MSRB to discuss markup disclosure, other market issues

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PHOENIX — The Municipal Securities Rulemaking Board will discuss markup disclosure, minimum denominations, and other pressing market topics when it meets in Washington, D.C. next week.

The board announced the topics for discussion on Wednesday, the week before its Oct. 25-26 meeting, the first since its new fiscal year began Oct. 1 and its new chair and board members took their seats. The topics include current board rulemaking and outreach efforts, but also some discussion on more general market matters.

First up on the agenda is facilitating compliance with MSRB rules, an item MSRB executive director Lynnette Kelly said pertains to the new strategic goals the MSRB announced in June.

In the wake of the rulemaking mandated by the Dodd-Frank Act rulemaking it spent years on, the board decided to shift its priorities toward helping regulated entities comply with its rules. Kelly said the board will discuss that, as well as the possibility of requesting comment on how the MSRB can assist stakeholders in their compliance efforts.

Next on the list of topics is markup disclosure. Changes to MSRB Rules G-15 on confirmation and G-30 on prices and commissions are set to take effect on May 14, 2018, and will require dealers to disclose their markup and markdowns on certain transactions. The board will discuss efforts to support market implementation of the new requirements, which Kelly said is very important for the board to remain abreast of.

Markup disclosure "is a game-changer,” she said.

The board will also discuss minimum denominations, which the MSRB staff has been reaching out to market participants about. G-15 prohibits a dealer from executing a customer transaction in an amount lower than the minimum denomination set by the issuer with certain exceptions. But numerous firms have been caught violating this rule in recent months and been fined by the Financial Industry Regulatory Authority.

The board last year proposed a standalone minimum denomination rule, but withdrew it after dealers complained that it would have limited interdealer transactions and harmed market liquidity. But MSRB earlier this week told the Securities and Exchange Commission's Investor Advocate that this issue could hurt retail investors because positions in munis below minimum denominations can be illiquid.

The board will discuss planned enhancements to its EMMA disclosure website following a year-long series of focus groups. The MSRB has said it plans to continue constantly investing in and improving EMMA, which has added a variety of features in recent months including a free municipal market yield curve and multiple indices introduced in July.

The board will consider comments received on proposed changes to MSRB Form G-45 under its Rule G-45, on reporting of information on municipal fund securities including the collection of additional data about investment options offered in ABLE (Achieving a Better Life Experience Act) programs and 529 college savings plans. The MSRB in August said it was requesting comment on a draft plan to refine the data it collects regarding the investment options offered in these programs and plans.

Both 529 plans and ABLE programs, the latter of which creates tax-advantaged savings accounts for individuals with disabilities and their families, are municipal fund securities. The MSRB regulates dealers that underwrite or sell interests in 529 plans and ABLE accounts. The MSRB said that the data it receives is currently difficult to decipher since different plans don’t all report their data the same way, and it wants to be able to more accurately compare them to one another.

The Board also plans to will consider proposed amendments to Rule IF-1 on the Real-Time Transaction Reporting System (RTRS) that governs the system’s operations. The proposed amendments would align Rule IF-1 with the re-engineered RTRS, including the elimination in 2018 of subscriber access to data through leased lines, the creation of a new web messaging service and the elimination of the existing software messaging option in 2018.

In addition, the board will discuss the Treasury Department report, “A Financial System that Creates Economic Opportunities: Capital Markets.” That wide-ranging report, released this month, is in response to a White House directive outlining the principals that the administration believes should guide the U.S. financial system. Kelly said the board will discuss how the report could apply to municipal securities.

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