Municipal Advisor Oversight Improvement Act of 2013

To amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, and for other purposes. 1. Short title This Act may be cited as the Municipal Advisor Oversight Improvement Act of 2013 2. Registration of municipal securities dealers Section 15B(a)(1)(B) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(a)(1)(B) or on behalf of 3. Municipal Securities Rulemaking Board; rules and regulations Section 15B(b)(2)(L) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(b)(2)(L) (1) in clause (iii), by striking and (2) in clause (iv), by striking the period and inserting ; and (3) by adding at the end the following: (v) not regulate as a municipal advisor the activities of a person referred to in subparagraph (C) of subsection (e)(4), to the extent that such activities are described under such subparagraph. . 4. Discipline of municipal securities dealers; censure; suspension or revocation of registration (a) In general Section 15B(c)(1) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(c)(1) (1) No broker, dealer, or municipal securities dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security, and no broker, dealer, municipal securities dealer, or municipal advisor shall make use of the mails or any means or instrumentality of interstate commerce to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products, the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, in contravention of any rule of the Board. A municipal advisor, when acting pursuant to an engagement described in subsection (e)(4)(A)(i), and any person associated with such municipal advisor, shall be deemed to have a fiduciary duty with respect to such engagement 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 such municipal advisor's fiduciary duty or that is in contravention of any rule of the Board. In issuing regulations to carry out the previous sentence and subsection (b)(2)(L)(i), the Board shall— (A) require that a municipal advisor act in accordance with its fiduciary duty to its municipal entity clients, but only in connection with those specific activities involving such municipal entity client described under subsection (e)(4)(A)(i) (and not excluded under subsection (e)(4)(C)); (B) specify when such duties begin and terminate in relation to such activities; and (C) not prohibit principal transactions by municipal advisors or the receipt of compensation based on commissions or other standard compensation in relation to the purchase or sale of a security or other instrument (including deposit or foreign exchange), except that the Board— (i) may issue rules requiring a municipal advisor to only engage in such transactions or receive such compensation in a manner that is consistent with the municipal advisor’s fiduciary duty; and (ii) may prohibit a municipal advisor that has been engaged to provide advice with respect to an underwritten offering of securities from concurrently acting as an underwriter of such offering. . (b) Technical correction (1) In general Section 975(c)(5) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is amended to read as follows: (5) in paragraph (4), by inserting or municipal advisor municipal securities dealer . (2) Effective date The amendment made by paragraph (1) shall take effect on the date of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as if included in such Act. 5. Definition of investment strategies Section 15B(e)(3) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(e)(3) (3) the term investment strategies (A) means plans or programs for the investment of the direct proceeds of municipal securities (but not other public funds) that are not municipal derivatives or guaranteed investment contracts, and the recommendation of and brokerage of municipal escrow investments, where, with respect to the municipal advisor offering such plans, programs, or recommendations, such proceeds of municipal securities and municipal escrow investments— (i) are known or should be known to the municipal advisor to be comprised of funds or investments maintained in a segregated account that is exclusively for the purpose of maintaining such proceeds or escrow investment; or (ii) have been identified to the municipal advisor, in writing, as funds or investments that constitute the proceeds of municipal securities or municipal escrow investments; and (B) does not include— (i) merely acting as a broker or principal with respect to the purchase or sale of a security or other instrument (including deposit or foreign exchange); (ii) providing a list of, or price quotations for, investment options or securities or other instruments which may be available for purchase or investment or which satisfy investment criteria specified by a municipal entity; (iii) acting as a custodian; (iv) providing generalized information concerning investments which are not tailored to the specific investment objectives of the municipal entity; or (v) providing advice with respect to matters other than the investment of funds or financial products; . 6. Definition of municipal advisor Section 15B(e)(4) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(e)(4) (4) the term municipal advisor (A) means a person (who is not a municipal entity or obligated person, or an employee of a municipal entity or obligated person) that— (i) is engaged, for compensation, by a municipal entity or obligated person to provide advice to a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or (ii) undertakes a solicitation of a municipal entity; (B) includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors, if such persons are described in either of clauses (i) or (ii) of subparagraph (A) and are not excluded under subparagraph (C); and (C) does not include, solely as a result of their performing the following activities— (i) any broker, dealer, or municipal securities dealer registered with the Commission, to the extent that such broker, dealer, or municipal securities dealer is serving or is seeking to serve as an underwriter, placement agent, remarketing agent, dealer-manager, or in a similar capacity, or is providing advice related to or in connection with any such activities and not for separate compensation, or any person associated with such a broker, dealer, or municipal securities dealer; (ii) an investment adviser registered under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) or with any State or territory of the United States that is providing investment advice (whether or not of a type that would subject a person to registration under such Act), or any person associated with such an investment adviser; (iii) any person registered under the Commodity Exchange Act ( 7 U.S.C. 1 et seq. (iv) a financial institution engaging in any of the activities referred to in clause (i), (ii), or (iii) pursuant to an exemption from registration, acting as a dealer or principal with respect to deposits, foreign exchange, or identified banking products (as defined in paragraphs (1) through (5) of section 206(a) of the Gramm-Leach-Bliley Act ( 15 U.S.C. 78c(a) (v) any person subject to regulation by a State insurance regulator providing insurance products or services or providing advice that is related to or in connection with any such activities and not for separate compensation; (vi) an accountant (or person associated with such accountant) providing customary and usual accounting services, including any attestation or audit service or issuing letters for underwriters for a municipal entity or providing advice that is related to or in connection with any such activities and not for separate compensation; (vii) any attorney offering legal advice or providing services that are of a traditional legal nature; (viii) an engineer providing engineering advice; or (ix) any elected or appointed member of a governing body of a municipal entity or obligated person, with respect to such member’s role on the governing body; . 7. Definition of solicitation of a municipal entity or obligated person Section 15B(e)(9) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(e)(9) or on behalf of a municipal entity; and a municipal entity, but communications on behalf of a fund or other collective investment vehicle shall not be deemed to be on behalf of any investment adviser that advises or manages such fund or investment vehicle; 8. Definition of municipal derivative Section 15B(e) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(e) (1) in paragraph (10), by striking the period on the end and inserting a semicolon; and (2) by adding at the end the following: (11) the term municipal derivative . 9. Definition of on behalf of Section 15B(e) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o–4(e) (12) the term to provide advice on behalf of a municipal entity or obligated person .

Summary: Municipal Advisor Oversight Improvement Act of 2013 - Amends the Securities Exchange Act of 1934 to permit a non-registered municipal securities advisor, on behalf of a municipal entity or an obligated person, to: (1) provide advice regarding either municipal financial products or the issuance of such products, and (2) undertake the solicitation of a municipal entity. Prohibits the rules of the Municipal Securities Rulemaking Board (MSRB) from regulating as municipal advisors the activities of certain persons specifically excluded from the definition of municipal advisor, namely: (1) a broker, dealer, or municipal securities dealer serving as an underwriter; (2) an investment adviser registered under the Investment Advisers Act of 1940 (or persons associated with such investment advisers who are providing investment advice); (3) a commodity trading advisor registered under the Commodity Exchange Act (or associated persons who are providing advice related to swaps); (4) attorneys providing legal advice or services that are of a traditional legal nature; and (5) engineers providing engineering advice. Limits the fiduciary duty a municipal advisor and any associated person owe to a municipal entity (or associated person) the advisor advises to those times when the advisor acts pursuant to an engagement, for compensation, by the municipal entity or obligated person to advise on either municipal financial products or the issuance of municipal securities. Directs the MSRB to require that a municipal advisor act in accordance with its fiduciary duty to municipal entity clients, but only in connection with specified activities involving those clients. Prohibits the MSRB from barring: (1) principal transactions by municipal advisors, or (2) the receipt of compensation based on standard compensation involving the purchase or sale of a security or other instrument (including deposit or foreign exchange). Authorizes the MSRB to: (1) issue rules requiring a municipal advisor to engage only in transactions or receive compensation consistent with the advisor's fiduciary duty, and (2) prohibit a municipal advisor who has been engaged to provide advice with respect to an underwritten offering of securities from acting concurrently as underwriter of such offering. Redefines "investment strategies" as plans or programs for: (1) investment of the direct proceeds of municipal securities (but not other public funds) which are neither municipal derivatives nor guaranteed investment contracts; and (2) the recommendation and brokerage of municipal escrow investments, where such proceeds and investments are either known to the municipal advisor to comprise funds or investments maintained exclusively in a segregated account, or have been identified in writing as funds or investments constituting the proceeds of municipal securities or municipal escrow investments. Excludes specified practices from "investment strategies" (and, therefore, from regulation under this Act), including: (1) merely acting as a broker or principal for the purchase or sale of a security or other instrument (including deposit or foreign exchange); (2) furnishing a list of, or price quotations for, investment options or securities or other instruments which may be available for purchase or investment or which satisfy investment criteria specified by a municipal entity; (3) acting as a custodian; (4) providing generalized information concerning investments not tailored to the specific investment objectives of the municipal entity; or (5) providing advice with respect to matters other than the investment of funds or financial products. Limits the definition of "municipal advisor" to a person (who is not a municipal entity or obligated person, or an employee of a municipal entity or obligated person) but who is engaged for compensation by a municipal entity to advise on either municipal financial products or the issuance of municipal securities. Excludes from the definition of municipal advisors solely as a result of their performing the following activities: (1) a financial institution engaging in specified excluded activities pursuant to an exemption from registration, when acting as a dealer or principal with respect to deposits, foreign exchange, or identified banking products, providing other traditional banking or trust services otherwise subject to a fiduciary duty under state or federal law, providing administrative or operational services or support, or providing advice that is related to or in connection with any such activities and not for separate compensation; (2) a person providing state-regulated insurance products, services, or advice and not for separate compensation; (3) an accountant providing customary and usual accounting services or advising in connection with such activities and not for separate compensation; and (4) an attorney offering traditional legal advice or services. Redefines "solicitation of a municipal entity" to: (1) eliminate solicitation for the purpose of obtaining or retaining an engagement by an investment adviser providing investment advisory services on behalf of a municipal entity, but (2) state that communications on behalf of a collective investment vehicle (investment fund) shall not be deemed to be on behalf of any investment adviser that advises or manages such collective investment vehicle. Defines "municipal derivative" as a swap or security-based swap in which a municipal entity is a counterparty. Defines providing advice "on behalf of a municipal entity or obligated person" as providing advice to a person known to be engaged by a municipal entity to provide services to the municipal entity in connection with the issuance of municipal securities.