Relevant Laws: Municipal Advisor Laws

February 2, 2015 by Enzo Incandela, Associate | James M. Snyder, Partner
Adherence to federal and state laws is a required component of any bond issuance for the borrowing to be binding and legally valid. Below is a sampling of current laws governing the borrowing activities of school districts. 

Municipal Advisor rules. September 20, 2013 marked the official adoption by the Securities and Exchange Commission (“SEC”) of its final rules for municipal advisors (“Final Rules”), as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Further, the SEC released additional guidance in May of 2014.

While underwriters have long been regulated by the SEC and other regulatory bodies, the regulation of municipal advisors pursuant to the Final Rules is new. The Final Rules took effect on July 1, 2014. Issuers of municipal securities will likely notice changes. While the issuer is not required to hire a municipal advisor, the Final Rules require registration of municipal advisors, define who is a municipal advisor and impose certain limitations on underwriters. An underwriter is exempted from registering as a municipal advisor as long as certain protocols are followed. To qualify for the underwriter exemption, the underwriter must have an engagement to act as underwriter on a specific issuance of municipal securities. Inclusion in a pre-approved underwriting pool is not sufficient. Engagement letter may state that it is preliminary and non-binding, is subject to applicable procurement laws, formal governing body approval, final bond structuring and execution of a bond purchase agreement, may be terminated by either party without liability, and does not prevent the issuer from engaging other underwriters, or from selecting a different underwriting group. Oral or written acknowledgment of engagement from the issuer/obligated person is permitted. Preliminary, non-binding engagement is permitted so long as issuer/obligated person reasonably expects to formally engage the broker-dealer as underwriter. Multiple engagements are permitted, and there is no need to specify status as senior or comanager.

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