MSRB Requests Comment on New Broker's Brokers Rule

Date: February 24, 2011

Contact: Jennifer A. Galloway, Chief Communications Officer
              (703) 797-6600
              jgalloway@msrb.org

MSRB REQUESTS COMMENT ON NEW BROKER’S BROKERS RULE 

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today issued a request for comment on a new draft rule and amendments to existing rules that would govern the activities of municipal securities dealers that principally act as intermediaries on transactions between dealers. These intermediaries—known as broker’s brokers—play an important role in providing secondary municipal market liquidity for retail investors. The new broker’s brokers rule would be in lieu of the draft interpretive notice the MSRB published for comment on September 9, 2010.

With its proposed rulemaking for broker’s brokers the MSRB is addressing activities highlighted by enforcement actions by the Securities and Exchange Commission and the Financial Industry Regulatory Authority involving violations of MSRB fair dealing, quotation and reporting rules. The MSRB’s new rule and associated rule amendments would provide additional requirements and guidance regarding the conduct of broker’s brokers.

The MSRB’s new rule for broker’s brokers, draft Rule G-43, would generally define “broker’s broker” to mean a dealer that principally effects transactions for other dealers or holds itself out as such. The MSRB’s new rule would establish the basic duties of a broker’s broker—including, among other duties, requiring a broker’s broker to make a reasonable effort to obtain a price for the dealer that is fair and reasonable in relation to prevailing market conditions, a duty that is now found in MSRB Rule G-18.

Transactions broker’s brokers engage in called “bid-wanteds” are an important source of secondary market liquidity for municipal securities retail investors. Selling dealers in these auctions do not specify a specified minimum or desired price for the securities involved. Certain provisions of the MSRB’s new broker’s brokers rule would specifically address the way that bid-wanteds should be conducted if a broker’s broker uses a bid-wanted to satisfy its fair pricing duty under the rule.

The MSRB’s new rule would include policies and procedures requirements designed to result in a fair process consistent with the special role of the broker’s broker as an intermediary between two dealers. Broker’s brokers would be required to disclose these policies and procedures to sellers and bidders, in writing, and to post its policies and procedures in a prominent position on its website.

“An essential part of the MSRB’s market activities includes a coordinated effort with regulators enforcing MSRB rules to curb rule violations,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “The MSRB’s rule for broker’s brokers would address professional conduct concerns brought to the MSRB’s attention by FINRA.”

Related amendments to existing MSRB rules would expressly require broker’s brokers to retain records for three years of all of the bids for municipal securities they receive. Another rule amendment would eliminate reference the activities of broker’s brokers in MSRB Rule G-18 since such conduct would be covered under the MSRB’s new broker’s brokers rule.


The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a self-regulatory organization governed by a 21-member board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.