SEC Approves MSRB's Best-Execution Rule (MSRB Regulatory Notice 2014-22)

The SEC approved the MSRB's proposal to adopt Rule G-18, which establishes a best-execution rule for transactions in municipal securities.

The MSRB also received approval for related amendments to MSRB Rule G-48, on transactions with sophisticated municipal market professionals ("SMMPs"), and MSRB Rule D-15, on the definition of an SMMP.

The new rule requires, among other things, municipal securities dealers to use "reasonable diligence" to identify the best potential trading venue for a particular security and then execute transactions in that venue to provide the customer with a price as favorable as possible under prevailing market conditions. According to the MSRB, the rule is modeled on a similar rule for the equity and corporate fixed income markets, but is appropriately tailored to the characteristics of the municipal securities market. Dealers generally will meet the new obligations by establishing and periodically improving their policies and procedures for handling and executing customer orders. Transactions with SMMPs are exempt from the rule; accordingly, its adoption is accompanied by amendments to related provisions to help to ensure that only appropriate investors are treated as SMMPs.

The new rule will become effective on December 7, 2015.

See: MSRB Press Release; MSRB Regulatory Notice.
Related news: MSRB-Proposed Rule Regarding Best-Execution for Municipal Securities Transactions Published (Fed. Reg.) (September 8, 2014); MSRB Requests SEC Approval to Establish Best-Execution Rule for Municipal Securities Transactions (with Lofchie Comment) (August 20, 2014).