It is well established that providing access to or actual delivery of the Official Statement ("OS") satisfies MSRB Rule G-32 regarding Disclosures in Connection with Primary Offerings - Access Equals Delivery. However, delivery of the OS does not satisfy the new Time-of-Trade Disclosure Rule (MSRB Rule G-47; hereafter "TOT") for primary market offerings.

At a recent industry Legal and Compliance Roundtable, there was a discussion regarding application of the TOT rule to primary market transactions and what others were doing to comply with the TOT disclosure requirement for those transactions.

Before addressing TOT, it is well settled that access to or delivery of the OS satisfies the Rule G-32 requirement regarding disclosure in connection with a primary offering. Access equals delivery is alive and well. The industry and accepted practice, to meet the requirement, is to provide the OS in one of the following ways:

  • electronically via a link to the OS on EMMA, via Ipreo or another system;
  • electronically via a link to the OS on the trade confirm;
  • hard copy of the OS along with the trade confirm (where the client does not have e-mail or requests the same).

While providing access or actual delivery satisfies G-32, it does not satisfy the TOT requirement.
The TOT requirement to provide material information at or before the time of trade applies to primary and secondary transactions. MSRB Rule G-47 makes this clear and provides, in relevant part:

No broker, dealer, or municipal securities dealer shall sell … or purchase a municipal security from a customer, whether unsolicited or recommended, and whether in a primary offering or secondary market transaction, without disclosing to the customer … at or prior to the time of trade, all material information known about the transaction, as well as material information about the security that is reasonably accessible to the market. MSRB Rule G-47(a) (emphasis supplied).

By the very language of the rule, it clearly applies to primary offerings and the disclosure obligation is "at or prior to the time of trade."

Turning now to the question of "does the delivery of the Official Statement satisfy the TOT rule?" Two MSRB Notices address the question. In MSRB Notice 2009-28 (which addresses, amongst other things, the timing for when an OS must be filed), dealers are reminded of their Time-of-Trade Disclosure Obligation and the Notice provides, in relevant part:

Disclosures made after the time of trade, such as by delivery of the OS … do not substitute for the required material disclosures that must be made at or prior to the time of trade pursuant to Rule G-[47] (original citation to G-17).  MSRB Notice 2009-28.

MSRB Notice 2009-42, which addresses disclosure, suitability and fair pricing also covers this point in footnote 6 and provides, in relevant part:

Additional MSRB disclosure requirements under … Rule G-32, relating to Official Statements, focus on information to be provided after the investment decision and do not fulfill the Rule G-17 disclosure obligation because they are not provided at or prior to the investment decision. MSRB Notice 2009-42, footnote 6 (emphasis supplied).

The TOT rule makes clear that the disclosure obligation applies to primary market transactions and MSRB Notices also make clear that delivery of information, including an OS, after the time of trade does not satisfy the TOT obligation or cure a failure to provide the required information at or before the time of trade. This is because the OS is not available until after the initial trade of the primary offering. The G-47 requirement can be addressed by accessing and disclosing, at or before the time of trade, all material information known about the transaction as well as material information reasonably accessible to the market.

Gregg L. Bienstock is the CEO and CO-Founder of Lumesis, Inc. and a frequent speaker on municipal market and compliance panels.