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On July 23, 2014, the Municipal Securities Rulemaking Board (MSRB) issued Regulatory Notice 2014-12 requesting comments on a revised draft of MSRB Rule G-42 on standards of conduct and duties of municipal advisors when engaging in municipal advisory activities other than the undertaking of solicitations (the “Revised Draft”). MSRB Rule G-42 was originally published for comment on January 9, 2014 in furtherance of certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which granted the MSRB broad rulemaking authority over municipal advisors and municipal advisory activities.

The original draft of MSRB Rule G-42 proposes certain basic standards and duties on municipal advisors. The Revised Draft includes significant changes from the original draft in response to comments received by the MSRB during the initial comment period. This advisory highlights certain of those modifications as described in Notice 2014-12 and reflected in the Revised Draft, as follows:

Standards of Conduct

The Revised Draft:

  • removes the requirement that municipal advisors undertake a thorough review of official statements relating to new issues or reofferings of municipal securities.
  • removes the requirement to investigate or consider other reasonably feasible alternatives to recommended transactions or financial products that might also serve the client’s objectives.
  • precludes a municipal advisor from engaging in municipal advisory activities with a client if it cannot manage or mitigate its conflicts in a manner that allows the municipal advisor to act in the best interests of its client.

Disclosure of Conflicts of Interest

The Revised Draft:

  • requires disclosure of material conflicts of interest arising from compensation for advisory activities to be performed only where the compensation is contingent on the size or closing of a transaction as to which the advisor is providing advice (rather than in all instances).
  • requires that the municipal advisor confirm that there are no known material conflicts of interest based on the exercise of reasonable diligence by the advisor (rather than requiring that the municipal advisor categorically state that there are no material conflicts of interest).
  • removes the requirement to disclose the amount and scope of coverage of professional liability insurance carried by a municipal advisor.
  • requires that municipal advisors disclose only legal or disciplinary events that are material to the client’s evaluation of the municipal advisor or the integrity of its management or advisory personnel (rather than requiring disclosure of a complete legal and disciplinary history); however, the disclosure must also include certain other information relating to Forms MA and MA-I that are required to be filed with the SEC.
  • includes a new provision addressing steps that may be taken in the case of inadvertent or incidental advice causing a firm to be considered a municipal advisor under the rule.

Documentation of the Advisory Relationship

The Revised Draft:

  • simplifies the documentation of compensation requiring only the form and basis of any direct and indirect compensation.
  • removes the requirement to detail the specific undertakings relating to preparation or finalization of an offering document.
  • requires that the terms of withdrawal from the advisory relationship must be documented.

Recommendations and Review of Recommendations of Others

Provisions relating to recommendations made by the municipal advisor and the advisor's review of recommendations of other parties are merged but retain the diligence standard in connection with each kind of undertaking.

Principal Transactions

The prohibition against municipal advisors (and affiliates) engaging in transactions in a principal capacity where the client of the municipal advisor is a counterparty is clarified and significantly narrowed.

Specified Prohibitions

Guidance is provided on factors relevant to whether compensation is excessive including expertise, complexity, contingencies, length of engagement and relevant other costs.


The definitions of “advice,” “municipal advisor,” “municipal entity” and “obligated person” are modified to specifically reference the applicable provisions of the municipal advisor rules adopted by the U.S. Securities and Exchange Commission [Exchange Act Release No. 34-70462, (Sept. 20, 2013), 78 FR 67468 (Nov. 12, 2013) and Exchange Act Release No. 34-71288 (Jan. 13, 2014), 79 FR 2777 (Jan. 16, 2014)], and clarification is provided on when the municipal advisory relationship begins and ends.

The comment deadline for the Revised Draft is August 25, 2014. Please note that the Revised Draft does not address the duties of municipal advisors when undertaking solicitations of a municipal entity or obligated person within the meaning of Section 15B(e)(9) of the Securities Exchange Act of 1934. The MSRB has indicated that it plans to release a separate rule for such solicitation activities (which are also subject to the MSRB’s fundamental fair-practice rule, Rule G-17). Also, certain rules relating to records to be made and maintained by municipal advisors are addressed separately in associated revised draft amendments to MSRB Rules G-8 and G-9. Finally, it should be noted that the duties created by MSRB Rule G-42 are in addition to any state-law or other applicable federal law.


This advisory is for informational purposes only and is a marketing publication and advertisement of Buchanan Ingersoll & Rooney PC. It is intended to alert the recipients to developments in the law and does not constitute legal advice or a legal opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult your own lawyer concerning your situation and specific legal questions you may have. THIS IS AN ADVERTISEMENT.