PHOENIX - The Municipal Securities Rulemaking Board will issue a new set of “frequently-asked-questions” in the coming weeks to address the implementation of its soon-to-be effective markup disclosure rule as dealers work to get their systems ready for it.

The board announced this and other actions on Monday following its quarterly board meeting, which was held Jan. 24-25 in Washington, D.C.

The FAQs will be an addition to the first round of guidance the MSRB released back in July, when dealer firms were already feeling the pressure to either create, or work with third-party vendors, to implement automated systems that would correctly disclose markups and markdowns on the confirmations of certain transactions as required by Rules G-15 on confirmation and G-30 on prices and commissions.

The amendments are set to take effect on May 14, although some dealer firms have said they feared they would not have their systems in place in time and would support a compliance date extension.

Among the issues likely to be addressed in the new FAQs are further clarifications on how to interpret the “waterfall” of factors for determining the prevailing market price (PMP), which is used to determine a markup or markdown. Markup disclosures will have to be given as a total dollar amount and a percentage of the PMP, but not all firms have found determining the PMP to be easy.

MSRB executive director Lynnette Kelly said the new FAQs are a high priority for the board.

MSRB 's Lynnette Kelly
MSRB president Lynnette Kelly

“There’s a sense of urgency with anything having to do with the markup rule,” she said.

The board also agreed to consider changes to its policy on providing interpretive guidance. That decision comes as the board ramps up efforts to support compliance of its existing rules. It also follows comment letter the Securities Industry and Financial Markets Association filed with the MSRB urging it to be more forthcoming with guidance rather than allowing Securities and Exchange Commission and Financial Industry Regulatory Authority enforcement actions to interpret rules.

Kelly said the board discussed the work of its Compliance Advisory Group, which the MSRB established in October 2017, to provide further expertise as the board works on its compliance support initiative. The board is still accepting comments on that initiative, and those are due by Feb. 9.

“We are committed to listening and incorporating feedback from both our advisory group and market participants,” Kelly said. “We encourage general feedback in the current request for comment and recognize that in some cases, formal public comment on specific compliance materials may further benefit their usefulness.”

The board also discussed comments it received on a concept proposal regarding current practices in primary offerings, a release that received a frosty reception late last year. Board members agreed to prioritize an initiative discussed in that release related to data collected from underwriters by the MSRB on Form G-32.

The board will request comments on a proposal to auto-populate Form G-32 with additional data that is currently submitted by underwriters into the Depository Trust & Clearing Corporation’s New Issue Information Dissemination Service (NIIDS) but that is not currently required on Form G-32. The request for comment will also seek input on including additional information on Form G-32 that is not currently submitted to NIIDS but that the board believes could enhance market transparency.

As part of a retrospective look at current rules, the board will also request comments on a proposal to consolidate rules related to discretionary accounts into a single new rule, Kelly said. The board also discussed MSRB professional qualification standards that it has determined to revise because of the October 2018 release of FINRA’s Securities Industry Essentials (SIE) examination, and will propose the SIE as a prerequisite to qualification as one of four types of municipal securities representatives.

The board concluded its meeting acknowledging that both municipal securities dealers and municipal advisors are continuing to adapt to new market regulations and agreed that “the timing of new requests for comment will be carefully calibrated to allow commenters to provide meaningful feedback as they accommodate new regulatory requirements.”

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