H.R. 2827: To amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, and for other purposes

H.R. 2827

To amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, and for other purposes

Sen. Bernard Sanders

September 19, 2012 (112th Congress, 2nd Session)

Staff Contact

Floor Situation

On Wednesday, September 19, 2012, the House is scheduled to consider H.R. 2827, a bill to amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, under a suspension of the rules requiring a two-thirds majority vote for approval.  The bill was introduced on August 26, 2011, by Rep. Robert Dold (R-IL) and referred to the Committees on Financial Services.  The committee held a mark-up session on September 12, 2012, and ordered the bill to be reported as amended by a recorded vote of 60-0.

Bill Summary

H.R. 2827 bill would specify the scope and limits of Section 975 of the Dodd-Frank Act (P.L. 111-203), which requires municipal advisors to register with the Securities and Exchange Commission (SEC).

The bill as amended would clarify that the Municipal Securities Rulemaking Board’s (MSRB) regulatory authority over MAs extends only to an entity’s MA activities. The MSRB and other regulators would continue to have authority over those entities’ other activities to the same extent as under current law.

The bill would also specify that MAs have a fiduciary duty to their municipal entity clients and would specify when such duties begin and terminate in relation to MA activities.

Additionally, the bill would clarify the definition of MA to create a “bright-line” test for who falls under the definition based on explicit engagement and compensation.

The bill would also clarify the definition of “investment strategies” so that regulation as a MA extends to activities related to the investment of bond proceeds, as intended by Congress in Dodd-Frank, and the bill would specify that certain routine brokerage activities do not constitute “investment strategies.”

The bill would also specify that MAs could engage in principal transactions with their clients, subject to MSRB regulation. (This is consistent with the fiduciary duty that applies to registered investment advisors.)

The bill would also clarify the definition of “solicitation” so that MA treatment would apply fully to solicitations directly on behalf of investment advisors and not with respect to the investment funds they manage.

The bill would provide a definition of “municipal derivative” and “on behalf of,” both were undefined in Dodd-Frank.

Lastly, the bill would fix a technical error in the existing statute that will allow individuals associated with municipal advisor firms to be under the authority of the Securities Exchange Commission (SEC) and subject to its rules without having to register individually.


Municipal advisors (MAs) are consultants that provide advice to state and local governments with respect to bond issuance, investment of bond proceeds, use of financial derivatives and other financial matters. Section 975 of the Dodd Frank Act creates a new class of registrants under federal securities law, “municipal advisors.”  Before Dodd-Frank, many municipal advisors were not subject to any regulation and this regulatory gap created a significant and unfair competitive balance in favor of the unregulated municipal advisors in relation to their regulated competitors.  More importantly, this regulatory gap allowed a few dishonest municipal advisors to deceive and severely damage municipalities,  all while conflicts of interest and other important information remained undisclosed to municipal officials.

H.R. 2827 was introduced to clarify the definition of a municipal advisor following an SEC proposed rulemaking that went far beyond what Congress intended.  In response to its proposal, the SEC has reportedly received over 1,000 comment letters overwhelmingly critical of the rule.

A statement from the bill’s sponsor following committee passage of the bill read, in part: “My colleague and co-sponsor, Representative Gwen Moore (D-WI), and I worked with concerned parties to ensure that we fully considered all viewpoints and we came up with the best possible legislation that could also pass with broad bipartisan support.”  Continuing, “This legislation protects state and local governments by preserving the federal fiduciary duty for municipal advisors, while maintaining a bright line definition that removes confusion in the market.”


There was no Congressional Budget Office (CBO) cost estimate available for this legislation.