizational chart 3) a letter of transmittal

Municipal Securities Rulemaking Board (MSRB)

-primary rulemaking authority for the municipal securities industry -does not enforce MSRB rules but provides rule interpretations -authority to make rules regulating the municipal securities activities of banks (that are conducted on a dealer basis) and securities firms only -broker-dealers are subject to MSRB rules regardless of whether they are conducted on a dealer (principal) or broker (agency) basis Note: These rules do not apply to municipal security issuers or investors

Comprehensive Annual Financial Report (CAFR): Statistical Section

-provides additional financial and statistical data, including data about financial trends that may better inform the reader about the government's activities -contains: 1) the legal debt margin (shows the difference between the amount of debt that's authorized and the amount of debt or debt service that's outstanding) 2) at least two schedules that contain demographic and economic information -one schedule should include the following pieces of information: > population > total personal income (or the ratio of debt-to-personal income) > per capita personal income > unemployment rate all information should cover at least the past 10 years. In addition, a government should also present a schedule of the 10 largest employers over the past 10 years

Securities Acts Amendments of 1975

-required dealers participating in municipal securities transactions to be registered with the SEC -created the Municipal Securities Rulemaking Board (MSRB) -specifies areas in which MSRB rulemaking authority is appropriate

MSRB's Rulemaking Authority Over Dealer Activity Includes Rules Regarding

-standards of professional qualification -fair practice -recordkeeping -the scope & frequency of periodic compliance examinations -the form & content of quotations relating to municipal securities -confirmation, clearance, and settlement of transactions

Disqualifications and Disciplinary Actions

-statutory disqualification: firm or person can be disqualified as an MSRB member if they have been expelled or suspended from membership or participation in an exchange or association > one possible reason for a suspension is for violation of exchange or association rules which mandate conduct that's consistent with just and equitable principles of trade -the SEC (for broker-dealers) and the appropriate regulatory authority (for bank dealers) may waive this disqualification if they feel that additional facts or conditions make such a waiver appropriate (EX: if a person committed a wrongdoing that had nothing to do with a securities-related matter and that person paid the penalty, the appropriate regulatory authority may waive the disqualification) -the SEC, a bank regulatory authority, or FINRA may take disciplinary action against a firm (or its employees) that will place a restraint on doing business in municipal securities > if this is the case, the firm and its employees are each prohibited from functioning beyond the limits of any restrictions placed upon the firm

MSRB Rule G-37: Political Contributions (unless under $250) Must be Disclosed to the MSRB by Municipal Securities Firms When They are Made by

-the municipal securities firm -any of the firm's MFPs -any PAC that's controlled by the firm or an MFP -any non-MFP executive officer of the firm (contributions by non-MFP executive officers will not trigger the two-year ban) political contributions are disclosed to the MSRB through Form G-37, which is filed on a quarterly basis, the MSRB makes this info available to the public

MSRB Rule G-38: What Municipal Securities Business Includes

-the purchase of a primary offering from an issuer on a negotiated basis (competitive bid allocations are excluded from the definition) -the offer or sale of a primary offering of municipal securities on behalf of any issuer, including public offerings and private placements. if a municipal securities firm provides financial or advisory services to an issuer, or on behalf of the issuer, in a primary offering, the firm is engaged in municipal securities business

The Advice Standard: According to the SEC

-whether something constitutes advice depends on the situation -general information that's not tailored to that specific municipality's needs is not advice the more tailored the info is to the municipalities specific needs, the more likely it is advice -anything that rises to the level of recommendation (call to action) is advice

2 Types of Business Entities Required to Register with the MSRB

1) Municipal Dealers: firms that engage in brokerage activities, securities dealing, and municipal underwritings 2) Municipal Advisors: provide advice to municipalities concerning the structure, timing, and terms of municipal securities issuance, but may not take part in the underwriting itself

SEC Rule 15Ba1-8: Municipal Advisors must Maintain the Following Records

1) Originals or copies of all written communications received, and originals or copies of all written communications sent, by such municipal advisor (including interoffice memoranda and communications) relating to municipal advisory activities, regardless of the format of such communications 2) All checkbooks, bank statements, general ledgers, cancelled checks and cash reconciliations of the municipal advisor 3) A copy of each version of the municipal advisor's policies and procedures 4) A copy of any document created by the municipal advisor that was material to making a recommendation to a municipal entity or obligated person, or that memorializes the basis for that recommendation 5) A record of the names of persons who are currently, or within the past five years were, associated with the municipal advisor 6) All written agreements (or copies thereof) entered into by the municipal advisor with any municipal entity, employee of a municipal entity, or an obligated person or otherwise relating to the business of such municipal advisor 7) Books and records containing a list or other record of: -The names, titles, and business and residence addresses of all persons associated with the municipal advisor − All municipal entities or obligated persons with which the municipal advisor is engaging or has engaged in municipal advisory activities in the past five years − The name and business address of each person to whom the municipal advisor provides or agrees to provide (directly or indirectly) payment to solicit a municipal entity, an employee of a municipal entity, or an obligated person on its behalf 8) The name and business address of each person that provides or agrees to provide, directly or indirectly, payment to the municipal advisor to solicit a municipal entity, an employee of a municipal entity, or an obligated person on its behalf 9) Written Consents to Service of Process from each natural person who's associated with the municipal advisor and engages in municipal advisory activities solely on behalf of such municipal advisor 10) All Municipal Advisors must maintain an electronic complaint file which includes name, address, client ID number (if any), date that the complaint was received, date of activity that triggered the complaint, name of each person identified in the complaint, description of complaint, and action taken (if any) for all written complaints received from advisory clients. In addition, advisors must code all complaints using a standard set of product and problem codes as provided by the MSRB. Advisors must maintain these records for a period of six years. SEC Rule 15Ba1-8 requires all books and records to be kept for a period of not less than five years

Issuer Records: Records the IRS Requires Issuers of Tax-Exempt Bonds to Maintain

1) documentation related to the sources of payments or security for the bonds 2) records related to each bond transaction (such as the loan agreement, bond counsel opinion, and trust indenture) 3) documentation pertaining to any investment of bond proceeds, which may include SLGS investments or GICs, actual investment income received from bond proceeds, and rebate calculations 4) documentation evidencing the expenditures of bond proceeds 5) documentation evidencing the use of bond-financed property by public and private sources (e.g., a contract between the issuer and a conduit borrower) 6) information related to Treasury arbitrage rebate compliance -issuers are required to maintain these records for as long as the bonds are outstanding plus three years -in the case of a refunded bond issue, the IRS requires records to be kept until three years after the final redemption of both bond issues

MSRB Rule G-42: A Municipal Advisor is Prohibited From

1) receiving compensation that's excessive in relation to the activities actually performed 2) delivering an invoice for fees or that's materially inaccurate 3) making any representation that's either materially false or materially misleading due to the omission of a material fact about the capacity, resources or knowledge of the advisor, in response to requests for proposals or qualifications or in presentations to a client or prospective client 4) making, or participating in, any fee-splitting arrangement with underwriters, and any undisclosed fee-splitting arrangements with providers of investments or services 5) making payments for the purpose of obtaining or retaining an engagement other than: -reasonable payments to an affiliate (a person directly or indirectly controlling, controlled by, or under common control with the advisor) -resonable fees paid to another municipal advisor

MSRB Rule G-37: Exemptions for Contributions Made by an Individual Who

1) was not an MFP or MAP at the time of the contribution 2) became and is an MFP or MAP or both, solely to act as a dealer solicitor and/or municipal advisor solicitor 3) since becoming an MFP/MAP, has not solicited the municipal entity, and may not solicit the entity until two years after making the contribution

Records Concerning Compliance with Gifts & Gratuities

According to MSRB rules on books & records, a municipal securities dealer must maintain a record of the following information relating to gifts and non-cash compensation: -separate record of any gift or gratuity as defined under the gift rule (There's no exception on the dollar value of the gift and it's a violation if the gift exceeds $100.) -record of all agreements relating to compensation for services provided to the municipal securities dealer -record of certain information relating to all non-cash compensation such as the name of the person or entity making the gift, the names of the associated persons receiving the payment, the location of the meeting that was used to educate the representatives concerning the securities product, and the value of non-cash compensation received Firms must maintain records of all gifts given or received as well as records of compensation agreements and the compensation paid. These records must be kept for six years

Securities Act of 1933

An act that governs the sale of new issues of securities with registration requirements (unless exempt) and antifraud provisions (no party is exempt)

MSRB Rule G-3: Associated Person

An associated person carries out the activities of the municipal securities firm, including: -underwriting, trading, or sales of municipal securities -financial advisory services for issuers -research or investment advice with respect to municipal securities -communications with public investors in municipal securities a person whose duties are solely clerical and ministerial is not an associated person

Securities Exchange Act of 1934

Concerned with: the trading of securities once they have been issued, the regulation of exchanges, and the regulation of broker-dealers Covers: -regulation of transactions in the secondary market, including anti manipulation rules and regulations involving the extension of credit in securities transactions -registration & regulation of broker-dealers -oversight of industry self-regulatory organizations (SROs) -registration and regulation of issuers with securities trading in the secondary market (including regular financial disclosures, proxy rules, and insider reporting requirements) -municipal securities broker-dealers and dealer banks (def: either a bank or a separately identifiable division of a bank that buys and sells municipal securities for its own account) must register with the SEC > broker-dealers register with the SEC by filing Form BD, while dealer banks register by filing Form MSD Certain securities are exempt from some parts

Enforcement of MSRB Rules Regarding: Dealer Banks

Enforced by one of the following bank regulatory agencies: -Comptroller of the Currency -Federal Reserve Board -Federal Deposit Insurance Corporation Note: MSRB rules govern the municipal securities activities of a bank on dealer basis.

MSRB Rule G-37: Reports Relating to Political Contributions

Form G-37 must be submitted to the MSRB for a calendar quarter if any one of the following occurred: -reportable political contributions or payments to political parties were made during the reporting period, (unless the firm has previously submitted form G-37(X) and the submission remains in effect) -the dealer engaged in municipal securities business during the reporting period -the dealer used consultants during the reporting period

Registration Process

If issuer is not exempt, it must register their securities: -file a registration statement with the SEC -issuers must prepare and distribute a prospectus to all purchasers of the new issue

MSRB Rule G-37: Two Main Parts

MSRB Rule G-37 has 2 main parts: 1) If certain political contributions have been made: -brokers, dealers, & municipal securities dealers are prohibited from engaging in municipal securities business -municipal advisors are prohibited from engaging in municipal advisory business with municipal entities 2) municipal securities dealers & municipal advisors must disclose certain political contributions, as well as other information

Securities Acts Amendments of 1975: MSRB's Rulemaking Authority

MSRB's has the authority to make rules to: -prevent fraudulent and manipulative acts & practices -promote fair & equitable trade principals -protect investors & the public interest

MSRB Rule G-37: Municipal Advisor Professional (MAP)

Municipal Advisor Professional (MAP) is defined as: -any Municipal Advisor Representative -any municipal advisor solicitor -any Municipal Advisor Principal, such as a supervisor of any municipal advisor -any municipal advisor supervisory chain person who's a supervisor of any MAP, including the CEO -any municipal advisor executive officer representatives continue to be classified as MAPs for one year following the activity or position that initially gave rise to the designation

MSRB Rule G-37: Municipal Finance Professional (MFP)

Municipal Finance Professional (MFP) is defined as: -any associated person who's primarily engaged in the activities of a Municipal Securities Representative, such as underwriting, trading, sales, financial advisory or consulting services (to issuers), research, or investment advice regarding municipal securities. for purposes of this rule, sales activities with natural persons are not considered Municipal Securities Representative activities For a diversified broker-dealer whose municipal securities activities are only part of its business, there may be many representatives who are not MFPs since those activities are not the primary aspect of their business. A retail salesperson is not considered an MFP solely because of his municipal securities sales activities -any associated person who solicits any municipal securities business. Even something as simple as attending a presentation that a municipal securities firm makes to a potential issuer regarding the firm's public finance capabilities could be interpreted as a solicitation and result in a representative being classified as an MFP -direct supervisors of these associated persons -any member of the executive or management committee of a dealer or of a separately identifiable department of a dealer bank. For MFPs who meet this definition as well as the direct supervisors, the ban on business only applies to contributions that are made during the six months prior to the individual becoming an MFP. representatives continue to be classified as MFPs for one year following the activity that initially gave rise to the designation

Securities Exchange Act of 1934: Exempt Issuers

Not required to register their securities or file regular financial reports & not covered by the restrictions on extension of credit but general antifraud provisions apply to all municipal issuers & broker-dealers

MSRB Rule G-37: Two-Year Ban on Municipal Securities Business or Municipal Advisory Business

Rule G-37 prohibits a firm from engaging in activities with municipal entities for two years after non-exempt political contributions are made to certain officials of the entity by: -a municipal broker-dealer -any of the broker-dealer's MFPs -any political action committee (PAC) that's controlled by the broker-dealer or an MFP -a municipal advisor -any of the advisor's MAPs -any political action committee (PAC) that's controlled by the advisor or an MAP -a municipal advisor third-party solicitor -any of the third-party advisor's MAPs -any political action committee (PAC) that's controlled by the third-party advisor or an MAP non-exempt contributions may not be made to officials who have influence over the selection of municipal securities or advisory firms -brokers, dealers, and municipal securities dealers may not engage in municipal securities business for two years after a contribution to an official with dealer selection influence; however, municipal advisors will be banned for two years following a contribution to an official with municipal advisor selection influence

SEC Registration Process: Exempt Securities

Securities that are exempt from the registration and prospectus requirements: -Municipal Securities -US govt, US govt agency securities, govt sponsored enterprises -Securities issued by non-profit orgs -Short-term corporate debt instruments (ex: commercial paper) -Securities issued by domestic banks and trust companies (but not bank holding companies)

MSRB Rule G-42: Duty of Loyalty

a municipal advisor must: -deal honestly and with the utmost good faith with clients -act in the client's best interests without regard to the financial or other interests of the advisor municipal advisor may not engage in advisory activities if it cannot manage or mitigate its conflicts of interest in a manner that permits it to act in the client's best interest

MSRB Rule G-42: Duty of Care

a municipal advisor must: -have the knowledge and expertise needed to provide a client with informed advice -make a reasonable inquiry into the facts that are relevant to a particular course of action or that form the basis for any advice provided to the client -do its best to determine that it's not basing any recommendation on materially inaccurate or incomplete information a municipal advisor must have a reasonable basis for any: -advice provided to or on behalf of a client -representations that could be relied upon by the client, or any other party involved in a transaction -information provided in connection with the preparation of an official statement

Registering as a Municipal Advisor: Using Registration Status in Advertising

a municipal advisor registered with the MSRB may use the designation "MSRB-registered" in its advertising on its website

MSRB Rule G-37: Municipal Advisor Third-Party Solicitor

a municipal advisor third-party solicitor is a municipal advisor that's currently soliciting a municipal entity, is engaged to solicit a municipal entity, or is seeking to be engaged to solicit a municipal entity for direct or indirect compensation, on behalf of a dealer, municipal advisor, or investment adviser the associated persons who conduct this business on behalf of their firm are also considered MAPs

MSRB Rule G-42: Know Your Client

advisor must use reasonable diligence to know and retain the essential facts concerning a client knowing its client, an advisor should: -effectively service the client -act in accordance with any special directions from the client -understand the authority of each person acting on behalf of the client -comply with applicable laws, regulations and rules

MSRB Rule G-44: Annual Certification

an advisor's CEO (or equivalent exec) must annually certify in writing that the firm has in place processes to -establish -maintain -review -test -modify written compliance policies and written supervisory procedures firms that are already required to make a similar certification to FINRA are exempt from this requirement

MSRB Rule G-37: Reporting Related to Contributions to Bond Ballot Campaigns

bond ballot campaigns (which secure voter approval for taxpayer-funded public projects) which are made by MPF's and non-MPF executive officers for bond ballot initiatives must be disclosed unless the person is entitled to vote for the initiative and the contribution doesn't exceed $250 - contributions over $250 must be reported but will not trigger the two-year ban -MSRB does not limit the amount that may be given, only that the amount must be disclosed quarterly -two copies of these reports must be sent to the MSRB on Form G-37 by the last day of the month following the end of each calendar quarter and must include: 1) name and title of each official of an issuer and political party receiving contributions or payments 2) amount of the contribution or payment made and the contributor category (e.g., the firm, each MFP, each non-MFP executive officer, each PAC controlled by the firm) of the persons and entities involved 3) list of issuers with which the dealer has engaged in municipal securities business & the type of municipal securities business

Registering as a Municipal Advisor: Compliance with Regulatory Requests

by registering, a municipal advisor agrees to give the MSRB, SEC or FINRA any info they request within 15 days or within an agreed upon time

MSRB Rule G-37: Exemptions for Contributions Made by an Individuals (more than six months prior to becoming an MFP/MAP)

contribution must have been made by a person who is either: 1) an MFP whose sole function is as a municipal finance principal, dealer supervisory chain person, or dealer executive officer 2) a municipal advisor professional solely acting as an MAP, municipal advisor supervisory chain person, or municipal advisor executive officer this individual is not involved in soliciting business

MSRB Rule G-37: Why it was Created

deal with the practice that's referred to as pay-to-play, the practice of municipal securities dealers making political contributions in order to gain favor with politicians who may, in return, direct municipal securities underwriting business their way (rule also applies to municipal advisors) -political contribution: any gift, subscription, loan, advance, deposit of money, item of value, reimbursement of debt that's incurred in a political campaign, payment for transition or inaugural expenses of a successful candidate

MSRB Rule G-38: Definition of Affiliated Person

def: a partner, director, officer, employee, or registered person of the firm -in the case of a bank dealer, the definition includes any person who has a similar status or performs similar functions -also considered affiliates are other companies that directly control, are controlled by, or are under common control of the municipal securities firm

MSRB Rule G-38: Definition of Solicitation

def: any direct or indirect communication by any person with an issuer for the purpose of obtaining or maintaining municipal securities business

MSRB Rule G-37: Non-MFP Executive Officers

def: associated persons in charge of a principal business unit, division, or function, or any other person who performs similar policy making functions for the municipal securities firm, but it doesn't include any municipal finance professional

MSRB Rule G-37: Cross-Bans for Dealer-Municipal Advisors

def: if a firm is both a dealer and a municipal advisor, contributions by the firm or any finance or advisory professional may result in what's referred to as a cross-ban -regardless of how the two businesses are separated, the MSRB considers a firm that has both a dealer and a municipal advisor component as being a single firm EX: if an MAP of the combined firm made a non-exempt contribution to an official of a municipal entity with municipal underwriting selection influence, the firm is banned from conducting any securities-related business with that entity for two years

registration statement

def: public document filed with the SEC designed to provide full disclosure of all material information about the issuer and the offering

Being a Fiduciary: Duty of Care

def: the advisor must have the necessary expertise to counsel the client, advisor must be qualified to do the job -advisor must take the time to collect info about the client's financial needs and objectives so that it can recommend suitable investments & strategies -applies to all of the advisor's clients regardless of whether they're municipal entities or obligated persons obligation advisor assumes when it begins a fiduciary relationship indicated by the SEC

Being a Fiduciary: Duty of Loyalty

def: the advisor must put the municipality's interest first -advisor must fully disclose all conflicts of interest it may have to the municipality (in some cases the conflicts may be so great the advisor will need to abstain from engaging in those activities) obligation advisor assumes when it begins a fiduciary relationship indicated by the SEC

the prospectus

def: the primary risk disclosure document containing all material facts about the issue (a summary of the registration statement) -Must be provided to all purchasers of the new issue -Front cover must display a statement that describes the limitations of the SEC's review

MSRB Rule G-37: Volunteer Work

does not violate the political contribution rules, MAP/MFP may volunteer her time on behalf of an official of the issuer -personal expenses incurred during volunteer work, such as cab fare or personal meals, are not defined as a contribution -does not restrict MFPs from engaging in political activities to express their personal views provided they don't solicit contributions or exceed the contribution limits -generally permitted: appearing at a fundraising event, soliciting votes (not contributions), giving speeches, writing books, displaying a sign on their property, or having a bumper sticker on their car -potentially prohibited: hosting a fundraising event (may be considered soliciting contributions), or covering the expenses incurred to host the event (may be considered a contribution)

Periodic Compliance Examinations

each municipal securities broker-dealer must be examined at least once every 4 years to ensure the firm and its associated persons are in compliance with all the MSRB and SEC rules

MSRB Rule G-42

establishes standards of conduct for municipal advisors -fiduciary duty (duty of care and duty of loyalty) -rule includes disclosure and documentation requirements

MSRB Rule G-37: Records Concerning Political Contributions and Prohibitions of Municipal Securities Business

every broker, dealer, and municipal securities dealer must keep current records that reflect: 1) name, title, and address of all MFPs and executive officers 2) states in which the firm intends to do municipal business 3) listing of issuers with which the firm has done business, and in what capacity, during the current year, and separate listings for the last two calendar years 4) amounts, dates, and identities of contributors (which includes MFPs, any PAC that's controlled by an MFP, and non-MFP executive officers) for all contributions, direct or indirect, to officials of an issuer as well as to political parties of states and political subdivisions 5) Forms G-37 sent to the MSRB & proof of mailing these records must be kept for six years

Broker-Dealer

financial entity that is engaged with trading securities on behalf of clients, but which may also trade for itself

MSRB Rule G-37: Requirements for Automatic Exemptions

firm that is otherwise subject to a ban may use an automatic exemption if the following requirements are met: 1) contribution is discovered within four months of the date of the contribution 2) contribution did not exceed $250 3) contribution is returned within 60 calendar days of the date of discovery -a firm is entitled to no more than two automatic exemptions per 12-month period and may not execute more than one automatic exemption for contributions that are made by the same person regardless of time period

MSRB Rule G-20 What it Covers

gifts, gratuities, non-cash compensation, and expenses of issuance

MSRB Rule G-37: Orderly Transition Period

if a firm becomes subject to a prohibition, it may continue to engage in the municipal securities or advisory business (except soliciting) to allow for an orderly transition to another entity provided the transition period is as short a period as possible

MSRB Rule G-42: Inadvertent Advice

if an advisor inadvertently engages in advisory activities and does not intend to continue these activities or enter into an advisory relationship, the advisor must provide a document to the municipal entity or obligated person that includes: 1) disclaimer that the advisor did not intend to provide advice and that, effective immediately, it has ceased engaging in municipal advisory activities with that entity or obligated person 2) notification that the entity or obligated person should be aware that the disclosure of material conflicts of interest and other required information has not been provided 3) identification of all of the advice that was inadvertently provided 4) request that the entity or obligated person acknowledge receipt of the document **advisor must also promptly conduct a review of its written supervisory and compliance policies and procedures to ensure they're reasonably designed to prevent the provision of inadvertent advice

MSRB Rule G-3: Lapse of Qualification Requirements

if any associated persons cease functioning in their job capacity for two or more years after having been qualified, their registration will lapse and they will be required to retake the appropriate examination.

MSRB Rule G-10

investor and municipal advisory client education & protection once every calendar year, a municipal securities firm is required to provide each customer with the following information: -a statement that it's registered with the SEC and the Municipal Securities Rulemaking Board -website address for the MSRB -statement for customers regarding the availability of an Investor Brochure that's posted on the website of the MSRB and describes the protections afforded by MSRB rules as well as how to file a complaint with an appropriate regulatory authority

MSRB Rule G-3: Confidentiality of Qualification Exams

it's a violation of MSRB rules for any person taking any examination to: -disclose the questions or answers to the questions to any person -give or receive assistance during the examination -do anything that's inconsistent with the confidential nature of the exam -knowingly sign a false certification concerning the examination

MSRB Rule G-37: Individuals Subject to the Rule

municipal finance professionals (MFP) and municipal advisor professionals (MAP)

MSRB Rule G-9

preservation of records (generally requires records be kept for a period of five years) -require a municipal advisor to maintain for six years the name of the person designated as the chief compliance officer as well as any principal who's designated to be responsible for the advisor's written supervisory procedures -a municipal advisor that terminates its registration is required to maintain its articles of incorporation for at least three years after termination -all records that are required to be kept by a municipal advisor must be kept in an easily accessible place for the first two years -Non-resident municipal advisors must keep books and records in the US and provide the SEC with a written notice of the address

MSRB Rule G-42: Disclosure of Conflicts of Interest

prior to or upon engaging in municipal advisory activities, a municipal advisor must provide its client a full and fair disclosure in writing of all material conflicts of interest, including any: -affiliate of the municipal advisor that provides any advice, service, or product to or on behalf of the client that's directly related to the municipal advisory activities to be performed -payments made by the advisor, directly or indirectly, to obtain or retain an engagement with the client -payments received from a third party to enlist the municipal advisor's recommendation to the client of its services -fee-splitting arrangements involving the advisor and any provider of investments or services to the client -conflicts of interest arising from compensation for municipal advisory activities that are based on the size or closing of any transaction -other actual or potential conflicts of interest that could reasonably be anticipated to interfere with the advisor's ability to provide advice in accordance with the standards of conduct **disclosures of conflicts of interest must be sufficiently detailed to inform the client of the nature, implications and potential consequences of each conflict & must include an explanation of how the advisor addresses or intends to manage or mitigate each conflict **if a municipal advisor concludes that it has no known material conflicts of interest based on the exercise of reasonable diligence, the advisor must still provide a written statement to the client to that effect **advisors must disclose any legal or disciplinary event(s) that are material to a client's evaluation of the advisor, or the integrity of its management or advisory personnel. The advisor may choose to disclose this information by referring a potential client to the advisor's most recent Forms MA or MA-I as filed with the SEC (if using this method of disclosure, the advisor must detail the specific types of events which are disclosed on these forms and provide detailed information as to where the client may electronically access such forms)

MSRB Rule G-42: Documentation of Municipal Advisory Relationship

prior to, upon or promptly after the establishment of the municipal advisory relationship, an advisor must memorialize the relationships in writing that must include: 1) form and basis of any direct or indirect compensation 2) description of the specific types of information regarding legal and disciplinary events that are disclosed on Forms MA and MA-I (includes information about any criminal actions, regulatory actions, investigations, terminations, judgments, liens, civil judicial actions, customer complaints, arbitrations and civil litigation, and detailed information concerning where the client may electronically access the advisor's most recent Forms MA and MA-I 3) date of the last material change or addition to the legal or disciplinary event disclosures on Form MA or Form MA-I, and a brief explanation of why the change or addition is considered to be material 4) scope of advisory activities to be performed and any limitations on the scope of the engagement (an advisor may limit the scope of its relationship with its client, however it may not place any limits on the standards of conduct contained in Rule-G-37) 5) date, triggering event, or means for the termination of the municipal advisory relationship, or, if none, a statement that there is none 6) terms relating to withdrawal from the municipal advisory relationship

MSRB Rule G-3

professional qualification requirements -any person who's considered an associated person of a municipal securities broker or dealer must be properly licensed and qualified

Rule A-12

registering with the MSRB -municipal securities broker-dealers and dealer banks that register with the MSRB must pay an initial fee of $1,000 -fee must be paid prior to executing any transaction in municipal securities & must be accompanied by a written statement giving the name, address, and SEC registration number of the municipal securities broker-dealer on whose behalf the fee is paid. (The SEC registration number identifies the broker-dealer.) -failure to pay the required fee could result in the Board recommending to the SEC that the dealer's registration with the SEC be suspended or revoked -the initial fee has nothing to do with any other fees or assessments of the Board (if a firm pays the fee and then ceases business, another initial fee must be paid if the firm once again intends to register as a municipal securities broker-dealer) -each municipal securities firm must pay an annual fee of $1,000 to the MSRB > paid in each fiscal year in which the firm conducts business as a municipal securities broker or dealer and must be received by no later than October 31 of the fiscal year for which the fee is paid -if a firm ceases to be a municipal securities broker or dealer, it must notify the Board of the change of status by submitting a written statement (should contain the name, address, and SEC registration number for the firm) & a statement that the firm is no longer a municipal securities broker or dealer > if any fees are due at this time, the firm is still obligated to pay them

MSRB Rule G-44: Requirements for each Municipal Advisor

requires each municipal advisor to have a supervisory & compliance system that's reasonably designed to achieve compliance with all applicable securities laws and regulations, some of the regulations: -create & enforce written supervisory procedures (WSP) that shall be promptly amended to reflect changes in applicable rules and as changes occur in the advisor's supervisory system & communicated to all associated people to whom the changes are applicable -advisor is required to designate 1 or more principals to be responsible for supervision -advisor is required to review & test its WPS at least once annually (should consider more frequent review in order to comply with the other requirements) -advisor is required to designate a person to serve as the Chief Compliance Officer (CCO)

MSRB Rule G-8

requires municipal securities broker-dealers and municipal advisors to maintain certain books and records -one section of this rule (related to municipal advisors) requires a municipal advisor to maintain books and records in accordance with SEC Rule 15Ba1-8

MSRB Rule G-37: Municipal Advisor Third-Party Solicitors

rule includes special restrictions on municipal advisors that act as municipal advisor third-party solicitors -if a disallowed contribution was made by the firm, a PAC, or one of its MAPs to an official with dealer selection influence, municipal advisor selection influence, or investment adviser selection influence, the firm is banned from conducting any advisory business with that municipal entity -if a dealer has engaged a third-party solicitor to solicit a municipal entity on behalf of the dealer, and if the solicitor makes a contribution to an official of a municipal entity with dealer selection influence, both the solicitor and the retaining dealer will be subject to the two-year ban -if a municipal adviser engages a third-party solicitor to solicit a municipal entity on its behalf, any non-exempt contribution that's made by the solicitor to an official of a municipal entity with municipal advisor selection influence will also result in a two-year ban following the contribution

MSRB Rule G-38

solicitation of municipal securities business -a broker, dealer, or municipal securities dealer may not agree to pay, either directly or indirectly, any person who's not affiliated with the firm for soliciting municipal securities business on behalf of the firm

Financial Industry Regulatory Authority (FINRA)

the primary regulator for all U.S. broker-dealers

Accounting Standards: The Governmental Accounting Standards Board (GASB)

their mission: to establish and improve standards of state and local governmental accounting and financial reporting that will result in useful information for users of financial reports and guide and educate the public, including issuers, auditors, and users of those financial reports The GASB is: - a source of generally accepted accounting principles (GAAP) which are used by state and local governments -a private, non-governmental organization that's subject to oversight by the Financial Accounting Foundation (FAF) > the FAF selects the members of the GASB and the Financial Accounting Standards Board, and also funds both organizations

The Auditor's Report: Unqualified (Clean) Opinion, Qualified Opinion, Adverse Opinion, Disclaimer of Opinion

unqualified (clean) opinion: a statement that financial statements are presented fairly in conformity with GAAP qualified opinion: reflects departures from GAAP in certain sections, omission of information, exclusion of a portion of the government from the audit, or a lack of evidence provided to support certain information or notes adverse opinion: states that financial statements are not presented fairly in accordance with GAAP disclaimer of opinion: given when an auditor cannot express an opinion on one or more parts of the financial statements