Municipal advisors are required to register with the Securities and Exchange Commission under the Dodd-Frank Wall Street Reform and Consumer Protection Act. On September 20, 2013, the SEC provided its long-awaited final definition of "municipal advisor" for registration and record-keeping purposes in a 777-page release. In this Municipal Market Regulatory Update, we provide an eight-page summary of the SEC's release and information about what municipal advisors can expect.

Highlights include:

Who’s in?

  • This definition includes a person who advises a municipal entity or obligated person on the issuance of municipal securities or municipal financial products.
  • The definition also includes a person who undertakes a solicitation of a municipal entity or obligated person, such as a finder or a third-party marketer.

What constitutes advice?

  • Whether or not a communication constitutes advice depends on the facts and circumstances. Generally, advice must include a recommendation to trigger SEC registration requirements.

What is a municipal entity?

  • SEC broadly defines “municipal entity” under this rule, and includes any state or political subdivision of a state, or a municipal corporate instrumentality of either.

What is an obligated person?

  • The SEC took an approach consistent with SEC Rule 15c2-12 in defining an “obligated person” under its registration rule to include any person who is committed by contract or other arrangement to support the payment obligations of municipal securities.

What is a municipal financial product?

  • The SEC rule includes in the definition of “municipal financial product” municipal derivatives, guaranteed investment contracts, and investment strategies.

What is an issuance of municipal securities?

  • Whether advice has been provided “with respect to the issuance of municipal securities” will be also determined in light of the facts and circumstances of a particular transaction.

What is a solicitation?

  • A solicitation includes communications with a municipal entity or obligated person by a third party on behalf of a broker, dealer, municipal securities dealers, municipal advisor, or investment adviser related to the issuance of municipal securities, municipal financial products, or investment advisory services.

Who’s out?

  • The SEC’s registration rule includes five exclusions and eight exemptions.
  • Underwriters should take note that the SEC identified a finite period during which the underwriter exemption is available, beginning with engagement and expiring at the end of the underwriting period.
  • Employees, board members, and officials of municipal entities and obligated persons are not required to register with the SEC.

What’s next?

  • Municipal advisors must register first with the SEC and then with the MSRB.
  • The MSRB will likely be soon proposing rules and interpretations on standards such as municipal advisor fiduciary duty requirements, pay-to-play restrictions, fair dealing requirements, and gifts and gratuities limitations.


Read our Municipal Market Regulatory Update >

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Municipal Securities Regulation and Enforcement
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