The Investor Protection and Securities Reform Act of 2010 (the Act), included as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, makes changes that will affect issuers of municipal securities, as well as the broker-dealers and financial advisers dealing in such securities. The changes generally provide for:

  • Registration of municipal financial advisers with the U.S. Securities and Exchange Commission
  • Alteration of the makeup of the Municipal Securities Rulemaking Board so that a majority of its members are not broker-dealers or financial advisers
  • The U.S. Government Accountability Office to study the disclosure practices of municipal securities issuers, the municipal securities markets generally, and the role of the Governmental Accounting Standards Board
  • Creation of an Office of Municipal Securities within the SEC

Asset-Backed Securities. The Act also adds a definition of "asset-backed security" to mean a fixed-income security that depends on cash flow from a self-liquidating financial asset, such as a loan or lease. This definition could include a great number of municipal securities, such as conduit bonds and housing and student loan bonds.

The Act calls for regulations that require the issuer of asset-backed securities to retain some of the risk of the securitized asset (the "skin in the game" provisions) and further provides that those regulations shall provide a “total or partial exemption” for any asset-backed security that is issued or guaranteed by any state, any political subdivision of a state or territory, a public instrumentality of a state or territory, or a qualified scholarship funding corporation.

Industry commentators had recommended a total exemption for state and local government securities; this was not picked up in conference. Although it seems safe to say that conventional governmental conduit financing is not within the intended scope of the Act, clarity will have to await the regulations. Click here for more on asset-backed securities.

Derivatives. The Act also establishes new regulatory authority over derivatives, including interest rate swaps. Click here for more on derivatives.

Ballard Spahr's Financial Institutions Reform Task Force will continue to monitor these and other portions of the Dodd-Frank Act, and its members are available to assist clients as they prepare to address the new requirements. Please feel free to contact Teri M. Guarnaccia, 410.528.5526 or guarnacciat@ballardspahr.com; William A. Hicks III, 602.798.5423 or hicksw@ballardspahr.com; or J. Douglas Rollow III, 215.864.8525 or rollow@ballardspahr.com.

Return to the Dodd-Frank Act Brings Sweeping Regulatory Changes alert.

 


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