SEC Approves MSRB's Proposal to Consolidate Fair-Dealing Obligations for Municipal Advisers
The SEC approved the MSRB proposal to consolidate its extensive interpretive guidance on the fair-practice obligations of municipal securities dealers into three new rules and amendments to an existing rule.The MSRB will codify into new MSRB Rule G-47 the existing requirement under Rule G-17 ("Conduct of Municipal Securities and Municipal Advisory Activities") that municipal securities dealers disclose material information to customers at or prior to the time of the municipal securities trade. The new time-of-trade disclosure rule does not substantively change the current obligations, but rather seeks to aid dealers and other market participants in understanding, complying with and enforcing these obligations.
The new rules also establish two new rules to consolidate guidance for municipal securities dealers who deal with experienced investors called sophisticated municipal market professionals ("SMMPs"). MSRB Rule D-15 defines an "SMMP," and Rule G‑48 provides the regulatory obligations of dealers to SMMPs, underscoring the differences in dealers' obligations to the more sophisticated professionals in the market.
The MSRB also revised MSRB Rule G-19 ("Suitability of Recommendations and Transactions; Discretionary Accounts") on suitability to more closely align with FINRA suitability provisions and consolidate existing MSRB interpretive guidance on the subject. The revised rule makes clear the specific factors that dealers must consider when recommending a transaction or investment strategy to municipal securities investors.
The new and revised rules will become effective on July 5, 2014.