2.2.2.8.1. Prohibited Principal Transactions
Engaging in certain principal transactions with a municipal entity client is prohibited. Specifically, a non-solicitor MA cannot engage in a principal transaction with a municipal entity client if the transaction is directly related to municipal securities or municipal security products about which the MA is advising the entity. This prohibition also applies to affiliates of the municipal advisor.
There is a narrow exception to this prohibition for certain fixed-income transactions. The exception requires all of the following conditions to be met:
• The principal transaction is a sale involving a U.S. Treasury security, an agency debt security, or a corporate debt security, and does not involve municipal escrow investments.
• The municipal advisor is a registered broker-dealer, and the account is a brokerage account where the municipal advisor does not exercise discretion or discretion was granted on a temporary or limited basis.
• Neither the municipal advisor nor any affiliate of the municipal advisor is providing or has provided advice to the municipal entity client as to an issue of municipal securities or a municipal financial product that is directly related to the principal transaction.
• The municipal advisor either: (1) discloses to the municipal entity client in writing before the completion of the transaction the capacity in which the municipal advisor is acting and obtains the consent of the municipal entity client to such transaction, or (2) executes the transaction under circumstances meeting all of the following requirements:
» Neither the municipal advisor nor any of its affiliates are the issuer of the security or at the time of the sale an underwriter of the security
» The municipal entity client has executed a written, revocable consent prospectively authorizing the municipal advisor directly or indirectly to act as principal for its own account in selling any security