MSRB Proposes Markup Disclosure Requirement for Municipal Securities Transactions

The MSRB proposed amendments to MSRB Rules G-15 and G-30 (“proposed rule change”) that would require dealers to provide retail investors with “meaningful and useful pricing information” to help them assess the cost of their municipal bonds transactions. The proposed rule change would require dealers to disclose markups from the “prevailing market price” of the bonds to retail customers on principal transactions in which the dealer buys (or sells) a municipal security to a retail customer and on the same day enters into an offsetting transaction of equal or greater size in the same security. If approved by the SEC, the proposed markup disclosure rule will become effective no later than one year after the SEC approval.

The MSRB reasoned that retail investors in municipal securities receive less information than investors in the equity market about the cost of their respective transactions. According to MSRB Executive Director Lynnette Kelly, the issue could not be addressed until now:

Changes in technology and in the municipal market have made it possible for investors to receive similar transaction information as investors in the equity market. This is a meaningful and historic shift for the municipal market.

The MSRB wants dealers to understand how the rule would (i) apply to different trading situations, and (ii) accommodate the practical realities of the municipal market. Specifically, the MSRB guidance addresses:

  • “establishing the prevailing market price for contemporaneous customer transactions”;
  • “the ability of dealers to calculate their compensation at the time of disclosure to a customer”;
  • “the frequent absence of pricing information for sufficiently comparable municipal securities”; and
  • “the implications of transactions with affiliated dealers.”

Lofchie Comment: When it comes to securities regulation, whatever requirement applies to equities will apply to debt, eventually.

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