MSRB Monthly Update - November 2014

Upcoming Event

MSRB Webinar: Upcoming Changes to Dealer Continuing Education Requirements
Thursday, Dec. 4, 2014
3:00 p.m. - 4:00 p.m. EDT

During this free webinar, MSRB staff will review upcoming changes to approved MSRB Rule G-3, on professional qualification requirements for municipal securities dealers, which require certain persons registered with brokers, dealers and municipal securities dealers to participate in annual firm training on municipal securities matters.     

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The MSRB’s new podcast, Being a Regulated Municipal Advisor, explains the importance of registration, the structure of MSRB rules, how municipal advisors can participate in the rulemaking process and how to stay up-to-date with MSRB news and resources.

Reminder: The submission deadline for the Securities and Exchange Commission Historical Society's Municipal Securities Regulation Essay Competition is Dec. 31, 2014.  View complete entry guidelines.

MSRB to Seek SEC Approval for Pay-to-Play Rule for Municipal Advisors

The MSRB plans to seek Securities and Exchange Commission (SEC) approval of changes to MSRB Rule G-37 to address the potential for pay-to-play activities by municipal advisors. In late October, the MSRB Board of Directors agreed to move forward with its proposal to prohibit municipal advisors from engaging in municipal advisory business with municipal entities for two years if certain political contributions have been made to entity officials with influence over the award of business. Consistent with the rule’s existing provisions for dealers, municipal advisors also would be required to disclose their political contributions to officials and bond ballot campaigns for posting on the MSRB’s Electronic Municipal Market Access (EMMA®) website.

MSRB Rule G-37 was the first law of its kind to prohibit securities-related business activity following political contributions to elected officials. The rule, and refinements to it over the last 20 years, have deterred pay-to-play activities in the municipal market and minimized the influence of political donations in public finance decisions. Applying these well-established principles to municipal advisors aims to ensure that all regulated municipal market entities and professionals are held to the same high standards of integrity. The MSRB has proposed taking a similar approach to limit the influence of gifts by extending existing limitations for dealers on gift-giving to municipal advisors. Comments on that proposal are due to the MSRB by December 8, 2014.

Read more about the current status of MSRB rulemaking for municipal advisors here.


Update on Dealer Rulemaking

In December, the MSRB expects SEC action on the MSRB’s proposed rule to create a best-execution transaction standard for the municipal securities market. The MSRB said last week that it would develop, in coordination with the Financial Industry Regulatory Authority (FIINRA), practical guidance for dealers on the application of best-execution regulations for both the municipal and corporate markets. The MSRB expects this guidance to be issued before the end of the proposed 12-month implementation period for the best-execution rule.

The development of a best-execution rule for the municipal securities market, along with practical guidance, is consistent with a recommendation in the SEC’s 2012 Report on the Municipal Securities Market. A best-execution rule would create an explicit obligation for dealers to use “reasonable diligence” when handling orders and executing municipal security trades for retail investors in an effort to obtain a price that is as favorable as possible under prevailing market conditions. 

In another coordinated rulemaking effort, the MSRB and FINRA are developing a draft rule to require dealers to disclose pricing information for the dealers’ same-day principal trades in the same security on retail customer trade confirmations. The proposed disclosure requirements would apply to both municipal and corporate transactions.The proposal for the municipal market also stems from a recommendation in the SEC’s 2012 report. The SEC is playing a coordinating role among the three regulatory organizations, and the MSRB and FINRA are harmonizing their proposed rules and plan to publish them for public comment simultaneously to allow for efficient responses to both proposals. The MSRB plans to seek specific comment on whether any differences between the municipal and the corporate bond markets justify differences in regulations in this area. The MSRB, consistent with its policy on economic analysis in rulemaking, also plans to seek input on alternative regulatory approaches, including a potential markup disclosure requirement for trades that could be considered riskless principal transactions.


Small Trades Continue Downward Trend


The number of municipal securities trades of $100,000 or less, which are typically used as a proxy for retail activity, accounted for 79.9 percent of the 750,851 total trades in October 2014.  This was the lowest level since November 2012.  In terms of par traded, trades of $100,000 or less accounted for 8.1 percent of all par traded in October, the lowest level in two years. Trades of $100,000 or less accounted for 83.5 percent of all trades and 10 percent of all par amount traded in October 2013. 

For more information or other statistics on municipal trading activity, continuing disclosures or variable rate resets, visit the MSRB’s EMMA website.


Recent MSRB Publications


MSRB Releases Municipal Market Statistics for the Third Quarter

Each quarter, the MSRB publishes an updated statistical summary. The 2014 Third Quarter Statistics: July – September edition is now available.


Regulatory Roundup

SEC Approves Amendments to MSRB Rule G-3 regarding Continuing Education October 24, 2014

Request for Comment on Draft Amendments to MSRB Rule G-20, on Gifts, Gratuities and Non-Cash Compensation, to Extend its Provisions to Municipal Advisors October 23, 2014

SEC Approves MSRB Rule G-44 on Supervisory and Compliance Obligations of Municipal Advisors, and Amendments to MSRB Rules G-8 and G-9 October 17, 2014