US-based municipal bond
underwriters are grappling with new restrictions on their
Removal of muni
bonds’ tax exempt-status and replacement with a
new form of the Build America Bond (BAB) programme could be
another change underway.
The Municipal Securities
Rulemaking Board’s (MSRB) amendment of rule G-23
stipulates a dealer financial advisor on a muni bond issue can
no longer subsequently act as an underwriter on the same
The breadth of the May 27
amendment has angered broker-dealer groups. They claim the dual
role is necessary for small issues.
These deals have such little
competition among underwriters that removing the financial
advisor from that pool could reduce the number of bidders to
just one or two. Excluding competitive bids, and restricting
the prohibition to negotiated bids, could have avoided this
But lawyers point out a possible loophole to the dealer
role-switching prohibition. The restriction applies to a...