Dealer groups are concerned the Municipal Securities Rulemaking Board’s proposed rules on retail order periods could be burdensome, while independent financial advisors say the rules will be almost useless without a definition of “retail.”
The groups expressed these views in comments on the proposed rule changes, which the MSRB filed with the Securities and Exchange Commission to address concerns about the mischaracterization of orders as retail and the failure of syndicate managers to disseminate timely notice of the terms and conditions of a retail order period to all dealers.
The proposed changes to MSRB Rules G-8 on books and records, G-11 on primary offering practices, and G-32 on primary offering disclosure would establish several new requirements. They would impose specific obligations on the senior syndicate manager to disseminate to the syndicate and selling group members detailed information about the term retail, and require dealers to capture certain additional information in connection with orders placed under a retail order period to ensure that such orders are from bona fide retail customers. But the MSRB would let issuers decide what retail means.
The Securities Industry and Financial Markets Association and Bond Dealers of America reiterated previously articulated concerns that the new requirements could be overly-burdensome.
“SIFMA supports the proposed rule changes to the extent they would protect dealers that follow issuers’ instructions and require timely notice of retail order period terms,” David Cohen, SIFMA’s managing director associate general counsel, said in a letter. “However, the MSRB has not put forth the least burdensome way to achieve certain regulatory ends contained in its proposal — ends that SIFMA supports. We believe several of the concepts contained in the MSRB’s proposal could be implemented in a less costly and burdensome way — and urge the SEC to adopt the less burdensome approach put forth by SIFMA.”
Cohen’s letter urges the SEC to allow dealers to submit the required information to a syndicate manager in a single master document, rather than in several separate filings. The letter also states the rule should not require issuers to approve the written terms of the retail order or priority period if those terms were written by the syndicate manager. Existing rules already suffice to ensure issuer awareness on that topic, the letter argues.
Mike Nicholas, president and chief executive officer at BDA, voiced similar concerns.
“There is no reason for the rule to unconditionally require the production and submission of potentially voluminous amounts of information by each dealer that submits an order during a retail order period to the syndicate manager or sole underwriter,” he wrote.
Nicholas’ letter argues that issuers should determine for themselves the information they want dealers to compile.
Writing on behalf of the National Association of Independent Public Finance Advisors, NAIPFA president Jeanine Rodgers Caruso told the SEC the proposed rulemaking is useless without a definition of retail. Underwriters can simply coerce issuers into writing a definition of retail advantageous to the dealer, she told the SEC. The problem is simply a failure to enforce current rules.
“These proposed amendments are unnecessary without the corresponding development of a definition of the term “retail;” the current rules are sufficient to curtail abusive practices; there is simply a lack of enforcement of these rules,” she said in NAIPFA’s letter.
Dealers and investment bankers also submitted comments in support of a new Rule G-45 providing the MSRB a new electronic means of collecting information on 529 college savings plans. The rule would require underwriters to provide the data annually or semi-annually, but would apply to underwriters of the plans only and not all dealers. However, the final rule should make clear that underwriters are not responsible for the correctness or completeness of data obtained from third parties in the normal course of business, both SIFMA and Investment Company Institute said in comments.
The SEC could approve the MSRB’s proposals without changes, or could seek revisions in the proposals.