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SEC Adopts Municipal Advisor Registration Rule and Form

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  • Baker, John
    The Securities and Exchange Commission has adopted interim final temporary Rule 15Ba2-6T, requiring the registration of municipal advisors with the SEC, and
    Message 1 of 1 , Sep 7, 2010
      The Securities and Exchange Commission has adopted interim final temporary Rule 15Ba2-6T, requiring the registration of municipal advisors with the SEC, and related registration Form MA-T. Release No. 34-62824 (Sept. 1, 2010). The SEC action is a partial implementation of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended Section 15B of the Securities Exchange Act of 1934 to require the registration and regulation of municipal advisors. Municipal advisors are required to register by October 1, 2010. Fortunately, Form MA-T is a relatively short and simple form to complete, at least for advisors with no relevant disciplinary history. The SEC warns, however, that completion of Form MA-T will require advisors first to establish an account and secure access credentials, which it recommends advisors do well in advance of October 1.

      In general, a "municipal advisor" is a party that fills either of two roles. First, a municipal advisor may provide advice to or on behalf of a state, local government, or guaranty company with respect to municipal derivatives, guaranteed investment contracts, investment strategies, or the issuance of municipal securities. Second, a municipal advisor may solicit a state, local government, or state or local retirement plan or other asset pool on behalf of an unaffiliated broker-dealer, municipal securities dealer, municipal advisor, or investment adviser. Specifically included are financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors that perform municipal advisory services. Specifically excluded are broker-dealers and municipal securities dealers serving as underwriters and registered investment advisers and their associated persons who are providing investment advice. The SEC estimates that approximately 1,000 municipal advisors will be required to register.

      The statutory language implies that a state-registered investment adviser that performs municipal advisory services will be required to register as a municipal advisor. It is also quite clear that investment adviser solicitors that solicit business from state and local governments, and are not themselves registered investment advisers, will have to register. What about registered investment advisers that solicit for unaffiliated investment advisers? The SEC position is that the exclusion for registered investment advisers and their associated persons is available only so long as the municipal advisory services are investment advice for purposes of the Advisers Act. However, the SEC position historically has been that advisory solicitation is investment advice under the Advisers Act, so there is at least a good argument that it would not require a registered investment adviser to register as a municipal advisor.

      The SEC release focuses only on the registration requirement. However, the Dodd-Frank Act also subjects municipal advisors to a broad antifraud provision, as well as an explicit fiduciary duty to any municipal entity for whom the advisor acts. In addition, municipal advisors will be subject to the rules of the Municipal Securities Rulemaking Board, although the MSRB has not yet proposed any rules applicable to municipal advisors. The existing MSRB rules notably include restrictions on political contributions, so it seems likely that those will be among the restrictions applicable to municipal advisors.

      It places investment adviser solicitors in an odd position. When the SEC adopted Rule 206(4)-5, shortly prior to the passage of the Dodd-Frank Act, it prohibited investment advisers from paying compensation to solicit business from government entities, except for solicitors that are registered investment advisers or broker-dealers. The rationale was that other solicitors are not subject to SEC-monitored restrictions on political contributions. Now those solicitors must register with the SEC by October 1, 2010, and, depending on the MSRB action, may be subject to equivalent restrictions - restrictions that were in fact the model for the SEC rule. Nevertheless, once the compliance date for Rule 206(4)-5 is reached, on September 13, 2011, the prohibition on paying compensation will kick in. It remains to be seen whether there will be pressure on the SEC to modify its stance in light of this development.

      New Rule 15Ba2-6T is effective October 1, 2010, and will expire on December 31, 2011. Comments on the SEC action should be received within 30 days after publication in the Federal Register. The SEC contemplates a subsequent proposal for a final permanent registration program and will seek public comment on the proposal at that time.

      The SEC's webpage for municipal advisor registration, with links to the online form and the adopting release, is at

      http://www.sec.gov/info/municipal/form_ma-t.htm

      The press release announcing the adoption is at

      http://www.sec.gov/news/press/2010/2010-162.htm

      For my prior post on the adoption of Rule 206(4)-5, see

      http://groups.yahoo.com/group/FundLaw/message/1282

      The MSRB has posted revised Section 15B of the 1934 Act, with links to other information about the MSRB, at

      http://www.msrb.org/MSRB-For/Municipal-Advisors/Securities-Exchange-Act-Section-15B.aspx



      John M. Baker <JMB@...>
      Stradley Ronon Stevens & Young, LLP http://www.stradley.com
      1250 Connecticut Avenue, NW, Suite 500
      Washington, DC 20036
      202.419.8413
      202.822.0140 fax
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
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