MSRB Rule G-17:
Interpretive Notice on Duties
of Underwriters to Issuers
Webinar Part 4: Required Manner and Timing of Disclosures,
and Financial Aspects of Underwriting Transactions
Required Manner of Disclosures
• Disclosures required by MSRB Notice 2012-25 on
Rule G-17 are to be made to issuers:
– In writing
– In a manner that makes the subject and implications
clear to the issuer
– To an official with appropriate authority to bind issuer
by contract
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Required Manner of Disclosures
• Conflicts of interest disclosures cannot be made to an
official who is party to such conflicts
• An underwriter must request written acknowledgment of
receipt of disclosures from issuer and document any
failure to receive such acknowledgement
• Syndicate managers may provide disclosure on behalf
of other syndicate members except in the case of
conflicts disclosures, which must be made by the
particular underwriters subject to such conflicts
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Required Timing of Disclosures
• Timing requirements for disclosures ensure issuers
have information they need when they need it to make
informed decisions
• Disclosure of arm’s-length nature of underwriting
transaction must be made at earliest stage of the
underwriter’s relationship with the issuer
– Corresponds with MSRB Rule G-23 requirements that issuer
understands a firm is seeking to serve as an underwriter, not
financial advisor
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Required Timing of Disclosures
• Disclosures concerning role of underwriter,
compensation and conflicts of interests must be
made when underwriter is formally brought into
transaction
• Such disclosures may not be made later in process,
such as at the signing of a bond purchase
agreement
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Required Timing of Disclosures
• Disclosures concerning material financial
characteristics and risks of complex financings and
applicable routine financings, and newly identified
conflicts of interest, must be made prior to execution
of bond purchase agreement
– Issuers must have sufficient time to evaluate
recommendation
• Underwriters should view timeframes in light of fair
dealing goals of Rule G-17
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Rule G-17 Interpretive Notice
Financial Aspects of
Underwriting Transactions
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Financial Aspects of Underwriting
Transactions
• MSRB does not establish specific compensation
standards for underwriters
• However, an underwriter’s compensation for a new
issue must not be so disproportionate as to constitute
unfair practice under Rule G-17
• Compensation includes both direct compensation paid
by issuer and separate payments from issuers or third
parties in connection with underwriting
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Underwriter Compensation
• Factors to consider when evaluating whether
underwriter’s compensation is disproportionate:
– Credit quality of the issue
– Size of the issue
– Market conditions
– Length of time spent structuring the issue
– Whether underwriter is paying fee of underwriter’s
counsel and other relevant costs
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Pricing of New Issues of Municipal
Securities
• Pricing of a new issue is one factor in determining
whether an underwriter has treated the issuer fairly
– Price paid by underwriter must be fair and reasonable,
considering all relevant factors
– Competitive bids must be bona fide based on dealer’s
best judgment of fair market value
– In negotiated offering, underwriter has duty to negotiate in
good faith with issuer
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MSRB Rule G-17:
Interpretive Notice on Duties
of Underwriters to Issuers
Webinar Part 4: Required Manner and Timing of Disclosures,
and Financial Aspects of Underwriting Transactions