Chapter 2.2 Flashcards
(10 cards)
Financial Advisor with respect to a new issue of municipal securities
An individual or firm that advises the issuer or other obligated person on matters pertinent to the issue, such as structure, timing, marketing, fairness of pricing, and terms and bond ratings. A FA may also be employed to provide advice on subjects unrelated to a new issue of municipal securities, such as advising on cash flow and investment matters in connection with outstanding municipal securities. FA’s are sometimes referred to as “fiscal consultant” or “fiscal agent”.
Financial Advisor prepares an official statement on behalf of an issuer:
It is required to make such official statement available to the managing underwriter promptly after the issuer approves it’s distribution or the award is made.
When does a financial advisory relationship exist?
When a person or firm agrees to provide advisory services in connection with the sale of a bond issue usually, but not necessarily for compensation.
It is not deemed to be a financial advisory relationship:
- If a firm oversees a pension fund or
- If an issuer receives advice from a dealer
Activities of Financial Advisors
- A dealer that serves as a financial advisor to an issuer for a particular issue sold on either a negotiated or competitive bid basis is prohibited from switching roles and underwriting the same issue. The FA may act as one or the other, but not both on the same offering. Exceptions to this rule is a FA may:
- Place an issuer’s entire issue with another governmental entity.
- Purchase such securities from an underwriter for their own account or the accounts of their customers.
-Each financial advisory relationship shall be evidenced by a written agreement. The agreement must include the terms of the compensation, but compensation for advisory services rendered is not required for the relationship to exist.
- Advice given to the issuer while a dealer is acting as an underwriter does not make the dealer a financial advisor as long as:
- The dealer clearly identifies itself in writing as an underwriter
- The writing explains the relationship of the underwriter and that the underwriter has interests that are different from the issuer, and
- The dealer does not engage is a course of conduct inconsistent with that of being an underwriter
Disclosures and Consents of financial advisory relationships
Required for Broker/dealers and banks. Retention requirements for disclosures and consents are 6 years.
What is needed if a financial advisor that is not a B/D but is giving advice to an issuer if the FA has any type of affiliation o the B/D that will underwrite the issue?
Must disclose in writing to the issuer and receive written acknowledgment from the issuer prior to the purchase of the new issue.
When must any financial advisory relationship be disclosed to customers?
It must be disclosed in writing at or before the completion of the transaction with the customer.
Remarketing activities
- Remarketing is the process of reselling municipal securities to the public that have been tendered by the bondholders.
- A Remarketing agent is a B/D that is responsible for reselling the tendered securities to new investors.
- A dealer that is acting as a financial advisor may not act as a remarketing agent for the same issue or act as a successor remarketing agent unless the advisory relationship has been terminated for at least one year.
Activities deemed improper by a municipal broker/dealer acting as a Financial Advisor to an issuer include:
- Purchasing a new municipal security of that issuer as principal(buying bonds for the firm’s own account instead of selling to the public) in a negotiated underwriting.
- Disseminating non-public information to a customer about a prospective exchange offer by the issuer.
- *It is not improper to act as an agent for a customer in purchasing a new security of that issuer from a syndicate that won the award in a competitive underwriting.
- *There is NO requirement to disclose the spread in a competitive bid.
MSRB rules prohibit a dealer from doing what?
Prohibits a dealer from making any direct or indirect payment to any person who is not an affiliated person of the dealer for solicitation of municipal securities business.
