MSRB to set rules for fiduciary duties, conduct of municipal advisers

By Toni Weeks

San Luis Obispo, Calif., Oct. 28 - The board of directors of the Municipal Securities Rulemaking Board agreed at its quarterly meeting on Wednesday to Friday to develop a proposed rule that will provide guidance on the statutory fiduciary duty owed by municipal advisers to municipal entities and the duty of fair dealing owed by municipal advisers to municipal entities and obligated persons.

The board also intends to develop four additional rules to establish a regulatory framework for municipal advisers that will enhance municipal market transparency and integrity. These new rules will encompass

• Supervision requirements for municipal advisory firms and their employees;

• Rules to address the potential for pay-to-play activities by municipal advisers;

• Limitations on gifts and gratuities to employees of municipal securities issuers and other market participants; and

• Duties of solicitors.

"While we diligently develop rules, we will also put in place a professional qualifications program and conduct targeted education and outreach for advisers to address the full scope of our responsibilities," MSRB chair Daniel Heimowitz said in a press release.

The board also discussed at its meeting comments received on the MSRB's concept proposal about establishing a best-execution rule for the municipal securities market and directed MSRB staff to develop and publish for public comment a rule proposal modeled on the Financial Industry Regulatory Authority's best-execution rule for the equity and corporate fixed-income markets, Rule 5310.

"A best-execution rule in the municipal market would improve market efficiency by assuring the flow of information in support of fair pricing for investors," Heimowitz said.

At the meeting, the board also reviewed comments on and approved filing with the Securities and Exchange Commission two proposals to simplify existing rules: one to consolidate municipal securities dealers' fair pricing obligations and the other to consolidate the MSRB's multiple registration rules and forms for municipal securities dealers and municipal advisers.

Finally, the board conducted at the meeting a review of its professional qualifications regime, which consists of examinations and continuing education requirements, and agreed to request public comment on potential changes to the continuing education requirements for municipal securities dealers.

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