New SEC municipal advisor rule brings relief and changes to the bond market.

• Author: McDonald, Dustin
• Position: Federal Focus

On September 18, 2013, the Securities and Exchange Commission gave final approval to the definition of "municipal advisor" The SEC first proposed the definition in 2010, as required by the Dodd-Frank Act. Since then, the SEC has been working to develop final definitions of individuals and firms that would be regulated as "municipal advisors," so the Municipal Securities Rulemaking Board could adopt more detailed rules to regulate those parties. The definition and forthcoming MSRB rulemaking will be important for state and local governments and the way they interact with outside professionals when issuing debt. The SEC municipal advisor rule specifies which activities are considered advice and who may act as a municipal advisor with a fiduciary duty to government clients, in some cases producing new written representations to be made by issuers. The rule may also limit the manner in which the underwriters and other professionals interact with issuers.

Most importantly for GFOA members, unlike the proposed rule, all state and local government employees, board members, and committee members are clearly exempted from the rule when acting in their official capacities. The exemption also applies to government employees and officials who may have to participate on other government boards and committees as part of their job responsibilities. The rule also specifically states that if a government official is also a municipal advisor outside of his or her government responsibilities (e.g., a part time city council member may have a career as a financial advisor), those professionals are still bound by the municipal advisor rules for their work that is not related to their official government capacities.

This article summarizes the rule's provisions and municipal market reaction to the rule, and provides an outlook on what pending regulatory actions issues can be expected. (A more comprehensive issue brief on the rule is available on the GFOA's homepage at www.gfoa.org.) Throughout this article, the term "municipal entities" refers to state and local governments and other political subdivisions within a state, as well as other types of entities which are identified in greater detail below.

HIGHLIGHTS OF THE RULE

Who Is a Municipal Advisor?

* A municipal advisor is a person who provides "advice" to a state or local government on municipal financial products or the issuance of municipal securities. No compensation is required.

* Certain firms that are...