WASHINGTON — The Municipal Securities Rulemaking Board has revised its proposal that would ensure dealers follow the terms of issuers’ retail order periods.
The revisions, which were made in response to comments and issued Tuesday, amend the definition of “selling group,” revise communication requirements and make it easier for senior syndicate managers to meet fair-dealing obligations, according to the board.
The MSRB issued its initial proposal in March, and received 14 comment letters from muni bond dealers, individual portfolio managers and groups like the Securities Industry and Financial Markets Association, Bond Dealers of America, the Investment Company Institute and the National Association of Independent Public Finance Advisors.
The next round of comment letters are due Nov. 2.
The MSRB’s amended proposal, like the original, does not define “retail,” leaving issuers to define the term themselves.
Some market participants had argued that a definition would be helpful in providing a basis to determine what constitutes a retail order and could promote standardized reporting.
But the MSRB said issuers, with help from financial advisors, “should have the flexibility to define ‘retail’ on an issue-by-issue basis.”
The amended proposal would change the definition of “selling group” to include dealers “formed to assist in the distribution of a new issue of municipal securities for the issuer.” The original definition included dealers “that assist” in the distribution.
SIFMA had argued that the original definition could apply to every non-syndicate member, and urged the board to limit the term to dealers that sign a selling group agreement.
Under the revised proposal, senior syndicate managers must provide pricing information to other syndicate and selling-group members before the securities are marketed. They must also provide members with the terms of the ROP.
The MSRB’s proposal does not set a timeframe for when syndicate managers must provide the information and does not establish a minimum time period for ROPs, as some market participants suggested.
It requires underwriters give all information provided to them from the senior syndicate manager to any dealers with which the underwriter has a marketing arrangement.
The proposal also requires dealers who buy bonds during the period to disclose whether their order meets the issuer’s ROP definition, and other information.
Some market participants, including SIFMA managing director and associate general counsel David Cohen, had argued that senior syndicate managers should be able to meet fair-dealing obligations if co-managers and selling group members say orders qualify as retail orders.
The MSRB said it agreed, under certain circumstances. The revised proposal says senior managers may be able to rely on “information furnished by each dealer placing orders during a retail order period,” unless the senior managers know the information is inaccurate.
The proposal would also require syndicate managers to maintain records and to give selling-group members written copies of issuers’ terms.
In addition, proposed changes to Rule G-32 on primary offering disclosures would require underwriters to report over the EMMA system whether a primary offering has a ROP and when the period occurred.
The MSRB issued a related interpretive notice in March warning dealers they must treat issuers and other dealers fairly or risk violating Rule G-17. Large differences between prices paid by institutional and individual investors could be evidence of fair-pricing violations, the notice said.