msrb webinar: draft professional qualification ...msrb webinar: draft professional qualification...

MSRB Webinar: Draft Professional

Qualification Requirements for

Municipal Advisors

Municipal Securities Rulemaking Board

April 3, 2014

MSRB Presenters

Lynnette Kelly

Executive Director

Ritta McLaughlin

Chief Education Officer

Lawrence Sandor

Deputy General Counsel

2 Municipal Securities Rulemaking Board

Today’s Webinar Topics

I. Overview

– Regulatory Framework

– Professional Qualification Framework

II. Key Areas of the Draft Amendments

– Registration Classifications for Municipal Advisors

– Municipal Advisor Representative Qualification Exam

– Timing

– Other Amendments

III. Professional Qualification Exam Development

IV. Participation in the Rulemaking Process

V. Audience Questions


Regulatory Framework

About the MSRB

• A self-regulatory organization created by Congress in 1975

• Protects investors and issuers of municipal securities

• Promotes a fair and efficient municipal market


Municipal Advisor

Regulatory Framework

• The 2010 Dodd-Frank Act expanded the MSRB’s

jurisdiction to include the regulation of municipal advisors

and municipal advisory activities

– Also broadly defined “municipal advisor”

• The September 2013 final registration rule (SEC Final

Rule), among other things, provided additional clarity and

guidance on who is a municipal advisor

– Effective on July 1, 2014


Municipal Advisor

Regulatory Framework (continued)

• With the adoption of the SEC Final Rule, the MSRB has

prioritized the development of municipal advisor rules in five

key areas:

– Standards of conduct including fiduciary duty (comment period closed)

– Supervision (comments due April 28, 2014)

– Pay-to-play

– Gifts and gratuities

– Duties of solicitors

• The MSRB has also prioritized the development of

professional qualification standards for municipal advisors – Comments due May 16, 2014


Professional Qualification

Framework

Overview of Municipal Advisor

Professional Qualification Framework

• The Dodd Frank Act charged the MSRB with setting

professional qualification standards and continuing

education requirements for municipal advisors

– Persons associated with dealers and municipal advisors must pass

examinations as the MSRB may establish

• Professional qualification exams measure a candidate’s

knowledge of business activities and applicable regulatory

requirements

• Professional qualification exam for municipal advisor

representatives is expected to be available in 2015


Existing Dealer Professional

Qualification Standards

• MSRB Rule G-2 requires that no dealer shall engage in

municipal securities activities unless that dealer and every

natural person associated with the dealer is qualified in

accordance with MSRB rules



Qualification Standards (continued)

• MSRB Rule G-3 sets forth the specific requirements of

qualification for dealers and persons associated with

such dealers

• Classifications include (but are not limited to):

– Municipal securities representative

– Municipal securities principal

– Municipal securities sales principal

– Financial and operations principal



Qualification Standards (continued)

• MSRB Rule G-3 requires municipal securities

representatives, municipal securities principals and

persons that fall within other dealer classifications to

take and pass an applicable professional qualifications

exam for that classification


Professional Qualification Framework

(continued)

• MSRB Rule G-3 also:

– Prescribes the minimum number of persons within a

dealer that must fall within certain classifications;

– Describes the continuing education requirements for

dealers; and

– Addresses other matters such as the confidentiality of

qualification exams.


Key Draft Amendments to MSRB

Rules G-1, G-2, G-3 and D-13

Standards of Professional Qualification

for Municipal Advisors

• Draft amendments to MSRB Rule G-2 add standards of

professional qualification for municipal advisors

– Draft amendments provide that no municipal advisor shall

engage in municipal advisor activities unless the municipal

advisor and every natural person associated with the advisor

are qualified under MSRB rules


Classifications for Municipal Advisors

• Draft amendments to MSRB Rule G-3 create two new

registration classifications:

– Municipal advisor representative

– Municipal advisor principal


Municipal Advisor Representative


A natural person who is an associated person of a

municipal advisor who engages in municipal advisor

activities on the firm’s behalf (other than a person

whose functions are solely clerical or ministerial)


Municipal Advisory Activities

• MSRB Rule D-13 defines municipal advisory activities as

those activities described in Section 15B(e)(4)(A)(i) and (ii)

of the Securities and Exchange Act of 1934

• Those activities include advice to or on behalf of a

municipal entity or obligated person with respect to

municipal financial products or the issuance of municipal

securities, including advice with respect to:

– Structure

– Timing

– Terms

– Other similar matters concerning such financial products or issues


Municipal Advisor Principal

Municipal Advisor Principal

A natural person who is an associated person of a

municipal advisor who is directly engaged in the

management, direction or supervision of the municipal

advisory activities of the municipal advisor



Qualification Exam

• Draft amendments to MSRB Rule G-3 require each

municipal advisor representative to take and pass the

municipal advisor representative qualification exam

• At a later date, the MSRB will consider a qualification

exam for municipal advisor principals


Timing of Municipal Advisor

Representative Qualification Exam

• The MSRB proposes to give municipal advisor

representatives a one-year time period from the

effective date of the qualification exam to pass the

exam

• The MSRB will announce the effective date of the

municipal advisor representative qualification exam


Timing of Municipal Advisor

Representative Qualification Exam

(continued)

• Individuals who do not pass the municipal advisor

representative exam would be permitted to re-take the

exam after 30 days

• Any person who fails the exam three or more times in

succession would be prohibited from taking the exam

for six months


Grandfathering

• The draft amendments require that all municipal

advisor representatives take and pass the qualification

exam

– There are no exceptions for municipal advisors that have

passed other qualification exams or municipal advisors with

extensive industry experience


Certain Financial Advisory Activities

• Draft amendments to MSRB Rules G-1 and G-3

remove a category of permissible activities that

currently constitute municipal securities dealer

activities or municipal securities representative

activities, respectively

– Draft amendments remove the provision of “financial advisory

or consultant services for issuers in connection with an

issuance of municipal securities” as a category of activities


Apprenticeship

• Draft amendments to MSRB Rule G-3 remove the

requirement for municipal securities representatives to

serve an apprenticeship period of 90 days before

transacting business with any member of the public or

receiving compensation for such activities

– The MSRB does not propose an apprenticeship requirement for

municipal advisors



Exam Development


Exam Development

• The MSRB has extensive experience creating and

maintaining professional qualification exams for municipal

securities market professionals

– The MSRB has three exams to evaluate the basic competency

professional qualifications of municipal securities professionals

– The MSRB also partners with the Financial Industry Regulatory

Authority in maintaining other professional qualification exams



Exam Development (continued)

• Municipal advisor industry professionals develop content for

the Municipal Advisor Representative Qualification Exam

– Engagement of a psychometrician to advise on the exam

– Creation of a draft content outline for the exam

– Survey of municipal advisors on their core activities

– Drafting of test questions for the exam

– Implementation of a pilot exam

• The Municipal Advisor Representative Qualification Exam is

expected to be available in 2015


Participation in the Rulemaking

Process

Specific Questions for Public Comment

• Should all individuals engaged in municipal advisory

activities demonstrate a minimum level of competence by

taking and passing a general qualification exam?

• Is the one-year grace period sufficient time for municipal

advisor representatives to study and take (and, if necessary

re-take) the municipal advisor representative qualification

exam?

• Do dealers believe the current 90-day apprenticeship

requirement for municipal securities representatives is

beneficial?


Economic Analysis

• The MSRB recently adopted a policy on economic analysis

that requires it to consider:

– The need for the draft rule or amendments

– Relevant baselines against which the likely economic impact of

elements of the draft rule or amendments can be considered

– Reasonable alternative regulatory approaches

– The potential benefits and costs of the draft rule and of the main

alternative regulatory approaches


MSRB Rulemaking Process

Identify an Issue

•Monitor market

•Engage with market stakeholders

•Does this issue warrant rulemaking?

•Economic analysis

•Reasonable alternatives

Draft Rule and/or

Amendments Are Published for Comment

• Rule for stakeholders to evaluate

• Incorporates preliminary economic analysis

• May be preceded by concept proposal

• Comment letters published on MSRB’s website

Review of Comments

•All comment letters considered

•Draft may be amended in response to comments

Draft Rule Filed with SEC for

Approval

•All significant issues raised by commenters addressed in filing

SEC Publishes Proposed

Rule in Federal

Register for Comment

•Additional comment period

•MSRB responds to comments received

SEC Approval

Order

• If approved, rule has the force and effect of federal law

•Goes into effect on specific date


Submitting Comment Letters

• Comment period ends

May 16, 2014

• Submit comments electronically

or by mail

• All comment letters received are

published on the MSRB website


Audience Questions

Submit your questions using GoToWebinar Control

Panel


Qualification Requirements for Municipal

Advisors


• Review MSRB resources

for municipal advisors

• View previous comment

letters on the Request for

Comment page

• Submit comments no later

than May 16, 2014

Contact the MSRB

MSRB Online

msrb.org

emma.msrb.org

MSRB Support

703-797-6668

Hours of Operation:

7:30 a.m. - 6:30 p.m. ET

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Qualification Requirements for

Municipal Advisors

Municipal Securities Rulemaking Board

April 3, 2014

msrb webinar: draft professional qualification ...msrb webinar: draft professional qualification...

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