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 Compliance Corner is a quarterly electronic newsletter published by the MSRB to support the compliance obligations of brokers, dealers and municipal securities dealers (collectively "dealers") and municipal advisors. Compliance Corner highlights recent regulatory updates and resources to facilitate understanding of MSRB rules.
Compliance in Focus: Engaging with the MSRB Through Membership on Board Advisory Groups
By Bri Joiner, Director of Regulatory Compliance
Membership in one of the MSRB’s Advisory Groups is an important way for dealers and municipal advisors and other municipal market participants to engage with the MSRB and help inform the MSRB’s initiatives. Current members of the MSRB’s Compliance Advisory Group (CAG) and Municipal Fund Securities Advisory Group (MFSAG) share their thoughts on the benefits of volunteering their time and expertise on these advisory groups.
Scott Coya, Deputy Chief Compliance Officer Capital Markets and Operations, D.A. Davidson & Co.
“Having the opportunity to provide input to the MSRB has helped me share my perspective and, surprisingly, gain additional perspective, as well. Participating on the Compliance Advisory Group with other dealers, advisors, and issuers has allowed us to speak (maybe too) freely with the MSRB on important subjects and helped us realize that we are much closer to consensus than we believed.”
Tracie Bonham Palmer, General Counsel, Post Oak Municipal Advisors LLC
“I highly recommend firms engage with the MSRB to help foster regulation that is not overly burdensome to firms and promotes investor and municipal entity protection. My time spent on the MSRB's Compliance Advisory Group has been invaluable. The MSRB has consistently been committed to finding out why firms engage in certain compliance practices and how they actually work at firms, and trying to give firms a voice in the regulatory process. I have learned a great deal about compliance and gained some insight on compliance issues through engaging in best practices discussions with other firms. Regulation is going to happen regardless of firm participation, so I believe it is better to have firms’ involvement in the process.”
Barry Fick, Executive Director, Minnesota Higher Education Facilities Authority
"I have found that members of the MSRB's Compliance Advisory Group are dedicated professionals whose goal is to help identify solutions to compliance issues, which assists the MSRB in fulfilling its mission of promoting market efficiency and transparency. I've appreciated the opportunity to share my expertise and knowledge for the benefit of the MSRB and lend another voice and different perspective to the work that impacts the municipal finance industry, which has been very satisfying."
Andrea Feirstein, Managing Director, AKF Consulting Group
“Over the course of my service on the MSRB's Municipal Securities Advisory Group, I've found that our group has been able to freely engage in substantive and timely discussions with key MSRB staff and Board members. This ‘seat at the table’ has provided great insight into the MSRB’s approach to and understanding of our evolving slice of the municipal securities market. I would encourage anyone with a penchant for the municipal securities industry to consider participation on an advisory group or utilize the various opportunities for engagement to be heard and to offer insight into our ever-changing markets. I believe working together we have made a difference for our industry.”
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Another way to engage with the MSRB is to share your concerns and challenges with the MSRB’s Market Regulation team. Get to know us better by signing up to receive our upcoming 10-week Compliance Tip of the Week series, starting June 7, where each week we will feature a compliance tip from one of the members of the MSRB’s Market Regulation team.
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Compliance Frequently Asked Questions (FAQs)
This periodic feature provides answers to commonly asked questions about compliance with MSRB rules. The answers to these questions do not create new legal or regulatory requirements or new interpretations of existing requirements and should not be interpreted by regulated entities or examining authorities as establishing new standards of conduct. This resource should be read in conjunction with MSRB rules and interpretations. The complete text of all MSRB rules and interpretations is available here.
Q: When is it appropriate to use the “list offering price/takedown transaction” indicator for reporting transaction data to RTRS consistent with MSRB Rule G-14?
A: MSRB Rule G-14 permits dealers to report primary market sale transactions executed on the first day of trading of a new issue by the end of the trading day and requires that such transactions be reported with the “list offering price/takedown transaction” indicator. As noted in MSRB Notice 2019-15, in a primary offering of municipal securities where a syndicate is formed (i.e., not a sole managed offering), a free-to-trade wire is sent by the senior syndicate manager to syndicate members once all of the municipal securities in the issue or particular maturity (or maturities) are free to trade. That is, the free-to-trade wire communicates to members of the syndicate that they may trade the bonds in the secondary market at market prices that could be the same or different than the initial offering price. The MSRB has indicated that, for purposes of reporting transactions once a new issue has been released for trading (i.e., is free to trade), normal transaction reporting rules apply. As a result, syndicate managers, syndicate members and selling group members must report secondary market transactions executed on the first day of trading, whether at prices that are the same or different than the initial offering price, within 15 minutes of “Time of Trade” and without the “list offering price/takedown transaction” indicator.
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Compliance Tip: Start the Ball Rolling—Prepare for the Series 54 Exam
While the weather is getting warmer, before you know it, it will be autumn and the deadline to take and pass the Municipal Advisor Principal Qualification Examination (Series 54) will be here. Individuals qualified with the Series 50 examination will need to become appropriately qualified as a municipal advisor principal to continue to engage in the management, direction or supervision of the municipal advisory activities of a municipal advisor firm. Don’t wait to start studying...no one enjoys cramming for an examination at the last minute. You can start by reviewing Series 54 exam information available on msrb.org. The grace period ends on November 12, 2021.
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Enforcement Insight
This periodic feature summarizes a recent enforcement matter brought by an examining authority, which includes the SEC, FINRA or applicable bank regulator, relevant to the municipal securities market. Enforcement matters can, when applicable, inform firms and help identify potential compliance risks. Read about the MSRB’s regulatory coordination and enforcement support.
On April 14, 2021, FINRA announced a Letter of Acceptance, Waiver and Consent (AWC) with NatAlliance Securities (NatAlliance or “the firm”) for violations of MSRB Rule G-13 on Quotations Relating to Municipal Securities, Rule G-17 on Conduct of Municipal Securities and Municipal Advisory Activities and Rule G-27 on Supervision.
NatAlliance, an MSRB-registered dealer, engaged in a practice of submitting bids inconsistent with obligations under Rule G-13(b)(ii), which provides that “[n]o broker, dealer or municipal securities dealer shall distribute or publish, or cause to be distributed or published, any quotation relating to municipal securities, unless the price stated in the quotation is based on the best judgment of such broker, dealer or municipal securities dealer of the fair market value of the securities which are the subject of the quotation at the time the quotation is made.” During the relevant period of October 2016 through December 2017, the firm engaged in a pattern and practice of distributing and publishing bids that were not based on an analysis of the fair market value (FMV) of the municipal security that was the subject of the bid (“throw-away bids”) in response to bid-wanted auctions or requests for quotes (RFQs) in municipal bonds. As evidenced by the firm’s activity following the bid-wanted auctions, the firm did not exercise its best judgment in determining the FMV of the subject municipal bonds in the bid-wanted auctions. For example, in some instances, shortly after responding to the RFQs, the firm re-offered the bonds at significantly higher prices that were consistent with independent market activity; no market news or other relevant event justified the difference in the firm’s best judgement between its bid and re-offer prices.
The firm’s practice of publishing throw-away bids, which resulted in transactions away from those securities’ FMV not only violated MSRB Rule G-13, but also MSRB Rule G-17, which requires dealers to deal fairly with all persons and not to engage in any deceptive, dishonest, or unfair practice.
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Regulatory Roundup
Keep up with current requests for comment, updated regulatory requirements and upcoming rule filings, and learn about opportunities to provide input at various stages of the MSRB’s rulemaking process.
March 1, 2021: MSRB Temporarily Reduces Market Activity Fees by 40 Percent
March 3, 2021: SEC Approves MSRB Proposed Rule Change to Reduce the Rates of Assessment for Certain Underwriting, Transaction, and Technology Fees under MSRB Rule A-13
March 4, 2021: Request for Comment on Application of Regulation Best Interest to Bank-Dealers
March 17, 2021: Request for Comment on Fair Dealing Solicitor Municipal Advisor Obligations and New Draft Rule G-46
May 14, 2021: Request for Comment on Amendments to Rule G-10 Notification Requirements for Dealers
May 19, 2021: MSRB Updates Rule A-8, on Rulemaking Procedures
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