Tag: MSRB

Exam Alert: SEC identifies good due diligence practices for municipal securities underwriters

On March 19, 2012, the SEC staff released a risk alert that reminds firms acting as underwriters for municipal securities of their due diligence and supervisory obligations under current rules. The alert then identifies specific examples of effective due diligence practices. Continue reading

On March 19, 2012, the SEC staff released a risk alert that reminds firms acting as underwriters for municipal securities of their due diligence and supervisory obligations under current rules.  The alert then identifies specific examples of effective due diligence practices.  Practices identified include:

-Clear explanation of regulatory requirements and firms’ expectations: detailed written policies and procedures that make clear how to conduct due diligence and include relevant rules and guidance

-Commitment committees: firm-wide, senior level committees that provide an additional step of review for various underwritings

-Diligence checklists: checklists to record which due diligence steps have been taken

-Due diligence memoranda: memos prepared by public finance bankers that describe any due diligence concerns and provide a review of the final official statement

-Outlines for due diligence calls: outlines prepared by underwriters’ counsel or issuer’s counsel that address disclosure concerns identified during due diligence calls

-On-site examination activities: on-site examinations to check the issuer’s fiscal prospects

-Recordkeeping checklists: checklists to make sure records of due diligence activities are made and properly stored

Source: SEC Release 2012-48

This alert applies to the Series 7, Series 79, Series 24, and Series 62.

Exam Alert: MSRB requires underwriters of municipal securities to provide additional disclosure

Effective August 2, 2012, the Municipal Securities Rulemaking Board (MSRB) will require underwriters of municipal securities to provide additional disclosures to issuers (state and local governments) and abide by other requirements. The changes apply to negotiated underwritings, but not to competitive underwritings. Continue reading

Effective August 2, 2012, the Municipal Securities Rulemaking Board (MSRB) will require underwriters of municipal securities to provide additional disclosures to issuers (state and local governments) and abide by other requirements.  The changes apply to negotiated underwritings, but not to competitive underwritings.  An underwriter must disclose the following:

-Details regarding the underwriter’s role, including that the underwriter has different financial interests than the issuer and that the underwriter does not have a fiduciary duty to the issuer

-The conditions of the underwriter’s compensation

-Any actual or potential material conflicts of interest – the interpretive notice specifically identifies the following potential conflicts of interest: third-party payments, profit-sharing with investors, and credit default swaps

-If recommending complex municipal securities transactions/products, all associated material financial risks, characteristics, incentives, and conflicts of interest

Additional requirements are as follows:

-All representations to the issuer must be accurate, truthful, and complete, with no omission or misrepresentation of material information.

-When drafting any issuer disclosure documents, the underwriter must have a reasonable basis for any representations it makes.

-The underwriter must pay a fair and reasonable price to the issuer.

-The underwriter may not recommend that the issuer not retain a municipal advisor.

This Exam Alert applies to the Series 7 Exam.

Sources:

MSRB Notice 2012-25

MSRB Establishes New Protections for State and Local Governments that Issue Bonds

Exam Alert: MSRB changes RTRS Facility rules

On March 20, 2012, the SEC approved amendments to the MSRB’s operational rules for the Real-time Transaction Reporting System (RTRS). The amendments have varying effective dates. The changes include:
-modified hours of operation
-calculation and dissemination of yields on inter-dealer transactions
-removal of rarely-used transaction reporting requirements
-dealer submission of prices on inter-dealer transactions
-increased dissemination of customer transactions Continue reading

On March 20, 2012, the SEC approved amendments to the MSRB’s operational rules for the Real-time Transaction Reporting System (RTRS).  The amendments have varying effective dates.  The changes include:

-modified hours of operation

-calculation and dissemination of yields on inter-dealer transactions

-removal of rarely-used transaction reporting requirements

-dealer submission of prices on inter-dealer transactions

-increased dissemination of customer transactions

 

The following change is effective March 20, 2012:

-RTRS will accept and disseminate any trade reports received between 6:00 AM and 9:00 PM.  This is an increase from the prior RTRS “Window” Hours, which were from 7:00 AM to 8:00 PM.

 

The following changes are effective April 30, 2012:

-RTRS will be reprogrammed to calculate and disseminate the yield for most inter-dealer transactions.  Currently, RTRS only reports the dollar prices of inter-dealer transactions, but reports both the dollar price and yield for customer trades.

 

-MSRB rules will no longer require reporting additional details about certain trades to RTRS in two situations:

1. The identity of an “intermediate dealer” (a broker that passes trade data from an effecting broker to a clearing broker) will no longer need to be included on trade reports.

2. Trades that are reported with the “away from the market – extraordinary settlement” special condition indicator will instead be reported with the generic “away from the market” indicator.

 

The following changes are effective on a date to be announced by the MSRB, but not later than November 30, 2012:

-Dealers will be required to report the contractual dollar price of their inter-dealer transactions.  Currently, RTRS calculates a price based on the final money, par amount, and accrued interest submitted to the DTCC (Depository Trust & Clearing Corporation).  This change is to avoid RTRS errors that occur when the system tries to calculate the price of a trade and the par value of the traded bonds is a value other than $1,000.

 

-RTRS will disseminate trade reports for customer transactions if the dealer-reported price and the RTRS-calculated price are within one dollar of each other.  Currently, if there is any difference between the two prices, RTRS returns an error to the dealers and does not disseminate the trade.

 

Source: MSRB Notice 2012-15

This alert applies to the Series 7.