SIFMA Submits Comments to the MSRB Regarding Proposed Best Execution Rule (with Lofchie Comment)

SIFMA submitted comments to the MSRB regarding the draft best execution rule, including the exception for transactions with sophisticated municipal market professionals.

SIFMA stated that it supports an execution standard for the municipal market that is structurally similar to FINRA Rule 5310 ("Publication of Transactions and Quotations"). In the letter, SIFMA disagrees with applying equity-based execution standards to the municipal market. Instead, SIFMA argued that rules and standards involving execution should reflect their "fundamental limitations and objects to rules that implicitly or explicitly import notions of best execution more appropriately applied to markets for more liquid equity and corporate debt securities." Furthermore, SIFMA stated that an execution diligence process resulting in a price that is fair and reasonable under market conditions is a more appropriate balance of investor protection interests with efficient markets. SIFMA requested that the MSRB provide further guidance regarding the harmonization of Rule G-18 ("Execution of Transactions") and Rule G-30 ("Prices and Commissions"), as well as compliance issues. SIFMA recommended that the MSRB separately issue a request for data and other information, in particular quantitative data, relating to the benefits and costs that could result from various alternative approaches regarding the standards of conduct and other obligations relating to its proposal.

Lofchie Comment: The history of the regulation of securities trading is that equity markets are regulated first, and then other markets (first debt and now swaps) are then made subject to similar regulations. SIFMA's primary argument is that the market for debt is very different from the equities markets and thus it is not obvious that the debt rules should imitate the equity rules. This is, on its face, a reasonable position, but one that would require the MSRB and other securities regulators to take a wholly fresh look at the market, rather than treat fixed income regulation as simply a variant of equity market regulation.

See: SIFMA Comment Letter.Related news:MSRB Proposes to Establish First Best-Execution Rule for Municipal Securities Transactions (February 19, 2014).