Burr & Forman

03.27.2014   |   Blog Articles, FINRA, Securities Litigation, SMMP

MSRB Reworks Fair-Dealing Rules for Municipal Securities Dealers

Effective July 5, 2014, the Municipal Securities Rulemaking Board (“MSRB”) implements a consolidation and re-write of its prior fail-dealing Rules and Guidance for municipal securities dealers. On March 7, the SEC approved: – Revisions to Rule G-19 on suitability. The revisions harmonize the Rule with FINRA’s suitability Rule 2111, including its “reasonable-basis,” “customer-specific” – including investment profile, “quantitative” (f/k/a churning), “investment strategies” (including explicit hold recommendations), with accompanying technical changes to the books-and-records Rule G-8. Like the FINRA Rule, the emphasis on specified list of attributes under the investment profile – for practical purposes – renders the Dealer’s record of the investment profile for all practical purposes, “the customer.” – New Rule G-47 on time of trade disclosures. The Rule requires disclosure, at or before the time of trade, of material information reasonably accessible to the market, including, e.g.: resets and remarketing agent’s role for variable-rate demand obligations; reset frequency and auction attributes for ARS; credit risk; credit or liquidity enhancements; insurance; original-issue discounts; non-standard features; call, put or tender-option features; strips; issuer’s intent to prefund; and others. – New Rules D-15 and G-48 on “sophisticated municipal market professionals” (“SMMP’s”). The new Rule exempts from time-of-trade disclosure and customer-specific suitability requirements those SMMP customers (defined as a bank, S&L, insurance-company, registered investment company or RIA, or entity with at least $50M in assets) whom the Dealer reasonably believes capable of, and who have affirmed their exercise of, independent judgment and its basis (per trade, strategy, portfolio, etc.). Prior interpretive guidance will be deleted from the Rulebook and archived on MSRB’s website. MSRB Reg. Notice 2014-07 (March 12, 2014) is here. See also SEC Rel. No. 34-71665; File No. SR-MSRB-2013-07 (March 7, 2014). For more information on securities litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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