SEC Approves Retail Order Rules Despite Dealer Complaints

The Securities and Exchange Commission has approved the Municipal Securities Rulemaking Board’s proposed rule changes for retail order periods, despite complaints from dealer groups that they will be burdensome and costly.

The changes to MSRB Rules G-11 on primary offering practices, G-32 on primary offering disclosures and G-8 on books and records will take effect on March 31, 2014.

The SEC’s approval came on Sept. 26, just three days after the Securities Industry and Financial Markets Association complained about the burdens and costs of the new rules as well as that the MSRB had dismissed its proposed less costly, alternative approach.

The rule changes were designed to ensure that underwriters and syndicate or selling group members honor issuers’ requests to sell bonds to retail investors during retail order periods. The MSRB said market participants had raised concerns that: some orders had been mischaracterized as retail; syndicate managers failed to disseminate the terms and conditions of retail order period to dealers on a timely basis and; pricing information was not provided to investors in a timely manner.

The changes, among other things, would require the senior syndicate manager to give syndicate and selling group members all of the terms and conditions required by the issuer, as well as any pricing information, in writing. In addition, dealers must include in any orders submitted: whether the order meets the issuer’s eligibility criteria; whether the order is a conditional commitment of a customer; whether the broker received more than one order from a retail customer for a security with the same Cusip; any identifying information required by the issuer, and; the par amount of the order.

“SIFMA supports the proposed rule changes to the extent they would protect dealers that follow issuers’ instructions and require timely notice of retail order period terms and conditions to all syndicate and selling group members, as well as to investors through the MSRB’s ... EMMA” system, said David Cohen, SIFMA managing director and associate general counsel.

But Cohen added that “perhaps the MSRB and the SEC would have had to give greater consideration to SIFMA’s less costly compliance alternative” if the board had put in place its recently announced policy of integrating economic analysis into its rulemaking.

Mike Nicholas, president and CEO of Bond Dealers of America, said, “While BDA believes the amendments to retail order period rules are somewhat responsive to industry concerns, we still think that the MSRB could do more to alleviate the costly and unnecessary burdens on dealers, especially as it relates to the submission of potentially voluminous amounts of information during a retail order period.” He said BDA hopes the MSRB will more thoroughly address costs going forward.

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Law and regulation
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