After considerable delay and much anticipation by the municipal finance community, the Securities and Exchange Commission (the “SEC”) recently approved a final rule defining municipal advisors for purposes of the Dodd-Frank Act (the “Act”). The SEC had previously noted that, in the wake of the last financial crisis, a number of municipalities suffered significant losses from complex derivatives and other financial transactions that had been entered into after receiving advice from municipal advisors who were largely unregulated and thus not required to comply with any particular standard of conduct or meet any particular training requirements or disclose potential conflicts of interest. To address this issue, the Act created a new regulatory regime that is intended to protect municipalities and investors in the municipal securities market. To that end, the Act requires that the Municipal Securities Rulemaking Board (the “MSRB”) regulate municipal advisors who advise state and local governments and other political subdivisions on financial products and services. A person is considered to be an advisor if that person provides advice “to or on behalf of 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 undertakes a solicitation of a municipal entity or obligated person.” Importantly, certain persons who had initially been included in the proposed rule are now excluded from the final rule, including public officials and employees, underwriters not providing advice regarding investment of proceeds or derivatives, registered investment advisors, attorneys, engineers, banks, accountants, certain independent registered advisors, and certain swap dealers.

In other news, the Internal Revenue Service (the “IRS”) has issued two proposed regulations relating to tax exempt bond arbitrage restrictions. Major changes in the first proposed regulation include revisions to the definition and standards for determining the issue price of a bond issue, simplified rules relating to interest rate swaps and qualified hedges, and the creation of a safe harbor for long-term working capital financing. The second proposed regulation addresses recovery of overpayment of arbitrage rebate. The IRS is accepting comments on the proposed new regulations through December 13, 2013.