MSRB says no more duplicative bid-wanteds, talks timely issuer disclosure
WASHINGTON — The Municipal Securities Rulemaking Board plans to start 2019 by clarifying that dealers do not have to post bid-wanteds on multiple alternative trading systems and continuing talks with the Securities and Exchange Commission on issuer disclosure timeliness.
The MSRB discussed those and other topics at its quarterly meeting last week in Washington, MSRB Chair Gary Hall said on a Monday conference call.
“We felt like we were drinking water through a fire hose at this past board meeting” because of the number of issues discussed, Hall said.
The board received comments from dealers asking for clarification on bid-wanteds, Hall said. Bid-wanteds are an announcement by an investor who holds a security, and wants to sell it.
“We plan to clarify guidance that in order to satisfy best execution requirements, dealers do not have to post bid-wanteds on multiple ATSs or with broker's-brokers,” Hall said. Guidance on the clarification should be released this week.
Several years ago, the MSRB created a rule that instituted best-execution requirements in the municipal market. Rule G-18, which took effect in 2016, requires that a dealer must use "reasonable diligence" to find the best market for a security in order to get the best price for a customer possible under the market conditions.
Compliance officers interpreted the rule to mean they had to post bid-wanteds on multiple platforms, leading the volume of market to look bigger than it was because it was duplicative, said Lynnette Kelly, MSRB president and CEO.
The MSRB last year floated amendments to guidance on Rule G-18 that provided a clarification that dealers need not necessarily put a bid-wanted out on multiple alternative trading systems to fulfill their obligations to use “reasonable diligence” in seeking the best deal for their customers.
“So this guidance merely clarifies that in order to satisfy your best execution requirements, you do not have to post a bid-wanted on multiple ATSs,” Kelly said. “You may still want to for some reason, but you do not have to.”
The board also addressed comments from SEC Chairman Jay Clayton regarding timeliness of issuer disclosure, but reiterated that the MSRB has no authority over issuers.
“Continued disclosure is very, very important to us, we know it’s very, very important to Chair Clayton,” Hall said.
Clayton said in prepared remarks in December that he has asked the commission's Office of Municipal Securities to work with the MSRB to improve transparency and improve the timeliness of the filing of issuer financial information under continuing disclosure agreements.
The SEC does not have the authority to force issuers to file annual financial information or other continuing disclosure documents more quickly, but Clayton has said he believes there are steps the SEC can take to at least make investors aware that information filed on EMMA might be stale.
The MSRB plans to improve its form G-32 through which underwriters can provide information about the expected availability of annual financial information to EMMA. Currently, investors can see when issuers’ end of their fiscal year is and when the issuer said it would provide audited financial statements.
Future improvements would help underwriters fulfill existing regulatory requirements and provide accurate data, according to a MSRB press release.
At the meeting, the MSRB also discussed updating some current rules as part of an ongoing retrospective rule review. Specifically mentioned were Rules G-23 on activities of financial advisors, G-34 on CUSIP numbers, and Rule G-29 on availability of board rules. The MSRB will publish a notice this week with details of its retrospective rule review plan.
The MSRB has made stakeholder engagement a priority this year, and during the board meeting met with representatives of the Securities Industry and Financial Markets Association, the National Association of Municipal Advisors and the Government Finance Officers Association.
“This is the year of the stakeholder,” Hall said.
NAMA supports the MSRB's retrospective rule review and looks forward to engaging in future conversations with staff and the board, said Susan Gaffney, NAMA executive director.
"We appreciated the opportunity to meet with the Board and discuss issues of mutual interest and some of the items on the MSRB’s workplan," Gaffney wrote in an email.
The MSRB announced in January a schedule of events across the country in which board members will participate as part of an increased focus on market outreach.
“I am so happy that this is not just an effort that staff is undertaking, and even though I’ve doubled down on the commitment as chair — but our actual board members are on the front lines doing this,” Hall said.