CHICAGO - The Securities Industry and Financial Markets Association has released a new model memorandum to underwriters' counsel, which highlights what underwriters may want to communicate to the lawyers representing them on new muni transactions.
SIFMA Managing Director, Associate General Counsel, and Co-Head of Municipal Securities Leslie Norwood announced the
The document takes the form of a communication from an underwriter or syndicate to a lawyer or law firm selected as underwriters’ counsel for a bond deal, and spells out specific points of emphasis and regulatory concerns that SIFMA thinks underwriters should highlight with their lawyers.
“SIFMA’s members feel it is critical for underwriters and their counsels to discuss expectations regarding the scope and duties of counsel to the underwriter at the beginning of a transaction,” Norwood said. “Changes to municipal disclosure regulation and enforcement have highlighted this need for clarity and transparency.
SIFMA and its members believe that model documents, such as this model memorandum to underwriter’s counsel, assist underwriters by reducing compliance costs and regulatory risk.”
The model memorandum highlights specific regulatory concerns, such as the need to ensure that a bond purchase agreement includes a statement that the underwriting relationship is not a fiduciary role.
Underwriters generally try to make very clear that they are conducting a transaction at arm’s length, as required by Municipal Securities Rulemaking Board rules.
The model document also charges underwriters’ counsel with helping to prevent the underwriter from crossing the line into municipal advisor territory.
Under federal law, as well as Securities and Exchange Commission and MSRB rules, firms can become muni advisors if they give bond advice to state or local issuers. Municipal advisors have a fiduciary relationship with such issuers and cannot serve as underwriter on that same transaction.
Underwriters can give advice to issuers under certain circumstances, such as when an issuer has certified it will rely on its own muni advisor independent of the underwriter.
The new model document is available on SIFMA’s website.
