MSRB Requests SEC Approval to Establish Best-Execution Rule for Municipal Securities Transactions
Commentary by Steven Lofchie
The MSRB requested that the SEC approve proposed Rule G-18, which establishes the explicit requirement that municipal securities dealers seek the most favorable price possible when executing transactions for retail investors. The proposal also includes amendments to Rule G-48 ("Transactions with Sophisticated Municipal Market Professionals") and Rule D-15 ("Sophisticated Municipal Market Professional").
Under proposed Rule G-18, dealers would be required to use "reasonable diligence" to ascertain the best market for a subject security and buy or sell in that market so that the resulting price for the customer would be as favorable as possible under prevailing market conditions. The proposal includes rule language and supplementary material designed to tailor best-execution obligations to the characteristics of the municipal securities market, and to provide guidance on how best-execution concepts apply to municipal securities transactions.
The MSRB requested that the proposed rule change be approved with an implementation date of one year after the SEC approval date.
Commentary
Since changes in the rules governing trading in municipal securities (which make this market more like the equities market) are likely to presage changes in the rules governing trading in private debt securities, firms should consider what a more "equity-like" corporate debt market might require.