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MSRB Offers Guidance to Dealers on Internal Compliance Controls

In a Compliance Advisory, the MSRB highlighted several factors for brokers, dealers and municipal securities dealers (collectively, "dealers") to consider when evaluating internal policies and procedures. The MSRB intends for the advisory to be used as a resource to assist dealers in continuing efforts to comply with MSRB rules. As previously covered, the MSRB also offered guidance on evaluating internal policies and procedures for municipal advisors. The MSRB underscored, among other things, the following considerations:

  • Supervision (Rule G-27): A dealer is required to adopt written supervisory procedures reasonably designed to ensure compliance with applicable rules. A dealer should assess whether the firm has a process for amending policies and procedures to reflect changes in the rules and municipal securities activities in which it engages.
  • Confirmation Disclosures and Fair and Reasonable Pricing and Mark-ups (Rule G-15 and G-30): Rule G-15 generally requires dealers to provide customers with written confirmations of transactions. Rule G-30 mandates dealers to effect transactions with customers in municipal securities at a reasonable price. A dealer should evaluate whether its procedures describe the firm's process of identifying similar securities for purposes of Rule G-30.
  • Best Execution (Rule G-18): A dealer must use reasonable diligence to identify the best market for a security. In order to meet the best execution standard, a dealer must have sound policies and procedures reasonably designed to achieve best execution.
  • Primary Offering Practices (Rule G-11): Dealers should be cognizant of a firm's procedures, and whether they outline the process for determining if an order is from a customer that meets the issuer's criteria for eligibility.
  • Suitability of Recommendations and Transactions (Rule G-19): A dealer should assess whether its procedures describe the firm's process for determining reasonable-basis suitability.
  • Standards of Conduct in the Performance of Financial Advisory Activities (Rule G-23): A dealer should consider if the firm has a process for providing an issuer with a written notification of the firm's role as a consultant, financial advisor or underwriter.

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