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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.
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.
 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.
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 |
