Widespread conversions from auction-rate securities to variable-rate demand obligations featuring liquidity facilities may result in activities that violate federal laws against bank tying as well as prohibitions against the underpricing of credit products, the Municipal Securities Rulemaking Board said in a notice to broker-dealers yesterday.

The one-page release warned that any dealer that aids and abets a violation of federal bank tying or underpricing of credit would violate the board's Rule G-17 on fair dealing.

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