The Securities and Exchange Commission has proposed new rules that would require appointed members of the governing body of a municipal entity to register with the SEC as “municipal advisors.” The rules would affect appointed board members of entities such as public housing authorities, housing finance agencies, health and higher education issuers, economic development issuers, charter schools, public pension funds, local government investment pools, and other state and local governmental entities or funds, as well as any other issuer of municipal securities.

The proposed rules, published on January 6, 2011, in the Federal Register, would establish a permanent registration regime for municipal advisors. The Dodd-Frank Wall Street Reform and Consumer Protection Act amended Section 15B(a)(1) of the Securities Exchange Act of 1934 to bar a municipal advisor from advising a municipal entity on the issuance of municipal securities unless the municipal advisor is registered with the SEC. The statutory definition of “municipal advisor” is very broad but excludes, among others, “employees of a municipal entity.”

Comments on the proposed rules must be delivered to the SEC by February 22, 2011.

The SEC clarifies in its proposal whether the exclusion for “employees of a municipal entity” covers elected or appointed members of the entity’s governing body, such as board members or county commissioners.

The SEC concludes that elected members of the governing body are generally included within the exclusion for “employees of a municipal entity.” However, it states that appointed members of that body who are not elected ex officio members should be included in the definition of a “municipal advisor.” The SEC bases its divergent treatment of appointed members on the view that “appointed members, unlike elected officials and elected ex officio members, are not directly accountable for their performance to the citizens of the municipal entity.”

As a result, the proposed rules would require appointed members of a municipal entity’s governing body to register with the SEC as “municipal advisors” if they advise on the issuance of municipal securities or swap transactions, guaranteed investment contracts, and investment strategies (including advice with respect to the structure, timing, terms, and other similar matters concerning such issues or financial products). Registration would require the electronic filing of a new Form MA-I with the SEC. Form MA-I requires personal information, including the following:

  • Identifying information
  • Residential history for the past five years
  • Employment history for the past 10 years
  • Other business activity, if any, in which the individual is currently engaged
  • Employment terminations following allegations of certain violations 
  • Criminal, regulatory, and civil judicial history
  • Consumer complaints
  • Financial disclosures relating primarily to bankruptcy proceedings and unsatisfied judgments or liens

To provide municipal entities, investors, and other regulators with information the SEC believes would be relevant regarding the municipal advisory experience and history of the applicants, it proposes making Form MA-I information available to the public (Social Security numbers excepted).

The SEC is considering whether to charge a fee for filing Form MA-I. Registered municipal advisors would be required to electronically amend Form MA-I whenever the information previously provided becomes inaccurate. In addition, they would be required to certify annually that, among other things, they meet the qualification standards of the SEC, Municipal Securities Rulemaking Board, and any other self-regulatory organization.

For more information or if you have questions regarding the proposed rules, please contact Teri M. Guarnaccia, 410.528.5526 or; Michael T. Kersten, 410.528.5853 or; or any other member of Ballard Spahr’s Public Finance Department.

Copyright © 2011 by Ballard Spahr LLP.
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