The Municipal Securities Rulemaking Board will keep its CUSIP rule as is, changing course from a previous decision to eliminate the requirement that municipal advisors apply for CUSIPs when advising on competitive deals.
That was among the decisions made during the MSRB’s quarterly board meeting this week. The change of course is in respect to Rule G-34 on CUSIP numbers, which as of June 2018 requires that all muni advisors, including non-dealer MAs, apply for CUSIP numbers when advising on a competitive new issue. The board had previously said it planned to abolish that requirement for all MAs.
Municipal advisors were disappointed by that decision to reverse the MSRB’s decision to change its Rule G-34.
“While we have noted many reasons why MAs should not have to obtain CUSIP numbers in competitive sales during the previous comment periods, a key argument NAMA has made is that CUSIP numbers facilitate the selling and trading of securities to investors,” said Susan Gaffney, executive director of the National Association of Municipal Advisors. “Such actions are squarely not within the purview of MAs whose work and fiduciary duty are solely to their clients, the issuers of municipal securities.”
Broker-dealers however, said it made sense for MAs to put in timely applications for CUSIP numbers rather than requiring every underwriter that bids on the transaction to do so.
The changes requiring MAs to apply for CUSIPs have been fully implemented, and undoing them at this point would be additional work, said Leslie Norwood, managing director, associate general counsel and head of municipals at the Securities Industry and Financial Markets Association.
The board said in July 2019 it planned to take the unusual step of eliminating the barely one year-old requirement, but has changed its mind.
“We are comfortable with the rule as written today and we are stopping our retrospective rule review on that rule at the moment,” said Gail Marshall, MSRB chief regulatory officer.
Marshall added that many MAs already get the CUSIPs.
“To unring that bell would place a new burden on them and couple that with the fact that it is efficient to have the CUSIPs obtained prior to the winning bid because it provides certainty for the underwriters, or those that are bidding to know that the CUSIP has been obtained,” Marshall said. “Without the requirement, we still have some MAs getting CUSIPs and some MAs not getting CUSIPs so the winning bid doesn’t know if they have to order a CUSIP on an expedited basis and the like.”
The board also decided this week to conduct a retrospective rule review of its MSRB Rule G-10 which requires broker-dealers to provide on an annual basis certain notifications such as MSRB and Securities and Exchange Commission registrations and links to investor brochures for municipal securities investors. The MSRB had heard from dealers that the way customers were broadly defined in the rule was a pain point for dealers.
“We felt that we wanted to back out and look at the rule to reduce the scope of customers for the purposes of G-10 to tighten it to the nexus of municipal securities so that we could retain the investor protection that the rule was designed to do, but reduce the burden on firms,” Marshall said.
The rule also has an obligation for MAs to notify their municipal advisory clients on an annual basis on their registration status.
SIFMA supported the move.
“Limiting that universe to only those customers with municipal securities in their accounts reduces regulatory and compliance burdens which are unnecessary, without reducing customer protections,” Norwood said.
The Bond Dealers of America supported the MSRB revisiting Rule G-10.
“We raised issues with Rule G-10 in our letter to the board in January on strategic priorities,” said Michael Decker, senior vice president of policy and research at BDA. “The rule is written too broadly and requires disclosures to customers who do not invest in municipals.”
The board also discussed Environmental, Social and Governance, i.e. ESG, a growing topic in the municipal market.
“We are committed to leveraging our EMMA website to enhance the transparency and accessibility of ESG data and information,” said Mark Kim, MSRB CEO. “The MSRB’s Electronic Municipal Market Access (EMMA®) website serves as the free central repository for municipal market disclosures and trade data.”