WASHINGTON — If dealers take advantage of disruption in the financial markets to manipulate prices of municipal securities they will be violating federal law, the Municipal Securities Rulemaking Board warned Monday.
In addition, most issuers have a contractual obligation to submit material event notices to EMMA if their credit ratings change, the board said.
“Dealers cannot ever take advantage of investors and should be extra vigilant, especially during times of market disruption,” MSRB executive director Lynnette Hotchkiss said in a statement. “The prices of municipal securities transactions must be fair and reasonable, and dealers cannot trade at off-market prices.”
The board’s warning comes on the heels of a move by Standard & Poor’s late Friday to reduce the sovereign debt rating of the U.S. to AA-plus from AAA. Moody’s Investors Service and Fitch Ratings have maintained the U.S. government’s bond rating at AAA.
Municipalities with a large population of federal employees or that rely on federal government funding might be affected by the downgrade, the board noted.
Standard & Poor’s said that pre-refunded munis may also be affected as funds held in escrow to pay the principal and interest on such bonds are typically invested in Treasuries.
Any dealers who attempt to take advantage of a market disruption by trading at prices that are not fair and reasonable would be referred to “the appropriate enforcement agency,” the board’s statement said.
The MSRB lacks enforcement authority over its rules, including Rule G-17 on fair dealing. The Financial Industry Regulatory Authority handles enforcement of the board’s rules.
