The Municipal Securities Rulemaking Board (MSRB) is seeking comment on amendments to MSRB Rule G-23 that will prohibit municipal securities dealers that act as financial advisors on new issues of municipal securities, on either a negotiated or competitive bid basis, from serving as an underwriter for the same issue, the MSRB says. Rule G-23 governs the activities of dealers that act as financial advisors to issuers of municipal securities.

Comments on the proposal are due by September 30. MSRB says that the comments will be considered at the October meeting of the MSRB’s “newly constituted majority public” board of directors.

Securities and Exchange Commission Chairman Mary Schapiro requested that the MSRB reexamine the roles of dealers who act as financial advisors for new issue bonds.

“All financial advisors–dealers that act as advisors as well as independent advisors–will have a fiduciary duty to their issuer clients under the new federal financial reform law, and removing any real or perceived conflicts of interest in such transactions is more important than ever,” said MSRB Executive Director Lynnette Kelly Hotchkiss, in a news release.

Rule G-23 currently allows dealers that act as financial advisors with respect to a new issue of municipal securities to purchase the issue as principal or act as a placement agent or remarketing agent if they meet certain requirements. The MSRB goes on to explain in the release that “in a negotiated underwriting, a financial advisor that would like to underwrite the bonds must terminate their advisory role and disclose to the issuer the potential for a conflict of interest. The advisor must also disclose the source and the anticipated amount of any compensation and the issuer must acknowledge receipt of the disclosure. In the case of a competitive underwriting, the issuer must provide express consent prior to the acquisition or participation in such issue.”

The proposed changes to Rule G-23, the MSRB says in the release, “would prohibit any such switching of roles except in the narrow circumstances of certain financing transactions with governmental entities, such as local government bond banks, where a financial advisor may assist in placing an issuer’s note or bond with such entity in connection with such financing.”