Tag: underwriting

Exam Alert: MSRB Prohibits Municipal Dealers from Consenting to Changes to Authorizing Documents

Effective February 3, 2014, the Municipal Securities Rulemaking Board (MSRB) will amend one of its rules to help protect municipal bond investors from unexpected changes in bond authorizing documents. The amendments prohibit broker-dealers from agreeing to changes to authorizing documents when acting as an underwriter or remarketing agent, or acting as an agent for bondholders. Continue reading

Effective February 3, 2014, the Municipal Securities Rulemaking Board (MSRB) will amend one of its rules to help protect municipal bond investors from unexpected changes in bond authorizing documents. The amendments prohibit broker-dealers from agreeing to changes to authorizing documents when acting as an underwriter or remarketing agent, or acting as an agent for bondholders.

The rule allows for exceptions in certain situations. These situations include:

    • the authorizing document explicitly permits an underwriter to provide bond owner consent, and this was disclosed in the offering documents;
    • the broker-dealer owns the securities outside of its capacity as an underwriter or remarketing agent;
    • the securities are held by the remarketing agent due to a mandatory tender of the securities;
    • the bond owners have provided written consent; or
    • the underwriter provides consent on behalf of prospective purchasers, if the changes will not become effective until all current bondholders have provided consent.

The “authorizing document” refers to the trust indenture, resolution, ordinance, or other document under which the securities are issued.

Source: MSRB Enhances Protections for Investors Against Unexpected Changes to Bond Authorizing Documents

This alert applies to the Series 7, Series 52, and Series 53.

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: Flipping may only be discouraged through penalty bids

“Flipping” is when a customer sells a new issue into the secondary market at a profit shortly after the IPO. Underwriting managers may discourage this by Continue reading

“Flipping” is when a customer sells a new issue into the secondary market at a profit shortly after the IPO. Underwriting managers may discourage this by imposing penalty bids on brokers whose customers flip securities. Some firms have sought to independently recoup commissions paid to such brokers. Effective May 27, 2011, FINRA requires that flipping only be punished through penalty bids applied to the entire syndicate by the underwriting manager. Relevant to the Series 24, Series 62 and the Series 79 exams.

http://www.finra.org/Industry/Regulation/Notices/2010/P122491

Exam Alert: Underwriters must report indications of interest and final allocations to issuers

Effective May 27, 2011, during a new issue, the underwriting manager must report indications of interest and aggregate demand for the security to Continue reading

Effective May 27, 2011, during a new issue, the underwriting manager must report indications of interest and aggregate demand for the security to the issuer.  After the settlement date of the new issue, a report of the final allocation of shares to institutional investors must be provided to the issuer, along with the aggregate sales to retail investors.  This change was made to increase transparency in the book-building process. Relevant to FINRA Series 7, Series 24, Series 62 and the Series 79 Investment Banking Exam.

http://www.finra.org/Industry/Regulation/Notices/2010/P122491