MSRB seeks comments on potential disclosure of financial incentives

By Toni Weeks

San Diego, May 31 - The Municipal Securities Rulemaking Board is requesting comments relating to the potential public disclosure on MSRB's Electronic Municipal Market Access (EMMA) system of payments and receipts made by brokers, dealers, municipal securities dealers and municipal advisers that could represent conflicts of interest.

According to an MSRB news release, the MSRB is considering whether to require dealers and municipal advisers to submit disclosures with respect to payments, credits and financial incentives, either provided to any other party, including municipal entities and their personnel, or received from any party other than the municipal entity.

Such public disclosures could alert investors and other market participants to any possible conflicts of interest, MSRB said in the release. The disclosures would assist municipal entities and the general public in the selection of competent and non-conflicted underwriters and municipal advisers for their public sector financial undertakings as well as help restore taxpayer confidence in the services provides by financial professionals to their state and local jurisdictions.

Disclosures that could be required to be made by underwriters include

• Any financial incentives received by an underwriter for any third-party payor for recommending a municipal securities financing or related transaction to the municipal entity or an obligated person or for recommending the participation of any third party to undertake a role in connection with such new issue transaction;

• Any other financial incentives received by the underwriter from any third-party payor in connection with a new issue transaction; and

• Any financial incentives paid by the underwriter to any third-party recipient in connection with a new issue transaction.

The MSRB pointed out that municipal advisers provide advice that involves municipal entities or obligated persons taking on substantial financial commitments and long-term legal obligations involving institutional and individual investors as well as a range of financial markets professionals. The MSRB said that disclosures of payments and receipts by municipal advisors would make transparent any potential financial incentives that may have an impact on advice given by municipal advisors in connection with the undertaking of these substantial, long-term financial commitments.

Disclosures that could be required from municipal advisers include

• Any financial incentives received by the municipal adviser from any third-party payor for recommending any municipal financial product or the issuance of municipal securities or any closely related transaction to the municipal entity or an obligated person or for recommending the participation of any third party to undertake a role in connection with such a transaction;

• Any other financial incentives received by the municipal advisor from any third-party payor in connection with an advised transaction;

• Any financial incentives received by the municipal adviser from any party for a solicitation of a municipal entity or obligated person on behalf of an unaffiliated dealer, municipal adviser or investment adviser; and

• Any financial incentives paid by the municipal adviser to any third-party recipient in connection with an advised transaction.

Comments may be submitted in paper form or electronically at www.msrb.org/CommentForm.aspx by July 31.

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