10926 Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The exception would only apply if the dealer 

financial advisor did not receive compensation for 

the placement of such issue and the dealer financial 

advisor was not compensated as an underwriter in 

connection with any related transaction undertaken 

by the governmental entity with which such issue 

is placed. 

companies. Therefore, it is ordered, 

pursuant to Section 12(k) of the 

Securities Exchange Act of 1934, that 

trading in the securities of the abovelisted companies is suspended for the 

period from 9:30 a.m. EST on February 

24, 2011, through 11:59 p.m. EST on 

March 9, 2011. 

By the Commission. 

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2011–4496 Filed 2–24–11; 4:15 pm] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63946; File No. SR–MSRB– 

2011–03] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing of Amendments 

to Rule G–23, on Activities of Financial 

Advisors 

February 22, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (‘‘the 

Act’’ or ‘‘the ‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on February 9, 2011, the 

Municipal Securities Rulemaking Board 

(‘‘Board’’ or ‘‘MSRB’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the MSRB. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The MSRB is filing with the SEC a 

proposed rule change consisting of (i) 

proposed amendments to Rule G–23 

(activities of financial advisors) and (ii) 

a proposed interpretation of Rule G–23 

(the ‘‘proposed interpretive notice’’). The 

MSRB requests that the proposed rule 

change be made effective for new issues 

for which the Time of Formal Award (as 

defined in Rule G–34(a)(ii)(C)(1)(a)) 

occurs more than six (6) months after 

SEC approval to allow issuers of 

municipal securities time to finalize any 

outstanding transactions that might be 

affected by the proposed rule change. 

The text of the proposed rule change 

is available on the MSRB’s Web site at 

http://www.msrb.org/Rules-andInterpretations/SEC-Filings/2011- 

Filings.aspx, at the MSRB’s principal 

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

MSRB included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. The Board has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

(a) Currently Rule G–23, on activities 

of financial advisors, sets forth the 

circumstances under which a broker, 

dealer, or municipal securities dealer 

(‘‘dealer’’) acting as a financial advisor to 

an issuer with respect to a new issue or 

issues of municipal securities (‘‘dealer 

financial advisor’’) may acquire all or 

any portion of such issue, directly or 

indirectly, from the issuer as a 

principal, or may act as agent for the 

issuer in arranging the placement of 

such issue, either alone or as a 

participant in a syndicate or other 

similar account formed for that purpose. 

For negotiated transactions, Rule G– 

23(d)(i) requires that: (i) The dealer 

terminate the financial advisory 

relationship with regard to the issue and 

at or after such termination the issuer 

expressly consent in writing to such 

acquisition or participation; (ii) at or 

before such termination, the dealer 

disclose in writing to the issuer that 

there may be a conflict of interest in 

changing from the capacity of financial 

advisor to that of purchaser of or 

placement agent for the securities and 

the issuer expressly acknowledges in 

writing to the dealer receipt of such 

disclosure; and (iii) the dealer disclose 

in writing to the issuer at or before such 

termination the source and anticipated 

amount of all remuneration to the dealer 

with respect to such issue and the issuer 

expressly acknowledge in writing to the 

dealer receipt of such disclosure. With 

respect to issues sold by competitive 

bid, Rule G–23(d)(ii) provides that a 

financial advisor must obtain the 

issuer’s written consent prior to making 

a bid for the issue. 

The limitations of Rule G–23(d) also 

apply to affiliates of the dealer financial 

advisor; however, they do not apply to 

purchases by dealer financial advisors 

of securities from an underwriter, either 

for the account of the dealer financial 

advisor or for the account of customers 

of the dealer financial advisor, except to 

the extent that such purchases are made 

to contravene the purpose and intent of 

the rule. 

In addition, Rule G–23(e) provides 

that a dealer that has a financial 

advisory relationship with respect to a 

new issue of municipal securities may 

not act as agent for the issuer in 

remarketing such issue unless the dealer 

has disclosed in writing to the issuer: 

(i) That there may be a conflict of 

interest in acting as both financial 

advisor and remarketing agent for the 

securities; and (ii) the source and basis 

of the remuneration the dealer could 

earn as remarketing agent on such issue. 

The dealer must receive from the issuer 

its express acknowledgement, in 

writing, of its receipt of such disclosure 

and its consent to the financial advisor 

acting in both capacities along with the 

source and basis of remuneration. 

The proposed amendments would, 

subject to the exceptions described 

below, (i) prohibit a dealer financial 

advisor with respect to the issuance of 

municipal securities from acquiring all 

or any portion of such issue directly or 

indirectly, from the issuer as principal, 

or acting as agent for the issuer in 

arranging the placement of such issue, 

either alone or as a participant in a 

syndicate or other similar account 

formed for that purpose; (ii) apply the 

same prohibition to any dealer 

controlling, controlled by, or under 

common control with the dealer 

financial advisor; and (iii) prohibit a 

dealer financial advisor from acting as 

the remarketing agent for such issue. 

The proposed amendments would not 

prohibit: (i) A dealer financial advisor 

from placing an issuer’s entire issue 

with another governmental entity, such 

as a bond bank, as part of a plan of 

financing by such entity for or on behalf 

of the dealer financial advisor’s issuer 

client; 3 (ii) a dealer financial advisor 

from serving as successor remarketing 

agent to an issuer for the same issue 

with respect to which it provided 

financial advisory services if the 

financial advisory relationship with the 

issuer had been terminated for at least 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 10927 

4 Dodd-Frank amended Section 15B(c)(1) of the 

Act to provide that: 

A municipal advisor and any person associated 

with such municipal advisor shall be deemed to 

have a fiduciary duty to any municipal entity for 

whom such municipal advisor acts as a municipal 

advisor, and no municipal advisor may engage in 

any act, practice, or course of business which is not 

consistent with a municipal advisor’s fiduciary 

duty or that is in contravention of any rule of the 

Board. 

one (1) year; or (iii) a dealer financial 

advisor from purchasing such securities 

from an underwriter, either for its own 

trading account or for the account of its 

customers, except to the extent that 

such purchase was made to contravene 

the purpose and intent of the rule. 

The proposed amendments would 

change references in Rule G–23 to ‘‘a 

new issue or issues of municipal 

securities’’ to ‘‘the issuance of municipal 

securities’’ to conform the language of 

the rule to the language used in Section 

15B of the Act, as amended by the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (‘‘DoddFrank’’). This change in language is not 

intended to change the meaning or 

operation of Rule G–23. 

The proposed amendments would 

also amend Rule G–23(b) to remove the 

requirement that financial advisory 

services be provided for compensation. 

This change is also proposed to conform 

the rule to the provisions of Section 15B 

of the Act as amended by Dodd-Frank, 

which does not require that financial 

advisors receive compensation in order 

to be considered ‘‘municipal advisors.’’ 

The proposed interpretive notice 

would provide guidance on when a 

dealer that provides advice to an issuer 

would be considered to be ‘‘acting as an 

underwriter’’ for purposes of Rule G– 

23(b), rather than a financial advisor. 

Under the proposed guidance, a dealer 

providing advice to an issuer with 

respect to the issuance of municipal 

securities (including the structure, 

timing, and terms of the issue and other 

similar matters, such as the investment 

of bond proceeds, a municipal 

derivative, or other matters integrally 

related to the issue) generally would not 

be viewed as a financial advisor for 

purposes of Rule G–23, if such advice is 

rendered in its capacity as underwriter 

for such issue and the dealer clearly 

identifies itself as an underwriter from 

the earliest stages of its relationship 

with the issuer with respect to that 

issue. Nevertheless, a dealer’s 

subsequent course of conduct (e.g., 

representing to the issuer that it is 

acting only in the issuer’s best interests, 

rather than as an arm’s length 

counterparty, with respect to that issue) 

could cause the dealer to be considered 

a financial advisor with respect to such 

issue and such dealer would be 

precluded from underwriting that issue 

by Rule G–23(d). 

The proposed rule change resulted 

from a concern that a dealer financial 

advisor’s ability to underwrite the same 

issue of municipal securities, on which 

it acted as financial advisor, presented 

a conflict that is too significant for the 

existing disclosure and consent 

provisions of Rule G–23 to cure. Even in 

the case of a competitive underwriting, 

the perception on the part of issuers and 

investors that such a conflict might exist 

was sufficient to cause concern that 

permitting such role switching was not 

consistent with ‘‘a free and open market 

in municipal securities,’’ which the 

Board is mandated to perfect. 

The imposition by Dodd-Frank of a 

fiduciary duty upon municipal 

advisors,4 which includes financial 

advisors, made the existence of such a 

conflict a greater concern. 

2. Statutory Basis 

The MSRB believes that the proposed 

rule change is consistent with Section 

15B(b)(2) of the Act, which provides 

that: 

The Board shall propose and adopt rules to 

effect the purposes of this title with respect 

to transactions in municipal securities 

effected by brokers, dealers, and municipal 

securities dealers and advice provided to or 

on behalf of municipal entities or obligated 

persons by brokers, dealers, municipal 

securities dealers, and municipal advisors 

with respect to municipal financial products, 

the issuance of municipal securities, and 

solicitations of municipal entities or 

obligated persons undertaken by brokers, 

dealers, municipal securities dealers, and 

municipal advisors. 

Section 15B(b)(2)(C) of the Act, 

provides that the rules of the MSRB 

shall: 

Be designed to prevent fraudulent and 

manipulative acts and practices, to promote 

just and equitable principles of trade, to 

foster cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with respect 

to, and facilitating transactions in municipal 

securities and municipal financial products, 

to remove impediments to and perfect the 

mechanism of a free and open market in 

municipal securities and municipal financial 

products, and, in general, to protect 

investors, municipal entities, obligated 

persons, and the public interest. 

The proposed rule change is 

consistent with Section 15B(b)(2) of the 

Act because it would prevent conflicts 

of interest, whether actual or perceived, 

caused by a dealer financial advisor 

serving as underwriter or placement 

agent for an issue of municipal 

securities for which it provided 

financial advisory services. 

Accordingly, the proposed rule change 

would help protect municipal entities 

and help to perfect the mechanism of a 

free and open market in municipal 

securities to the benefit of investors, 

municipal entities, and the public 

interest. 

Section 15B(b)(2)(L)(iv) of the Act 

requires that rules adopted by the 

Board: 

Not impose a regulatory burden on small 

municipal advisors that is not necessary or 

appropriate in the public interest and for the 

protection of investors, municipal entities, 

and obligated persons, provided that there is 

robust protection of investors against fraud. 

The proposed rule change would 

principally affect dealer financial 

advisors that are not small municipal 

advisors. Furthermore, it is likely that 

those dealer financial advisors that are 

small municipal advisors primarily 

serve as financial advisors to issuers of 

municipal securities that do not access 

the capital markets frequently and, 

when they do so, issue securities in 

small principal amounts. Those issuers 

may be less likely than larger, more 

frequent issuers to understand the 

conflict presented when their financial 

advisors also underwrite their 

securities. Accordingly, while the 

proposed rule change might burden 

some small municipal advisors, any 

such burden is outweighed by the need 

to protect their issuer clients. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The MSRB does not believe that the 

proposed rule change would impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. The proposed rule 

change would not burden competition 

among dealer financial advisors since it 

would apply equally to all such dealer 

financial advisors. In some cases the 

proposed rule change could reduce the 

number of dealers competing to 

underwrite an issuer’s issue of 

municipal securities, if the issuer has 

employed a dealer financial advisor that 

is prohibited by the proposed rule 

change from seeking to underwrite such 

issuance. It could also reduce the 

number of dealers competing to serve as 

financial advisor for an issuer’s issuance 

of municipal securities, if such dealers 

wished to act as underwriter or 

placement agent for such issue. 

Nevertheless, the MSRB does not 

believe that any such burden on 

competition is greater than is necessary 

or appropriate in furtherance of the 

purposes of the Exchange Act, because 

such burden is outweighed by the need 

to protect issuers as described above. 


srobinson on DSKHWCL6B1PROD with NOTICES
10928 Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 

5See MSRB Notice 2010–27 (August 17, 2010) 

(‘‘Notice’’). The changes proposed to be made to 

Rule G–23 that are designed to conform the 

language of the rule to the language used in Section 

15B of the Act, as described above, were not the 

subject of prior public comment. In addition, the 

portion of the proposed rule change that consists of 

the proposed interpretive notice was not the subject 

of prior public comment. 

6See National Association of Independent Public 

Finance Advisors, Letter from Steven F. 

Apfelbacher, President dated September 30, 2010 

(‘‘NAIPFA Letter’’); see also Ehlers & Associates, 

Letter from Michael C. Harrigan, Chairman/Senior 

Financial Advisor dated September 30, 2010 

(‘‘Ehlers Letter’’); Independent Bond & Investment 

Consultants LLC, Letter from William N. Lindsay, 

Director and Mark N. Chapman, Director dated 

September 30, 2010 (‘‘IBIC Letter’’); Munistat 

Services, Inc., Letter from Robert F. Sikora, 

President dated September 30, 2010 (‘‘Munistat 

Letter’’); Portland, Oregon, Office of Management 

and Finance, Letter from Eric H. Johansen, 

Treasurer dated September 29, 2010 (‘‘Portland 

Letter’’); Specialized Public Finance Inc., Letter 

from Garry R. Kimball, President dated September 

30, 2010 (‘‘Specialized Public Finance Letter’’); and 

Springsted Incorporated, Letter from Kathleen A. 

Aho, President dated September 29, 2010 

(‘‘Springsted Letter’’). 

7See Government Finance Officers Association, 

Letter from Susan Gaffney, Director Federal Liaison 

Center dated September 30, 2010 (‘‘GFOA Letter’’). 

8See Portland, supra note 6. 

9See Munistat Letter, supra note 6. 

10See Lewis Young Robertson & Burningham, 

Inc., Letter from Scott J. Robertson, Principal dated 

September 22, 2010 (‘‘Lewis Young Letter’’). 

11See GFOA Best Practice—Selecting and 

Managing the Method of Sale of State and Local 

Government Bonds (1994 and 2007) (DEBT); GFOA 

Best Practice—Selecting Financial Advisors (2008) 

(DEBT); and GFOA Best Practice—Selecting 

Underwriters for Negotiated Bond Sales (2008) 

(DEBT) (‘‘GFOA Best Practices’’). 

12See Copperas Cove, Texas, Letter from Andrea 

Gardner, City Manager dated September 29, 2010 

(‘‘Copperas Cove Letter’’); Georgetown, Texas, Letter 

from Micki Rundell, Chief Financial Officer dated 

September 8, 2010 (‘‘Georgetown, Texas Letter’’); 

and Portland Letter, supra note 6. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

On August 17, 2010, the MSRB 

requested comment on the portion of 

the proposed rule change consisting of 

amendments to Rule G–23.5 A copy of 

the Notice can be viewed at http:// 

www.msrb.org/Rules-andInterpretations/Regulatory-Notices/ 

2010/2010-27.aspx?n=1. The MSRB 

received 73 comment letters. An index 

to the comment letters received in 

response to the Notice can be viewed at 

http://www.msrb.org/Rules-andInterpretations/Regulatory-Notices/ 

2010/2010-27.aspx?n=1, and copies of 

the comment letters received in 

response to the Notice can also be 

accessed through that Web site. In 

addition, these documents, submitted 

with MSRB’s filing as Exhibits 2a, 2b, 

and 2c, respectively, can be viewed at 

the Commission’s Web site at: http:// 

www.sec.gov/rules/sro/msrb.shtml, 

under the heading SR–MSRB–2011–03. 

A discussion of the comments and the 

MSRB’s responses follows. 

In its request for comment, the MSRB 

posed the following questions: 

1. Should a dealer be precluded for a 

specific timeframe from entering into a 

financial advisory relationship with an 

issuer after serving as an underwriter on 

one of the issuer’s prior offerings of 

securities? 

2. If the MSRB were to amend Rule 

G–23 to prohibit dealers from serving as 

underwriter on transactions for which 

they have served as financial advisor to 

the issuer, should there be an exception 

for competitively bid transactions? 

Would it matter if the notice of sale was 

made available 5–7 business days before 

a competitively bid transaction to allow 

additional time for other competing 

firms to conduct due diligence? Should 

a financial advisor be allowed to bid in 

a competitively bid transaction in which 

a failed bid had occurred? How would 

the situation be handled in which there 

is a failed bid and the financial advisor 

cannot step in to buy the bonds because 

of the prohibition? Is this a common 

occurrence? 

3. Are there small and/or infrequent 

issuers that will be negatively affected 

by the proposed prohibition? What are 

the alternatives and costs for such 

issuers should the MSRB adopt the 

proposed draft rule amendment? 

4. Is it appropriate for a dealer to 

serve as financial advisor to an issuer at 

the same time that it serves as 

underwriter on a separate issue for the 

same issuer? 

5. As it relates to current practices, are 

there instances in competitively bid 

transactions in which a financial 

advisor should resign in order to 

‘‘officially’’ bid on a competitive 

issuance transaction as an underwriter? 

Is there ever a time when the financial 

advisor does not conduct the bid 

process for the issuer, such as the use 

of electronic bidding platforms where 

the process of collecting bids is done by 

a third party on behalf of the issuer? Is 

it an uncommon practice for the bid 

process to be handled internally by the 

issuer? 

6. In the context of a primary offering, 

should the exception found in Rule G– 

23(d)(iii) be limited to situations in 

which a financial advisor purchases 

bonds from underwriters who won a 

competitive bid for the bonds in which 

multiple bids were received? 

7. In competitively bid transactions, 

are there situations where the issuer 

may hire a financial advisor to serve on 

a specific issue and then, at some point, 

hire a second financial advisor to 

oversee the competitive bid process in 

order to allow the original financial 

advisor to bid on the issue? 

Discussion of Comment Letters 

The comments are summarized by 

topic as follows: 

Conflicts of Interest 

A trade association for non-dealer 

financial advisors stated that there is an 

unacceptable and/or inherent conflict of 

interest when a dealer financial advisor 

for an issue becomes an underwriter for 

the same issue.6 An association for 

finance officers of State and local 

governments noted that it has 

encouraged the MSRB to adopt changes 

to the rule to prohibit such role 

switching for many years because of the 

conflicts of interest and as a caution to 

issuers.7 An issuer stated that hiring 

non-dealer financial advisors provides 

‘‘greater assurance of conflict-free 

advice.’’ 8 A non-dealer financial 

advisory service to small and medium 

sized local governments and school 

districts stated, ‘‘[T]he roles and 

objectives of issuers and underwriters 

are so clearly diametrically opposed that 

the conflict of interest in an underwriter 

acting as financial advisor to an issuer 

can never be overcome.’’ 9 Another nondealer financial advisory firm noted that 

the possibility of conflicts of interest are 

real and, in fact, frequently arise when 

firms are allowed to serve as both 

financial advisor and underwriter on a 

transaction.10

The GFOA Letter described GFOA’s 

Best Practices 11 as the basis for its 

response and noted that issuers should 

be aware of and avoid the conflicts of 

interest that arise when a financial 

advisor resigns to become the 

underwriter on a transaction. The GFOA 

Best Practices provide that ‘‘issuers must 

keep in mind that the roles of the 

underwriter and the financial advisor 

are separate, adversarial roles and 

cannot be provided by the same party.’’ 

One issuer noted that allowing a dealer 

financial advisor to underwrite a 

negotiated issue stands in direct conflict 

with the GFOA Best Practices and two 

issuers provided form letters that 

expressed their support of the GFOA 

Best Practices.12

One issuer provided an example of a 

dealer financial advisor requesting that 

the city sign a revised agreement 

permitting the dealer to temporarily 

terminate its financial advisory 

relationship so that it could provide 

underwriting services. The revised 

agreement provided that, ‘‘It is necessary 

to point out that such an action could, 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 10929 

13See Osage Beach, Missouri, Letter from Karri 

Bell, City Treasurer dated August 26, 2010 (‘‘Osage 

Beach Letter’’). 

14See Ehlers Letter, supra note 6. 

15See Columbia Capital Management, LLC, Letter 

from Dennis Lloyd, President dated September 29, 

2010 (‘‘Columbia Capital Letter’’). 

16See George K. Baum & Company, Letter from 

Robert K. Dalton, Vice Chairman dated September 

29, 2010 (‘‘Baum Letter’’); Bond Dealers of America, 

Letter from Mike Nicholas, Chief Executive Officer 

dated September 30, 2010 (‘‘BDA Letter’’); D.A. 

Davidson & Co., Letter from William A. Johnstone, 

President and Chief Executive Officer dated 

September 29, 2010 (‘‘D.A. Davidson Letter’’); and 

J.J.B. Hilliard, W.L. Lyons, LLC, Letter from Ronald 

J. Dieckman, Director Public Finance and Municipal 

Bonds dated September 30, 2010 (‘‘Hilliard Letter’’). 

17See Robert W. Baird & Co. Incorporated, Letter 

from Charles M. Weber, Associate General Counsel 

dated September 29, 2010 (‘‘Baird Letter’’); Piper 

Jaffray & Co., Letter from Frank Fairman, Managing 

Director, Head of Public Finance Services, and 

Rebecca Lawrence, Assistant General Counsel, 

Principal dated September 29, 2010 (‘‘Piper Letter’’); 

RBC Capital Markets Corporation, Letter from 

Christopher Hamel, Head, Municipal Finance dated 

September 30, 2010 (‘‘RBC Letter’’); and Securities 

Industry and Financial Markets Association, Letter 

from Leslie M. Norwood dated September 30, 2010 

(‘‘SIFMA Letter’’). 

18See Piper Letter, supra note 17. 

19See SIFMA Letter, supra note 17; see also BDA 

Letter, supra note 16; BMO Capital Markets GKST 

Inc., Letter from Robert J. Stracks, Counsel dated 

September 30, 2010 (‘‘BMO Letter’’); Eastern Bank 

Capital Markets, Letter from James N. Fox, Senior 

Vice President and Managing Director dated 

September 29, 2010 (‘‘Eastern Bank Letter’’); 

Fulbright & Jaworski L.L.P., Letter from Fredric A. 

Weber dated September 30, 2010 (‘‘Fulbright 

Letter’’); and RBC Letter, supra note 17. 

20See Baird Letter, supra note 17. 

21See BMO Letter, supra note 19. 

22See Eastern Bank Letter, supra note 19. 

23See Denver, Colorado, Department of Finance, 

Letter from R.O. Gibson, Director of Financial 

Management dated September 29, 2010 (‘‘Denver 

Letter’’). 

24See SIFMA Letter, supra note 17. 

25See Reminder Notice on Fair Practice Duties to 

Issuers of Municipal Securities, MSRB Notice 2009– 

54 (Sept. 29, 2009), reprinted in MSRB Rule Book. 

26See Fieldman, Rolapp & Associates, Letter from 

Thomas M. DeMars, Managing Principal dated 

September 30, 2010 (‘‘Fieldman Letter’’); Fiscal 

Advisors & Marketing, Inc., Letter from John C. 

Shehadi, Chairman, et al. dated September 30, 2010 

(‘‘Fiscal Advisors Letter’’); Munistat Letter, supra 

note 6; NAIPFA Letter, supra note 6; and Public FA, 

Inc., Letter from Philip C. Dotts, President dated 

September 30, 2010 (‘‘Public FA Letter’’). 

27See WM Financial Strategies, Letter from 

Nathan R. Howard, Municipal Advisor dated 

September 28, 2010 (‘‘WM Financial Strategies/Mr. 

Howard Letter’’). 

28Section 15B(e)(4)(A) of the Exchange Act 

defines the term ‘‘municipal advisor’’ to include, 

among other things, a person that provides advice 

to or on behalf of a municipal entity with respect 

to the issuance of municipal securities, including 

advice with respect to the structure, timing, terms 

and other similar matters concerning such issues. 

Section 15(B)(e)(4)(C) provides that the term does 

not include a dealer serving as an underwriter as 

defined in Section 2(a)(11) of the Securities Act of 

1933. 

29See WM Financial Strategies, Letter from Joy A. 

Howard, Principal dated September 28, 2010 (‘‘WM 

Financial Strategies/Ms. Howard Letter’’). 

30See Fieldman Letter, supra note 26. 

31See Public FA Letter, supra note 26. 

under certain circumstances, create a 

conflict of interest.’’ 13 The issuer stated 

that, as an infrequent issuer, it did not 

understand the extent of the conflict 

inherent in such role switching or the 

availability of other options to market 

its bonds. The issuer further noted that 

the proposed amendments would assure 

that issuers receive unbiased advice 

regarding the structure of their issues 

and the approach to marketing their 

bonds. One non-dealer financial 

advisory firm noted, ‘‘Most issuers from 

our markets would be unable to provide 

comments because they are not clear on 

the difference’’ between non-dealer and 

dealer financial advisors.14 Another 

advisory firm stated that the practice of 

role switching ‘‘deprives an issuer of the 

unbiased, independent advice it sought 

when originally retaining a financial 

advisor.’’ 15

Commenters against all or portions of 

the proposed amendments suggested 

there cannot be a one size fits all 

approach in the municipal market 16 and 

stated that they are unaware of any 

evidence or history of abuse that the 

proposed rule is designed to prevent.17

One commenter stated, ‘‘We do not see 

abuses or issues in the marketplace 

related to Rule G–23 and, if abuses or 

specific concerns exist, would like to 

see them highlighted so that we can 

better understand the rationale behind 

the Securities and Exchange 

Commission’s request for the MSRB to 

consider changes to this rule.’’ 18 The 

commenter further argued that there is 

existing regulation under Rule G–17 that 

would apply to any situation in which 

a dealer is not acting in a fair and 

appropriate manner and that Rule G–23 

is ‘‘an appropriately drafted rule that is 

serving the function that it was intended 

to serve.’’ 

A trade association for securities firms 

and banks stated, ‘‘Rule G–23 represents 

a comprehensive and balanced 

approach to potential conflicts of 

interest.’’ 19 Another commenter noted 

‘‘municipal clients clearly understand 

the potential conflict of interest that 

may exist when a financial advisor 

serves as underwriter’’ and that such 

clients are generally aware of GFOA 

Best Practices ‘‘which advise them of the 

inherent conflict of interest in allowing 

a financial advisor to resign in order to 

serve as underwriter.’’ 20 Another 

commenter argued, ‘‘To suggest that an 

issuer is incapable of understanding an 

arrangement it is entering into is always 

a dangerous concept. Freedom of choice 

is an essential element in the healthy 

functioning of the financial markets to 

maximize credit availability.’’ 21 A bank 

commenter stated, ‘‘In terms of 

negotiated financings, Rule G–23 should 

remain unchanged since the Rule 

currently in force does prevent conflicts 

of interest.’’ 22 An issuer stated, ‘‘We 

fully comprehend the duties owed to us 

by a dealer financial advisor.’’ 23 The 

trade association argued that the 

provisions that allow a dealer financial 

advisor to serve as underwriter on the 

same transaction are rarely relied upon 

by dealers.24

MSRB Response. The MSRB shares 

the concern of those commenters who 

stated that Rule G–23 permits inherent 

conflicts of interest, which are not cured 

by the disclosure and waiver provisions 

of the rule. While underwriters have a 

duty of fair dealing to issuers under 

Rule G–17,25 they also have a duty to 

investors, whose interests are generally 

adverse to those of issuers. A financial 

advisor’s sole duty is to its issuer client. 

The MSRB believes the proposed 

amendments will protect municipal 

entities, as the MSRB is mandated to do 

by Dodd-Frank, by preventing the 

perceived and actual conflicts of interest 

that arise under the existing rule. 

Fiduciary Duty Concerns 

Commenters in favor of the proposed 

amendments to Rule G–23 noted that 

certain sections of Rule G–23 should be 

eliminated or revised to ensure 

compliance with the provisions of 

Dodd-Frank.26 One commenter 27 noted 

that Dodd-Frank ‘‘clearly and concisely 

defines the type of advice that a 

Municipal Advisor provides, and it does 

so for the purpose of delineating who 

owes a fiduciary duty to the issuer of 

municipal debt. In so doing, the Act 

provides an exception for brokers, 

dealers or municipal securities dealers 

serving as underwriters.’’ 28 Another 

commenter argued that any rulemaking 

should make a clear distinction between 

a financial advisor and an 

underwriter.29 One commenter stated 

that the definition of ‘‘underwriter’’ in 

Section 2(a)(11) of the Securities Act of 

1933 ‘‘does not contemplate at all that 

underwriters will provide ‘advice’ to 

issuers.’’ 30 Another commenter stated, 

‘‘As presently written, Rule G–23 allows 

underwriters to provide substantially 

the same ‘advice’ as a financial advisor 

which is not consistent’’ with DoddFrank.31

The same commenter suggested that 

advice concerning structure, timing, 

terms and other similar matters that 

dealers are currently permitted to 

provide pursuant to Rule G–23 is now 

a function reserved for municipal 

advisors under Dodd-Frank. Another 

commenter noted, ‘‘the concept of 


srobinson on DSKHWCL6B1PROD with NOTICES
10930 Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 

32See Fieldman Letter, supra note 26. 

33See Lewis Young Letter, supra note 10. 

34See American Governmental Financial Services 

of Sacramento, E-mail from Robert Doty, President 

dated September 30, 2010 (‘‘AGFS E-mail’’). 

35See Ehlers Letter, supra note 6 and Lewis 

Young Letter, supra note 10. 

36See GFOA Letter, supra note 7. 

37See Munistat Letter, supra note 6. 

38See AGFS E-mail, supra note 34. 

39See Hilliard Letter, supra note 16; RBC Letter, 

supra note 17; and SIFMA Letter, supra note 17. 

40See Baird Letter, supra note 17. 

41See BMO Letter, supra note 19. 

42See NAIPFA Letter, supra note 6; Public FA 

Letter, supra note 26; WM Financial Strategies/Ms. 

Howard Letter, supra note 29; and WM Financial 

Strategies/Mr. Howard Letter, supra note 29. 

43See IBIC Letter, supra note 6. 

44See NAIPFA Letter, supra note 6. 

45See Copperas Cove Letter, supra note 12; see 

also Estrada Hinojosa & Company, Inc., Letter from 

Robert A. Estrada, Chairman and Chief Compliance 

Officer dated September 30, 2010 (‘‘Estrada Letter’’); 

Ehlers Letter, supra note 6; Fiscal Advisors Letter, 

supra note 26; Georgetown, Texas, supra note 12; 

Munistat Letter, supra note 6; Public FA Letter, 

supra note 26; Tamalpais Advisors, Inc., Letter from 

Jean Marie Buckley, President dated September 28, 

2010 (‘‘Tamalpais Letter’’); Specialized Public 

Finance Letter, supra note 6; Springsted Letter, 

supra note 6; and WM Financial Strategies/Ms. 

Howard Letter, supra note 29. 

46See Lewis Young, supra note 10. 

47See Columbia Capital Letter, supra note 15; 

Lewis Young Letter, supra note 10; and Public 

Financial Management, Inc., Letter from F. John 

White, Chief Executive Officer dated September 29, 

2010 (‘‘PFM Letter’’). 

48See NAIPFA Letter, supra note 6; Columbia 

Capital Letter, supra note 15; and Lewis Young 

Letter, supra note 10. 

49See BDA Letter, supra note 16; Denver Letter, 

supra note 23; Eastern Bank Letter, supra note 19; 

Hilliard Letter, supra note 16; Lynn, Robert O.L., 

E-mail from Robert O.L. Lynn, Financial Services 

Consultant dated September 29, 2010 (‘‘Lynn Email’’); RBC Letter, supra note 17; Ross, Sinclaire & 

Associates, Letter from Murray Sinclaire, Jr., 

President/CEO dated September 28, 2010 (‘‘RSA 

Letter’’); SIFMA Letter, supra note 17; and Stone & 

Youngberg, Letter from Stone & Youngberg dated 

September 28, 2010 (‘‘Stone & Youngberg Letter’’). 

50See BDA Letter, supra note 16. 

‘‘advice,’’ both legally and practically, 

suggests a party that has no business 

interest in the transaction that might be 

contrary to that of the issuer.’’ 32 One 

financial advisory firm noted that any 

amendments to Rule G–23 should 

reflect that dealers providing such 

advice ‘‘must be fiduciaries and 

therefore cannot buy the bonds.’’ 33 One 

commenter noted, ‘‘At the very moment 

firms seek to resign as advisers, they 

remain issuers’ fiduciaries until 

finalization of resignations.’’ 34 A 

financial advisory firm noted that 

financial advisors to issuers of 

governmental debt are fiduciaries that 

must render advice and must act only in 

the best interests of the issuers and 

another firm stated, ‘‘We have observed 

over many years that some broker/ 

dealers performing underwriting 

services engage themselves to issuers 

who (mistakenly) consider the 

underwriter to be their ‘‘financial 

advisor’’ (i.e., a fiduciary working for 

them).’’ 35

One commenter noted that the rule 

should reiterate that ‘‘the underwriter 

does not hold a fiduciary responsibility 

to the issuer.’’ 36 Another commenter 

stated that the Board could consider 

modifying the existing language of Rule 

G–23(b) to affirm that advice is now a 

function reserved for financial advisors 

and that providing such advice on a 

particular transaction places the 

underwriter in the role of financial 

advisor thus precluding it from acting as 

underwriter on such transaction.37

Finally, another commenter noted, ‘‘If 

the advisers were performing their jobs 

properly, and not violating their 

fiduciary duty so severely, they would 

be actively contacting potential 

underwriters, not attempting to grab for 

themselves the underwriting positions 

in which the advisers become issuers’ 

adversaries.’’ 38

Some commenters did not see a need 

for the proposed changes in Rule G–23 

at this time, particularly with the advent 

of the newly mandated fiduciary 

standard for municipal advisors.39 One 

commenter stated that this fiduciary 

standard of care will ‘‘help ensure that 

municipal clients receive reasonable, 

unbiased advice from their financial 

advisors and eliminate the concern that 

financial advisors are tainted by the 

prospect of underwriting new issues.’’ 40

Another commenter stated, ‘‘As to a 

federal fiduciary standard, every adviser 

has had to deal with a fiduciary 

obligation under state or common law 

long before now (and even before the 

SEC was created).’’ 41

MSRB Response. The MSRB is 

concerned that the role switching 

currently permitted under Rule G–23 is 

inconsistent with a dealer financial 

advisor’s fiduciary duty to its issuer 

client. This inherent conflict is too 

significant for disclosure and consent to 

cure. Some commenters 42 suggested 

that the proposed amendments to Rule 

G–23 do not go far enough, because they 

do not address the exception from the 

definition of ‘‘financial advisory 

relationship’’ in Rule G–23(b) for dealers 

‘‘acting as underwriters.’’ The MSRB 

believes that the proposed interpretive 

guidance strikes a balance between 

these competing concerns by providing 

that a dealer may not avail itself of the 

underwriter exception unless it 

maintains an arm’s-length relationship 

with the issuer. 

Issue-by-Issue Application of the 

Proposed Rule 

One commenter expressed support for 

a ‘‘cooling off’’ period during which a 

dealer would not be permitted to serve 

as underwriter for any transaction of an 

issuer following the termination of the 

dealer’s financial advisory relationship 

with such issuer.43 A trade association 

stated, ‘‘Under Rule G–37 and the 

proposed changes to Rule A–3, the 

MSRB has established a precedent for 

imposing two-year bans’’ and believes 

that a financial advisor ‘‘will remain 

independent if precluded from serving 

as an underwriter for a term of two years 

from the expiration or termination of the 

financial advisory relationship.’’ 44

Another commenter agreed with a two 

year ban 45 if such a time frame would 

be part of the proposed amendments 

and also noted the two-year precedent 

of other MSRB rules. Some commenters 

supported a cooling off period of at least 

one year and some suggested that 

clarification be provided to ensure that 

any issue covered by a financial 

advisory agreement be subject to the 

prohibition.46 Other commenters 

expressed concern that if clarification is 

not provided, some dealers may read the 

proposed rule change as simply 

eliminating the requirement for a 

disclosure of conflict letter, so long as 

they have not yet begun work on a 

particular issue, and would simply 

resign as to one issue and underwrite 

another issue.47

Some commenters also expressed 

concerns regarding situations in which 

a dealer serves as financial advisor to an 

issuer while it serves as underwriter on 

a separate issue for the same issuer. 

These commenters suggested that the 

best interests of issuers are not protected 

even if the services are provided on 

separate transactions.48

However, other commenters noted 

that there are issuers with multiple 

and/or separate and distinct debt 

financing programs that are funded from 

different revenue sources and that the 

proposed amendments would 

unnecessarily restrict the pool of 

available dealer financial advisors 

available to such issuers on various 

transactions.49 One of these commenters 

noted that any proposed prohibition 

that is broader than issue-by-issue ‘‘goes 

beyond what is necessary to ensure fair 

competition and would unnecessarily 

constrain the advice and services 

available to issuers.’’ 50 Another noted 

that a broad amendment to Rule G–23 

would result in unintended 

consequences that could be very unfair 

to dealers that engage in both financial 

advisory services and bond 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 10931 

51Specifically, the Estrada Letter, supra note 45, 

provided examples to support a recommendation 

that the MSRB not prohibit dealers from providing 

financial advisory and/or underwriting services, at 

the same time, to more than one debt issuing 

entities of a single issuer (e.g., a dealer firm should 

be able to provide financial advisory services to a 

city owned and operated water and sewer company 

while providing underwriting services to the same 

city owned and operated electric and gas utility 

company). The Estrada Letter also argued that such 

role switching should not be prohibited on various 

bond issuances that have more than one series, ‘‘The 

MSRB should not prohibit a broker/dealer who 

serves as financial advisor on Series 2010A from 

competing to serve as underwriter for B, C or D.’’ 

52See Baum Letter, supra note 16. 

53See Denver Letter, supra note 23; Piper Letter, 

supra note 17; RSA Letter, supra note 49; and 

SIFMA Letter, supra note 17. 

54See Piper Letter, supra note 17 and SIFMA 

Letter, supra note 17. 

55See FirstSouthwest, Letter from Hill A. 

Feinberg, Chairman and CEO dated September 29, 

2010 (‘‘FirstSouthwest/Mr. Feinberg 2 Letter’’). 

56See SIFMA Letter, supra note 17. 

57See Fieldman Letter, supra note 26; GFOA 

Letter, supra note 7; IBIC Letter, supra note 6; Lewis 

Young Letter, supra note 10; PFM Letter, supra note 

47; and Public FA Letter, supra note 26. 

58See WM Financial Strategies Letter/Ms. 

Howard, supra note 29. 

59See NAIPFA Letter, supra note 6. 

60See Fiscal Advisors Letter, supra note 26 and 

Munistat Letter, supra note 6. 

61See Columbia Capital Letter, supra note 15. 

62See GFOA Letter, supra note 7. 

63See Specialized Public Finance Letter, supra 

note 6. 

64See Columbia Capital Letter, supra note 15; 

Lewis Young Letter, supra note 10; NAIPFA Letter, 

supra note 6; Public FA Letter, supra note 26; and 

Springsted Letter, supra note 6. 

65See IBIC Letter, supra note 6. 

66See GFOA Letter, supra note 7; IBIC Letter, 

supra note 6; and PFM Letter, supra note 47. 

underwriting.51 One commenter 

expressed support for proposed 

amendments that would ‘‘allow a 

regulated firm to continue to engage in 

non-transaction specific consulting’’ in 

order to ‘‘allow an issuer to have 

certainty in the relationship that they 

have with a firm for each specific debt 

transaction.’’ 52 The same commenter 

noted that the ‘‘current practice of 

allowing a financial advisor to retain 

their role while involved with a private 

placement, which the financial advisory 

firm or a related bank portfolio 

purchases, should be eliminated.’’ 

Some commenters argued that any 

proposed cooling off period would be an 

arbitrary one, would reduce issuer 

choice and would decrease competition 

among financial advisors.53 One of the 

commenters against such a period 

suggested that there is no reason that an 

issuer should be precluded from 

working with a dealer financial advisor 

for a specific timeframe because the 

dealer has previously underwritten a 

prior offering for that issuer. Another 

argued that no cooling off period is 

needed following the provision of 

underwriting services as there are no 

‘‘potentially cognizable conflicts once 

the underwriter’s role has ended.’’ 54

One commenter also noted that in 

certain areas of the country there has 

been an ‘‘unfortunate movement by nonregistered advisors to exclude brokerdealers/underwriters from responding to 

issuers’ request for proposals to serve as 

financial advisor’’ and suggested that 

this ‘‘looks and smells like restrictive 

competition (anti-trust).’’ 55

It was also noted that the proposed 

amendments to the rule would prohibit 

a dealer that provided financial advisory 

services to an issuer from providing 

successor remarketing agent services to 

the same issuer for a one year term 

following the termination of its financial 

advisory relationship. The commenter 

suggested ‘‘the restrictions should be as 

narrowly tailored as possible so as to 

prevent unnecessary disruption in the 

marketplace’’ and suggested a cooling off 

period of only three months.56

MSRB Response. Upon review of the 

comment letters, the MSRB has 

determined not to impose a cooling off 

period between the time a dealer 

completes a financial advisory 

engagement with an issuer and the time 

the dealer may serve as underwriter for 

a different issue by the same issuer. 

Instead, the MSRB has determined to 

continue to apply Rule G–23 on an 

issue-by-issue basis. The proposed 

amendments would not prohibit a 

dealer financial advisor from providing 

financial advisory services on one issue 

and then serving as underwriter on 

another issue, even if the two issues 

were in the market concurrently. 

Nevertheless, the MSRB does consider 

it to be appropriate to impose a cooling 

off period of one year during which a 

dealer financial advisor could not serve 

as remarketing agent for the same issue 

of municipal securities. The MSRB 

believes the one year term is a 

significant timeframe that would more 

adequately address any potential or 

actual conflicts of interest than the three 

month time frame suggested by one 

commenter. 

Small and/or Infrequent Issuers 

Commenters that supported the 

proposed amendments to Rule G–23 

generally did not support an exception 

to the proposed amendments for small 

and/or infrequent issuers.57 One 

commenter asked what would constitute 

a small or infrequent issuer and noted 

that small and infrequent issuers would 

be the primary beneficiaries of a revised 

rule because they are less 

knowledgeable about the capital 

markets and consequently, are the least 

likely issuers to understand the conflicts 

of interest that arise when a dealer 

financial advisor switches to serve as 

underwriter.58 Another noted, ‘‘We are 

not aware of any study proving that 

‘‘small’’ or ‘‘infrequent’’ issuers have 

difficulty marketing their issues.’’ 59

Others stated that small and infrequent 

issuers would benefit from the 

prohibition because they lack the 

market expertise necessary to defend 

their own interests.60 Another 

commenter stated that small and 

infrequent issuers are the most likely to 

be manipulated by dealer financial 

advisors because such issuers lack the 

sophistication to know if the terms of 

the underwriting engagement are 

reasonable.61

A trade association stated that ‘‘if an 

FA is properly structuring the deal, and 

if the deal is rated and advertised 

appropriately, there should not be an 

adverse affect on the issuer.’’ 62 Another 

commenter noted, ‘‘In our experience, 

the smaller, infrequent issuers have 

ample access to the market if the credit 

is sound.’’ 63 Other commenters noted 

that ‘‘there are always reasonable 

alternatives for issuers to market their 

bonds,’’ which include the use of nondealer financial advisors and private 

placements with local banks and that, 

‘‘Many times the smallest of issuers use 

governmental lenders anyway, and you 

have already provided for this needed 

exemption.’’ 64

Other commenters that supported the 

proposed amendments to Rule G–23 

also noted that a fundamentally sound 

principle such as the proposed 

amendments to Rule G–23 should not be 

disregarded for small or infrequent 

issuers, as the rule as revised will 

provide protection against a broker’s 

concealed self-interest and that ‘‘a 

prohibition would create a competitive 

environment’’ for all financial advisory 

firms, which would ultimately benefit 

issuers.’’ 65 Finally, another commented 

that, if the MSRB continues to be 

concerned about the impact of a 

prohibition on role switching on smaller 

and infrequent issuers, it should ‘‘study 

the overall costs that smaller issuers 

incur when the financial advisor resigns 

to become the underwriter, versus other 

methods of sale.’’ 66

Commenters that opposed the 

proposed amendments to Rule G–23 

generally noted concerns about the 

effect of the proposed amendments on 

smaller and/or infrequent issuers. One 

noted that any changes that further limit 

issuer choice will ‘‘in our opinion, result 

in adverse market consequences for 


srobinson on DSKHWCL6B1PROD with NOTICES
10932 Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 

67See D.A. Davidson Letter, supra note 16. 

68See Zions First National Bank, Letter from W. 

David Hemingway, Executive Vice President dated 

September 30, 2010 (‘‘Zions Letter’’). 

69See BDA Letter, supra note 16. 

70See BDA Letter, supra note 16; D.A. Davidson 

Letter, supra note 16; Hilliard Letter, supra note 16; 

and Zions Letter, supra note 78. 

71See Alabama Department of Education, Letter 

from Warren Craig Pouncey, Deputy State 

Superintendent of Education, Administrative and 

Financial Services dated September 29, 2010 

(‘‘Alabama Letter’’); Allen Boone Humphries 

Robinson LLP, Letter from Joe B. Allen, Managing 

Partner dated September 29, 2010 (‘‘Allen Letter’’); 

Corinthian Communities, Letter from Harry 

Masterson, Principal dated September 30, 2010 

(‘‘Corinthian Letter’’); Crews & Associates, Inc., 

Letter from Jim Jones, President dated September 

28, 2010 (‘‘Crews Letter’’); FirstSouthwest, Letter 

from Terrell Palmer, Senior Vice President dated 

September 29, 2010 (‘‘FirstSouthwest/Mr. Palmer 

Letter’’); Fulbright Letter, supra note 19; GGP– 

Bridgeland, LP, Letter from Peter C. Houghton, Vice 

President dated September 29, 2010 (‘‘GGP– 

Bridgeland Letter’’); Mischer Investments, Letter 

from Mark A. Kilkenny, Senior Vice President dated 

September 29, 2010 (‘‘Mischer Letter’’); Newland 

Real Estate Group, LLC, Letter from Walter F. 

Nelson, President dated September 30, 2010 

(‘‘Newland Letter’’); New Quest Properties, Letter 

from Steven D. Alvis, Managing Partner dated 

September 29, 2010 (‘‘NewQuest Letter’’); Schwartz, 

Page & Harding, L.L.P., Letter from Joseph M. 

Schwartz, Managing Partner dated September 29, 

2010 (‘‘Schwartz Letter’’); Signorelli Company, 

Letter from Daniel K. Signorelli, President 

(‘‘Signorelli Letter’’); Wolff Companies, Letter from 

David W. Hightower, Executive Vice President and 

Chief Development Officer dated September 30, 

2010 (‘‘Wolff Letter’’); and Young & Brooks, Letter 

from Mark W. Brooks dated September 29, 2010 

(‘‘Young & Brooks Letter’’). 

72See also FirstSouthwest/Mr. Palmer Letter, 

supra note 71; FirstSouthwest, Letter from Julie 

Peak, Managing Director, dated September 27, 2010 

(‘‘FirstSouthwest/Ms. Peak Letter’’); Municipal 

Information Services, Letter from Ronald L. Welch 

dated September 30, 2010 (‘‘MIS Letter’’); and 

Young and Brooks Letter, supra 70. 73See FirstSouthwest/Mr. Palmer Letter, supra 

note 71. 74See Baum Letter, supra note 16 ($30,000,000); 

D.A. Davidson Letter, supra note 16 ($30,000,000); 

FirstSouthwest, Letter from Hill A. Feinberg, 

Chairman and CEO dated September 23, 2010 

(‘‘FirstSouthwest/Mr. Feinberg Letter’’) 

(competitively bid issues not exceeding 

$5,000,000); Lantana (Texas) District Offices, 

Denton County Fresh Water Supply Districts 6 & 7, 

Letter from Kevin Mercer, General Manager dated 

September 28, 2010 (‘‘Lantana Letter’’) 

(competitively bid issues not exceeding 

$10,000,000); NewQuest Letter, supra note 71 

(competitively bid issues not exceeding 

$10,000,000); RBC Letter, supra note 17 

($20,000,000); and Signorelli Letter, supra note 71 

(competitively bid issues not exceeding $10 

million). 

75See SIFMA Letter, supra note 17. 

76See Copperas Cove Letter, supra note 12; 

Fieldman Letter, supra note 26; Georgetown, Texas 

Letter, supra note 12; and Portland Letter, supra 

note 6. 

77See Specialized Public Finance Letter, supra 

note 6. 

78See WM Financial Strategies/Ms. Howard 

Letter, supra note 29. 

79See Columbia Capital Letter, supra note 15; 

Specialized Public Finance Letter, supra note 6; and 

WM Financial Strategies/Ms. Howard Letter, supra 

note 29; see also Fieldman Letter, supra note 26; 

Fiscal Advisors Letter, supra note 26; Munistat 

Letter, supra note 6; Public FA Letter, supra note 

26. 

80See Columbia Capital Letter, supra note 15; 

IBIC Letter, supra note 6; Fiscal Advisors Letter, 

supra note 26; Specialized Public Finance Letter, 

supra note 6; and Tamalpais Letter, supra note 45. 

81See Springsted Letter, supra note 6. 

82See Columbia Capital Letter, supra note 15; 

IBIC Letter, supra note 6; Lewis Young Letter, supra 

note 10; and WM Financial Strategies/Ms. Howard, 

supra note 30. 

many issuers.’’ 67 Another stated, ‘‘Small 

issuers, issuing difficult to place 

securities need all the options they can 

get.’’ 68 Another commenter stated, ‘‘Very 

often, only the local dealer is interested 

in marketing the securities of these 

municipal issuers and these transactions 

are usually too small to attract bids from 

larger firms’’ and argued that any 

revisions to the rule should retain the 

ability of dealer financial advisors to 

conduct direct placements on behalf of 

smaller issuers.69 Another noted that 

small and infrequent borrowers in the 

municipal bond market face difficulties 

getting bids for their bonds even when 

deal flow is low.70

Other commenters against the 

proposed amendments to Rule G–23 

raised specific State law requirements 

and said that certain special districts 

would be negatively affected by the 

proposed amendments.71 Specifically, 

some commenters noted that municipal 

utility districts (‘‘MUDs’’) in Texas sell 

their bonds ‘‘non-rated’’ and said that the 

proposed amendments would increase 

interest rates and property taxes.72 One 

commenter also argued, ‘‘Eliminating 

financial advisers from bidding on their 

own districts would force our firm to 

seek a legislative remedy and allow our 

districts to sell bonds by negotiated sale 

and therefore all but eliminating 

competitive sales in the future.’’ 73

Some of the commenters against the 

proposed amendments also suggested 

exemptions for issuances below a 

certain threshold if the proposed 

amendments that would prohibit dealer 

financial advisors from serving as 

underwriters on transactions on which 

they provided financial advisory 

services were adopted.74 The proposed 

threshold exemptions ranged from $5 

million to $30 million or less. One trade 

association provided statistics to 

indicate that ‘‘only 2.5% of all new issue 

volume (based on the total dollar 

amount) for the last ten years’’ exceeded 

$10,000,000, which suggest that there 

should be an exception for smaller 

issuances as they are a small part of the 

market.75

MSRB Response. The MSRB believes 

that the potential negative impact on 

fees and market accessibility for small 

and/or infrequent issuers would be 

minimal compared to the protections 

that will be afforded to such issuers. 

The MSRB is persuaded by the 

arguments that small and/or infrequent 

issuers are, in many cases, unable to 

appreciate the nature of the conflict they 

are being asked to waive by the very 

dealer financial advisor that will benefit 

from the waiver.76 The MSRB does not 

believe that exceptions should be 

provided for smaller offerings as 

suggested by several commenters. 

Competitive Bid Offerings and Failed 

Bids 

Some commenters did not support 

exceptions to the prohibition that would 

allow a dealer financial advisor to bid 

on a competitive transaction for which 

they have provided financial advisory 

services. One of these commenters 

noted ‘‘a financial advisor may also 

control or influence the credit 

enhancement and ratings process. 

Whether to apply for insurance and/or 

a rating, which ratings service to use 

and structural considerations like 

reserve or coverage requirements can all 

impact the outcome of a competitive 

sale.’’ 77 Another argued that if a 

financial advisor were permitted to bid 

for a competitive transaction, it might 

not aggressively work to secure the 

largest number of bids possible because 

of an incentive to reduce competition.78

One commenter noted that any time a 

financial advisor provides the winning 

bid on a competitive sale transaction the 

potential for an appearance of 

impropriety exists.79

Commenters also suggested that, even 

if a notice of the sale were made 

available an ample time before the 

competitive bid, the notice would not 

change the inherent conflict of interest 

that exists when a dealer is allowed to 

participate in such a transaction. One of 

these commenters stated that the notice 

of sale is already published at least five 

business days before a competitive sale, 

so providing such an exception would 

not provide meaningful relief or 

mitigate any conflicts of interest.80

Another commenter suggested that 

allowing an exception for competitively 

bid issues for which the notice of the 

sale was provided five to seven business 

days in advance of the bid deadline to 

allow time for due diligence ‘‘will invite 

game playing.’’ 81

Other commenters noted that failed 

bids are not a common occurrence and 

there should be no exceptions for such 

occurrences.82 One noted that most 

failed bids are due to ‘‘severe market 

disruptions, transactions not suited to 

competitive bid or poorly designed 

bidding rules.’’ In the event of a failed 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 10933 

83See WM Financial Strategies/Ms. Howard 

Letter, supra note 29. 

84See NAIPFA Letter, supra note 6. 

85See Columbia Capital Letter, supra note 15; 

IBIC Letter, supra note 6; Munistat Letter, supra 

note 6; Springsted Letter, supra note 6; and 

Tamalpais Letter, supra note 45. 

86See Fiscal Advisors Letter, supra note 26; IBIC 

Letter, supra note 6; Lewis Young Letter, supra note 

10; Munistat Letter, supra note 6; Public FA Letter, 

supra note 26; Springsted Letter, supra note 6; and 

Tamalpais Letter, supra note 45. 

87See D.A. Davidson Letter, supra note 16; 

Eastern Bank Letter, supra note 19; and Hilliard 

Letter, supra note 16. 

88See SIFMA Letter, supra note 17. 

89See BDA Letter, supra note 16. 

90See Zions Letter, supra note 78. 

91See Barren County (Kentucky) Schools, Letter 

from Dr. Jerry Ralston, Superintendent dated 

September 15, 2010 (‘‘Barren County Letter’’); Boyd 

County (Kentucky) Public Schools, Letter from 

Donald Fleu, Finance Director/Treasurer dated 

September 15, 2010 (‘‘Boyd County Letter’’); 

Crittenden County (Kentucky) Schools, Letter from 

Brent Highfil, Finance Director dated September 15, 

2010 (‘‘Crittenden County Letter’’); Dayton 

(Kentucky) Independent Schools, Letter from Gary 

Rye, Superintendent dated September 14, 2010 

(‘‘Dayton, Kentucky Letter’’); East Bernstadt 

(Kentucky) Independent School, Letter from Homer 

Radford, Superintendent dated September 15, 2010 

(‘‘East Bernstadt Letter’’); Elliott County (Kentucky) 

Board of Education, Letter from John Williams, 

Superintendent dated September 15, 2010 (‘‘Elliott 

County Letter’’); Greenup County (Kentucky) 

Schools, Letter from Scott P. Burchett, Finance 

Director/Treasurer dated September 17, 2010 

(‘‘Greenup County Letter’’); Kenton County 

(Kentucky) Board of Education, Letter from Kelley 

Gamble, Finance Director dated September 15, 2010 

(‘‘Kenton County Letter’’); Kentucky Interlocal 

School Transportation Association, Letter from Jack 

Moreland, President dated September 27, 2010 

(‘‘KISTA Letter’’); Pike County (Kentucky) Schools, 

Letter from Nancy Ratliff, Finance Director dated 

September 15, 2010 (‘‘Pike County Letter’’); and 

South Carolina Association of Governmental 

Organizations, Letter from Brantley D. Thomas III, 

Chairman of the Board of Directors dated September 

15, 2010 (‘‘SCAGO Letter’’). The letters were an 

exhibit to the RSA Letter, supra note 49. 

92See BDA Letter, supra note 16 and Eastern 

Bank Letter, supra note 19. 

93See SIFMA Letter, supra note 17. 

94See RSA Letter, supra note 49. 

95See DeWaay Financial Network, Letter from 

Mark Detter, Vice President dated September 24, 

2010 (‘‘DeWaay Letter’’) and Stone & Youngberg 

Letter, supra note 49 (on a non-rated transaction in 

a state where competitive bidding is compulsory). 

bid, another commenter stated, ‘‘there is 

almost always means of getting the 

securities sold without the advisor 

stepping in as a buyer.’’ They also 

argued that in the case of private 

placements there is much more 

potential for abuse and a flat prohibition 

would be helpful. However, one 

commenter provided an example of a 

transaction that had not been completed 

as of the date of her letter and noted that 

the firm ‘‘was unsuccessful in 

underwriting the securities and then 

switched to serving as financial advisor 

for a competitive sale.’’ 83

A trade association for non-dealer 

financial advisors noted that ‘‘if a bid 

fails it is most likely because the brokerdealer financial advisor failed to 

properly advertise, circulate documents 

and/or perform other activities to obtain 

the largest number of bids possible. If a 

financial advisor has performed their 

role properly and yet there are no 

bidders, it is likely that the credit of the 

issuer’s debt obligation should not be 

publicly sold.’’ 84 In addition, the 

organization argued that in the event of 

the remote possibility under which 

competitive bidding is required by 

local/State law and the possibility of 

only one interested underwriter, the 

issuer would be better served by 

employing a non-dealer municipal 

advisor to arrange the competitive sale 

rather than relying on the potential ‘‘sole 

bidder’’ to serve as both financial 

advisor and sole bidder. It also argued 

that the non-dealer municipal advisor 

may recommend that the bid be rejected 

which could provide other legal options 

for the debt placement and that ‘‘sole 

bidders’’ have the opportunity to charge 

higher fees and impose higher yields. 

However, commenters against the 

proposed amendments stated that they 

are unaware of: (i) Many circumstances 

under which a dealer financial advisor 

would be justified in resigning in order 

to bid on a competitive issuance 

transaction as underwriter; (ii) 

situations under which the financial 

advisor is not involved in the bidding 

process; or (iii) situations under which 

the issuer handles the bid process.85

One commenter noted that issuers do 

not usually have the knowledge to 

properly handle the bid process 

internally. Another stated that allowing 

a financial advisor to resign to bid on a 

competitive transaction is ‘‘another 

illustration of allowing a loophole for 

the dealer that introduces a conflict of 

interest.’’ One commenter argued, ‘‘The 

electronic bidding platforms are nothing 

more than vehicles to collect the bids’’ 

and that ‘‘it is an uncommon practice for 

the bid process to be handled internally 

by the issuer.’’ Commenters also agreed 

that, in competitively bid transactions, 

the issuer should not have to hire a 

financial advisor to oversee the bid 

process in order to allow the original 

advisor to bid on the transaction. 

Finally, one of the commenters argued, 

‘‘If the FA maintains its role throughout 

the transaction, there would be no need 

for a second FA.’’ 86

Some commenters stated that the 

proposed amendments to Rule G–23 are 

unnecessary because the competitive 

bid process is appropriate, fair and 

equal for all parties.87 One commenter 

noted, ‘‘awards of deals in the 

competitive market are based solely on 

price and have nothing to do with any 

previous or existing relationships 

among issuers, advisors and dealers.’’ 88

Another stated, ‘‘The bidding process for 

competitive sales encourages 

competition among the underwriters 

and introduces an arms’ length basis for 

establishing the terms of the issue and 

the underwriting.’’ 89 One bank argued 

that ‘‘at least direct purchases by 

financial advisors for their own 

portfolios should be allowed in 

competitively bid transactions where 

the issuer acknowledges the potential 

conflicts in writing and gives the 

financial advisor permission to submit a 

bid.’’ 90

Eleven commenters 91 in Kentucky 

and South Carolina submitted form 

letters opposing any changes to the rule. 

Some of these commenters noted that, 

for certain competitive bid issuances, a 

dealer financial advisor provided the 

only winning bid. ‘‘No other 

underwriting firm had bid to purchase 

these bonds and the Sale would have 

been unsuccessful’’ without the dealer 

financial advisor’s participation. Other 

commenters noted that for certain of 

their competitive bid transactions, the 

winning bid provided by the dealer 

financial advisor was at a cost 

significantly lower than the next closest 

bid. 

Some commenters stated that the 

negative impact of a failed bid in a 

competitive bid transaction can be 

prevented by allowing the financial 

advisor to bid on the transaction.92 One 

commenter cited the ‘‘dramatic effect 

failed bids’’ had on the marketplace in 

the last few years and suggested that an 

exception to the prohibition for 

competitive bid transactions would 

avoid, ‘‘exacerbating the risk of failed 

bids that might otherwise occur.’’ And 

further suggested that a financial 

advisor ‘‘* * * should not conduct an 

auction in a competitively bid 

transaction and participate as a bidding 

underwriter on the same issue.’’ 93 One 

commenter stated that it has not had a 

failed bid transaction 94 and others 

stated that they have seen transactions 

in which no bid was placed or the 

dealer provided the only bid.95 Another 

commenter argued that when a failed 

bid occurs ‘‘it is either a function of very 

unusual and difficult market conditions 

or an issue that likely should have been 

sold on a negotiated basis to begin with 

(perhaps the issue was required to be 

sold competitively as required by state 

law).’’ While another stated, ‘‘When we 

are hired as municipal advisor we 

pledge to the issuer that, if permitted, 

we will submit a bid for their bonds,’’ 


srobinson on DSKHWCL6B1PROD with NOTICES
10934 Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 

96See Piper Letter, supra note 17 and Hilliard 

Letter, supra note 16. 

97See D.A. Davidson Letter, supra note 16; 

Eastern Bank Letter, supra note 19; Piper Letter, 

supra note 17; and Stone & Youngberg Letter, supra 

note 49. 

98See Hilliard Letter, supra note 16. 

99See BDA Letter, supra note 16; Hilliard Letter, 

supra note 16; Piper Letter, supra note 17; SIFMA 

Letter, supra note 17; Smith, Murdaugh, Little & 

Bonham, L.L.P., Letter from W. James Murdaugh, Jr. 

dated September 29, 2010 (‘‘Smith Letter’’); Young 

& Brooks Letter, supra note 71; and Zions Letter, 

supra note 78. 

100See D.A. Davidson Letter, supra note 16; 

Eastern Bank Letter, supra note 19; Hilliard Letter, 

supra note 16; Piper Letter, supra note 17; Stone & 

Youngberg Letter, supra note 49 and Zions Letter, 

supra note 78. 

101See Allen Letter, supra note 71. 

102See RSA Letter, supra note 49. 

103See Piper Letter, supra note 17. 

104See DeWaay Letter, supra note 105. 

105See BDA Letter, supra note 16; MIS Letter, 

supra note 72; and Piper Letter, supra note 17. 

106See Specialized Public Finance Letter, supra 

note 6. 

107See BDA Letter, supra note 16; Baum Letter, 

supra note 16; and SIFMA Letter, supra note 17. 

108See RBC Letter, supra note 17. 

109See BDA Letter, supra note 16. 

110See Red Capital Markets, LLC, Letter from 

Kevin J. Mainelli, Managing Director dated 

September 30, 2010 (‘‘Red Capital Letter’’). 

which guarantees that a failed bid will 

not occur.96

Some commenters noted that existing 

market practice makes a notice of the 

competitive bid available five to seven 

days prior to the sale and that such 

notice would be a good rule of practice 

to allow bidders to review information, 

meet any internal processes and 

conduct any due diligence that they 

require.97 One commenter also noted 

that five days advance notice is 

adequate and is ‘‘about the time of 

forward focus for underwriters. 

Anything longer will not be 

beneficial.’’ 98 Other commenters stated 

that a five to ten day notice requirement 

would be helpful with competitive bid 

transactions.99

Commenters did not recognize 

situations in which the financial advisor 

would have to resign in order to submit 

a bid to underwrite a competitive bid 

transaction, especially because of the 

wide use of the electronic bidding 

process.100 One of the commenters 

noted, ‘‘Nearly all competitive sales in 

our markets utilize a third party 

electronic platform to receive the bids,’’ 

which precludes a financial advisor 

from manipulating the results and 

provides assistance with eliminating 

concerns regarding such practice. 

Another stated, ‘‘As financial advisor we 

facilitate the setting up of the bid 

process but the access’’ is handled by 

the issuer. One of the commenters 

requested that the MSRB consider 

modifications to the proposed 

amendments that would allow a 

financial advisory firm to bid on a 

competitive bond issuance through an 

‘‘* * * independent electronic bidding 

system (e.g., PARITY) in which the 

financial advisory firm does not have 

access to bid information.’’ 101

One commenter stated, ‘‘there are 

some situations where a financial 

advisor does not conduct the bid 

process for an issuer, but this is 

typically in the case of very large and 

very sophisticated issuers. In most cases 

issuers are ill-equipped to manage the 

bidding process, and would be 

negatively impacted if they attempted to 

do so.’’ 102 Another commenter stated, in 

general, as financial advisor they do not 

conduct the bid process but they would 

assist the issuer in evaluating bids that 

issuers receive in a sealed bid process 

and suggested that it would be good 

practice to require that any dealer 

financial advisor that is bidding on a 

competitive sale for an issuer be 

required to submit its bid electronically 

through a third party independent 

platform.103 Another noted, ‘‘Electronic 

bidding platforms are a viable option if 

those services are readily available to an 

issuer at a cost that is not 

prohibitive.’’ 104

Finally, other commenters argued that 

any proposed changes to Rule G–23 

should apply to negotiated sales only 

and not to competitive sales and that the 

financial advisor should not be 

permitted to serve as underwriter on a 

negotiated transaction unless ‘‘the issuer 

is afforded the opportunity to hire an 

independent financial advisor to 

monitor the FA’s structuring and the 

underwriter’s pricing of the negotiated 

issue.’’ Another argued that they could 

cite many examples in which the 

flexibility of a negotiated refunding has 

allowed issuers to generate savings that 

would have been missed or reduced by 

selling at competitive sale.105

MSRB Response. The MSRB does not 

believe that the use of electronic 

bidding platforms mitigates the conflict 

of interest posed by a dealer financial 

advisor’s switching to an underwriter 

role, in part, because such platforms are 

not necessarily available to all issuers. 

Further, the MSRB does not believe that 

requiring additional advance notice of a 

competitive sale would provide 

adequate protections against conflicts of 

interest. As stated by a non-dealer 

financial advisor, ‘‘a financial advisor 

may also control or influence the credit 

enhancement and ratings process. 

Whether to apply for insurance and/or 

a rating, which ratings service to use 

and structural considerations like 

reserve or coverage requirements can all 

impact the outcome of a competitive 

sale.’’ 106 The MSRB believes that 

involvement in this process provides a 

dealer financial advisor with 

information that can provide an unfair 

advantage when such dealer participates 

in a competitive bid transaction. 

Effective Date/Transitional Rule 

Some commenters noted that 

immediate implementation of the 

proposed amendments to prohibit a 

dealer financial advisor from serving as 

underwriter on an issue would cause 

disorder in the market because of 

existing contractual relationships. 

Commenters suggested various 

transitional time frames to allow market 

participants adequate time to comply 

with any changes.107 One commenter 

suggested that ‘‘the MSRB delay its 

effective date or continue to apply 

current Rule G–23 to those financial 

advisory relationships that are in place 

at the time the modified Rule is 

enacted.’’ 108Another requested that ‘‘the 

MSRB include a transitional rule and 

time period to allow issuers, dealers and 

financial advisors time to review their 

current engagements and business 

practices and to take action to conform 

to, and comply with, any new rules.’’ 109

MSRB Response. The MSRB has 

requested that the proposed rule change 

be made effective for new issues for 

which the Time of Formal Award (as 

defined in Rule G–34(a)(ii)(C)(1)(a)) 

occurs more than six months after SEC 

approval to allow issuers of municipal 

securities time to finalize any 

outstanding transactions that might be 

affected by the proposed rule change. 

Miscellaneous 

Conduit Issues. One dealer financial 

advisor provided an example of services 

that it provides to its hospital clients. 

The commenter noted that such clients 

often pursue multiple Federal credit 

enhancement programs and must engage 

a financial advisor to assist and support 

them as they proceed through certain 

Federal processes. If at some point 

during the process, a client determines 

to pursue one Federal program over 

another, this commenter states that ‘‘the 

dealer engaged as financial advisor 

would be unable to serve as the client’s 

underwriter.’’ The commenter also 

suggests this is detrimental to the client 

because of ‘‘unnecessary project delays’’ 

and may lead the client to ‘‘select an 

underwriter inexperienced in 

structuring and issuing’’ certain types of 

financing structures.110

Another commenter requested a 

specific exemption for ‘‘corporate (not 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 39 / Monday, February 28, 2011 / Notices 10935 

111See SIFMA Letter, supra note 17; see also 

BMO Letter, supra note 19. 

112See FirstSouthwest/Mr. Feinberg Letter, supra 

note 74. 

113See Baum Letter, supra note 16 and Zions 

Letter, supra note 78. 

114See Baird Letter, supra note 17; Fulbright 

Letter, supra note 19; and Hilliard Letter, supra 

note 16. 

115See Exchange Act Rel. No. 13987 (September 

22, 1977). 116 17 CFR 200.30–3(a)(12). 

for profit and for profit) conduit 

borrowers’’ because of their expectation, 

‘‘to be treated in the same manner as 

they are treated in the corporate 

advisory and underwriting context.’’ 111

MSRB Response. Rule G–23 does not 

preclude a dealer from serving as 

financial advisor to a conduit borrower 

on an issuance of municipal securities 

and the proposed amendments would 

not prohibit the dealer from providing 

underwriting services for such issue of 

the conduit issuer so long as it has not 

also become the financial advisor to the 

conduit issuer. 

Principal Transactions by Financial 

Advisors. One commenter noted that an 

important issue to be considered is that 

financial advisors ‘‘should not be 

allowed to serve as a principal in any 

municipal transaction which includes a 

swap counter party, GIC provider or the 

reinvestment of proceeds.’’ 112

MSRB Response. The MSRB will take 

this comment under advisement when it 

considers the fiduciary duty of 

municipal advisors, as mandated by 

Dodd-Frank. 

Bank Loans. One commenter noted 

that any amendments to the rule should 

prohibit the activities of financial 

advisors, dealer banks and affiliated 

bank portfolios from doing indirectly 

what they are prohibited from doing 

directly. Another noted that the MSRB 

should not adopt any amendments that 

will prevent a national bank that 

provides financial advisory services to 

municipalities from purchasing 

municipal securities from its municipal 

clients.113

MSRB Response. The MSRB notes 

that a bank’s purchase of an issuer 

client’s municipal securities is covered 

by Rule G–23. However, the proposed 

amendments would not preclude true 

loans that are not municipal securities 

under the Act made by banks to 

municipal issuers. 

Competitiveness. One commenter 

argued, ‘‘It has been difficult for a broker 

dealer to compete when a non regulated 

competitor is able to buy business rather 

than earn it. But now proposed 

amendments to G–23 seem to be a trade 

off, further placing broker dealers in a 

non competitive situation.’’ Another 

stated that the proposed amendments 

are anti-competitive and potentially 

harmful to municipalities on their new 

issues. Finally, another argued, ‘‘To 

adopt a rule change that narrows the 

free choice of state and local 

governments, even if with the intent to 

protect their interest, would appear to 

be inconsistent with fundamental 

principles of federalism.’’ 114

MSRB Response. Rule G–23 was 

adopted as part of the MSRB’s ‘‘fair 

practice’’ rules 115 with the intent to 

establish standards of ethical conduct 

for dealer financial advisors. The Board 

has long noted that a dealer financial 

advisor acts in a ‘‘fiduciary capacity’’ as 

agent for a governmental unit. The role 

and interests of the dealer financial 

advisor are ‘‘significantly different’’ from 

the role and interests of a dealer acting 

as an underwriter for the same 

governmental unit. Often, when a dealer 

financial advisor switches roles to 

underwrite a transaction, the issuer does 

not fully understand the implications of 

the ending of the financial advisory 

relationship with the issuer (which ends 

the dealer’s fiduciary obligation to the 

issuer) and the arm’s length relationship 

that is necessary due to the dealer 

financial advisor’s becoming the 

underwriter on the transaction. Further, 

under Dodd-Frank, the Board will be 

considering the adoption of fair practice 

rules applicable to non-dealer financial 

advisors and other municipal advisors, 

thereby promoting a more equalized 

regulatory burden on both dealers and 

municipal advisors. On balance, dealer 

financial advisors will not be placed at 

a competitive disadvantage with nondealer financial advisors as a result of 

the proposed rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–MSRB–2011–03 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–MSRB–2011–03. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Web site (http://www.sec.gov/rules/ 

sro.shtml). Copies of the submission, all 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 

10 a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the MSRB’s offices. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–MSRB–2011–03 and should 

be submitted on or before March 21, 

2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.116

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–4391 Filed 2–25–11; 8:45 am] 

BILLING CODE 8011–01–P 


srobinson on DSKHWCL6B1PROD with NOTICES