On February 7, 2012, the Municipal Securities Rulemaking Board (“MSRB”) issued for public comment draft interpretive Notice No. 2012- 04 (the “Notice”). The Notice provides an interpretation of MSRB Rule G-171 relative to the provision by underwriters of certain consents on behalf of holders of municipal securities.

In the Background to the Notice, the MSRB expresses concern that, “in some cases, underwriters have consented to trust indenture or resolution amendments that affect existing parity bondholders, even though those authorizing documents and the official statements for the existing bonds did not provide expressly that underwriters could provide such consents.” The underwriter consents in question are those that are or could be given by underwriters during the brief period that an underwriter is the owner of a municipal bond or other security pending redistribution to securities investors.

The MSRB expresses its belief and understanding in the Notice that an underwriter who provides bondholder consents that affect all parity bondholders could, depending on the facts and circumstances, be in violation of the Rule G-17 duty of dealers to deal fairly with all persons in the conduct of their municipal securities activities. The Notice articulates a broad interpretation to the effect that Rule G-17 establishes a general duty of a dealer to deal fairly with all persons in the conduct of its municipal securities, even in the absence of fraud. The duty is not limited to investors with whom a dealer engages in specific municipal securities transactions. The MSRB further notes that no “material adverse effect” standard need be applied when analyzing amendments which affect existing bondholders under Rule G-17.

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