New SEC Rule for Commissioners Questioned

ACI-NA recently filed comments on a proposed rule issued by the Securities Exchange Commission that would potentially affect some airports by imposing obligations on certain board members to register with the SEC as municipal advisors.

Below is a recent article, authored by ACI-NA’s General Counsel, Monica Hargrove, summarizing the proposed SEC rule.

SEC Proposes Rules that Could Impact Airport Boards

A recently proposed rule issued by the Securities Exchange Commission would potentially affect some airports by imposing obligations on certain of their board members to register with the SEC as municipal advisors.  If those persons were required to so register, they would also be required to adhere to associated record-keeping requirements of such advisors.

One irony of the rule is that some airport board members serving on the same airport board might be subject to this rule while others would not.

The reason for the potential difference in the obligations of some airport board members and not others is because of the scope of the definition of “municipal advisor” in the SEC’s proposed rule.  As presently written, the rule would make each non-elected official of municipalities (including airports) a “municipal advisor” (unless such officials are ex officio members by virtue of holding an elective office) under the law.  Thus, this SEC rule does not apply to elected officials, but would require non-elected board members of applicable airports to register with the SEC. The rule is said to be required as a result of financial reforms contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended Section 15B of the Securities Exchange Act of 1934.  Many of ACI-NA’s associate board law firm and financial consulting firms are concerned about the implications of this proposed rule, and are writing to their airport clients about the rule’s ramifications.

The proposed rule was published in the Jan. 6issue of the Federal Register and appears at:  http://edocket.access.gpo.gov/2011/pdf/2010-32445.pdf  Comments on the proposed rule are requested by Feb. 22.

In addition, another SEC policy in this area that appeared in the Jan. 12 issue of the Federal Register recognizes the authority of the Municipal Securities Rulemaking Board to prescribe standards of training, experience, competence and other qualifications deemed appropriate for the protection of investors and municipal entities or obligated persons, including municipal advisors.  That policy was implemented through a proposed rule change that became effective Jan. 3, 2011. The rule change implements a revised examination program for certain brokers, dealers and advisors in municipal securities. Thus, if some airport board members were required to register as municipal advisors under the proposed rule discussed in the first part of this article, then those members would also be subject to the training, experience, competence and other qualification standards set forth in this rule.

Although the second SEC policy states that the rule has already been implemented, the Federal Register notice states that the SEC can “at any time within 60 days of the filing of that rule, temporarily suspend it if it appears to the SEC that such suspension is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act [the Securities Exchange Act of 1934].”  Thus, the SEC has requested that comments on this policy change, including whether the proposed rule is consistent with the act, be submitted by Feb. 2.  This proposed rule is available at 76 Federal Register 2162-63 (January 12, 2011).