MSRB Rule G-17:
Interpretive Notice on Duties of
Underwriters to Issuers
Webinar Part 1: Background and
Statements and Representations
About the MSRB
• A self-regulatory organization that oversees the
municipal securities market
• Mission is to protect investors, state and local
governments, other municipal entities and the public
interest by promoting a fair and efficient market through:
– Establishment of rules for dealers and municipal advisors
– Collection and dissemination of market information
– Market leadership, outreach and education
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Background on Rule G-17 Interpretive
Notice
• Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 expanded MSRB’s jurisdiction to protect state
and local governments
• In light of this, the MSRB prioritized a reassessment of
existing duties of underwriters to state and local
governments
• Determined that expanded requirements were necessary
• Developed new interpretive notice on MSRB Rule G-17 to
ensure state and local governments are properly protected
in securities transactions
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Rule G-17 Interpretive Notice
• MSRB Notice 2012-25 on Rule G-17, on fair dealing, was
approved by the Securities and Exchange Commission on
May 4, 2012
• SEC-approved interpretive notice carries the force of
federal law
• Notice is effective August 2, 2012
Note: Slides regarding this interpretive notice provide only a brief
overview. Refer to www.msrb.org for the full interpretive notice.
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Rule G-17 Interpretive Notice
• Goals of the notice:
– Clarifies the relationship of an underwriter to its
clients
– Creates affirmative obligations for underwriters
– Requires an underwriter to disclose important
information to an issuer to help the issuer assess
proposed financial transactions
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Duties of Underwriters to Issuers
• Fair practice duties outlined in the notice fall into three
broad areas:
– Statements and representations to issuers
– Disclosures to issuers
– Financial aspects of underwriting transactions
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Rule G-17 Interpretive Notice
Statements and Representations
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Statements and Representations
• All provisions in the interpretive notice arise from the same
fundamental duty of fairness to an issuer already required
under MSRB Rule G-17
• However, the interpretive notice more clearly articulates the
specific nature of an underwriter’s fair dealing obligations in
order to:
– Assist an underwriter with conforming to the expectation of
fairness, and
– Assist enforcement agencies in assessing an underwriter’s
compliance with this expectation
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Statements and Representations
• All representations made in writing or orally by underwriters to
issuers must:
– Be truthful and accurate
– Not misrepresent or omit material facts
– Not be misleading
– Have a reasonable basis
– Not misrepresent knowledge or expertise
• Requirements apply to representations made in documents
such as responses to requests for proposals, issue price
certificates and materials used in official statements
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Statements and Representations
• Notice provides more detailed direction on an underwriter’s
obligation to honor an issuer’s retail order period
– An underwriter that agrees to conduct retail order periods
must take reasonable measures to ensure that retail clients
are bona fide
– An underwriter would violate its fair dealing duty if it
knowingly accepts an order framed as a retail order but
which does not meet the issuer’s requirements for retail
– Dealer placing a false retail order also would be in violation
of MSRB Rule G-17
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Statements and Representations
• The notice also requires that an underwriter:
– Must act consistently with its representations to issuers
of the level of effort it will put toward new issue pricing
and not misrepresent the nature of investor demand
– Cannot recommend that an issuer not retain a financial
advisor
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MSRB Rule G-17:
Interpretive Notice on Duties of
Underwriters to Issuers
Webinar Part 1: Background and
Statements and Representations