By Angela W. Adolph

The Municipal Securities Rulemaking Board (“MSRB”) is seeking comments on a possible proposal to require underwriters and municipal advisors to disclose whether they have made or received certain payments in connection with new issues of municipal securities. The MSRB is concerned about conflicts of interest that impede the ability of municipal market professionals to act fairly and objectively. Public disclosures of these payments could alert investors and other market participants to possible conflicts of interest and provide municipal entities (and the public) with useful information to select competent and conflict-free underwriters and municipal advisors, all of which bolsters confidence in the integrity of the municipal securities market. Accordingly, the MSRB is considering requiring disclosure by underwriters and municipal advisors of any payments, credits, quid pro quo arrangements or other financial incentives provided to any party (including municipal entities) and received from any party other than a municipal entity.

Possible underwriter disclosures include:

  • Any financial incentives received by the underwriter from any third-party for recommending a municipal securities financing (a “new issue transaction”) to the municipal entity;
  • Any financial incentives received by the underwriter from any third-party for recommending that any third party play a role in connection with a new issue transaction;
  • Any other financial incentives received by the underwriter from any third-party in connection with a new issue transaction; and
  • Any financial incentives paid by the underwriter to any third-party recipient in connection with a new issue transaction, including financial incentives paid for the purpose of obtaining or retaining any such new issue transaction.

Possible municipal advisor disclosures include:

  • Any financial incentives received by the municipal advisor from any third-party for recommending any municipal financial product or the issuance of municipal securities (an “advised transaction”) to the municipal entity;
  • Any financial incentives received by the municipal advisor from any third-party for recommending that any third-party play role in connection with an advised transaction;
  • Any other financial incentives received by the municipal advisor from any third-party in connection with an advised transaction;
  • Any financial incentives received by the municipal advisor from any party to conduct a solicitation of a municipal entity to obtain or retain an engagement in connection with municipal financial transactions, the issuance of municipal securities or the provision of investment advisory services (a “solicitation”), including any payment made by the party on whose behalf the municipal advisor makes the solicitation; and
  • Any financial incentives paid to the municipal advisor to any third-party in connection with an advised transaction or any other engagement to provide advice as a municipal advisor, including financial incentives paid for obtaining or retaining any such advised transaction or engagement.

Comments are due by July 31, 2012.