MSRB Requests Comment on Revised Broker's Brokers Rules

Date: September 8, 2011

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


Alexandria , VA The Municipal Securities Rulemaking Board (MSRB) is requesting comment on a revised draft rule covering the activities of broker’s brokers, revised amendments to existing rules, and a draft notice covering the activities of dealers that use the services of broker’s brokers.

A broker’s broker acts as the financial intermediary between selling and bidding dealers. Comments are due by November 3, 2011.

The MSRB’s revised rule would establish the basic duties of a broker’s broker in carrying out bid-wanteds or offerings for other dealers, including requiring the broker’s broker to make a reasonable effort obtain a fair and reasonable price for the municipal securities.

The broker’s broker would be presumed, under the revised rule, to act for or on behalf of the selling dealer, unless both the seller and bidder agreed otherwise in writing. The MSRB’s revised rule would create a safe harbor that a broker’s broker could use to satisfy its fair pricing duty. A broker’s broker that did not avail itself of the safe harbor would still be subject to the fair pricing duty as well as certain other requirements of the rule.

“The conduct of broker’s brokers can have a significant impact on retail investors in the municipal market as the selling and bidding dealers in these transactions, in turn, transact with customers,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “We believe that this rule would play an important role in ensuring fair prices in the secondary market for municipal securities.”

The MSRB is also requesting comment on a draft notice that addresses the duties of dealers that use the services of broker’s brokers, noting that the failure of these dealers to meet their fair pricing duties could negate the efforts of a broker’s broker to achieve fair pricing.

The draft notice would remind selling dealers that the high bid in a bid-wanted is not necessarily a fair and reasonable price. Selling dealers would be cautioned against “screening” other dealers from their bid-wanteds or offering for the sole reason of competition, against assuming customers need to liquidate their securities immediately, and against using bid-wanteds for the sole purpose of price discovery. The MSRB’s draft notice would also prohibit bidding dealers from submitting “throw-away” bids and from profiting by “picking off” other dealers at off-market prices.

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.