Securities Litigation

On November 9, the MSRB filed yet another amendment to its proposed Municipal Advisor conduct Rule G-42. The amendment adds Supplemental Material -.14 and -.15, creating a narrow exception to the principal-transaction ban for particular fixed-income securities after specified disclosure and client consent. To fall within the exception, three preconditions must apply: (a) the MA is a registered BD with respect to a Municipal Entity's ("ME") brokerage account and is acting without general discretion; (b) neither the MA (nor any affiliate) is acting as advisor on municipal securities or financial products directly related to the principal transaction; and (c) the principal transaction is a purchase or sale of Treasury or Agency securities or corporate debt no involving escrow investments. See Proposed G-42 Supp. Mat. -.14(a)-(c). If these preconditions are met, then the MA has the option of either (1) using prior written disclosure and consent; or (2) using a blanket consent, ensuring the transaction meets all of: (A) Neither MA nor affiliates are issuer or underwriter; (B) ME has executed a prior written, revocable blanket consent after disclosure; (C) Coupled with transaction-specific prior disclosure and consent; (D) Reiterated in the confirm; (E) With an annual recap of all such transactions; and, (F) A reminder in each disclosure that the ME can revoke its consent See Proposed G-42 Supp. Mat. -.14(d), -.15. The short-form requirements in Supplemental Material -.14 are drawn from Advisers Act Section 206(3), while the "blanket consent" requirements are drawn from those set forth in Advisers Act Rule 206(3)-3T. The MSRB first floated its MA conduct proposal in January, 2014 (Reg. Notice 2014-01) and issued its revised draft that July (Reg. Notice 2014-12). It finally filed the Rule proposal with the SEC on April 24, 2015. On August 6, the SEC instituted proceedings, effectively buying the MSRB more time to respond to the continuing comment on the principal transaction ban. The MSRB filed its first amendments August 12. We've been following it here, and here. This second amendment, File SR-2015-03 (Nov. 9, 2015) is here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).