MSRB Receives SEC Approval on Revised Definition of Sophisticated Municipal Market Professional

Date: May 29, 2012

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

MSRB RECEIVES SEC APPROVAL ON REVISED DEFINITION
OF SOPHISTICATED MUNICIPAL MARKET PROFESSIONAL
 

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) last week received approval from the Securities and Exchange Commission (SEC) to redefine those institutional investors capable of independently evaluating investment risks and market value of municipal securities, and exercising independent judgment in evaluating recommendations of a municipal securities dealer. The revised definition is effective July 9, 2012.

The revised definition of so-called “sophisticated municipal market professional” (SMMP) exempts dealers from requirements to make certain disclosures to institutional customers that they must make to other investors, and certain pricing and suitability obligations of dealers to those customers are deemed satisfied. The new definition vastly simplifies the analysis required by dealers when determining whether their customers qualify as SMMPs. The change will also provide consistency with a new Financial Industry Regulatory Authority rule on suitability for institutional customers.  

Since the MSRB issued its original definition of SMMP in 2002, information available about municipal bonds has increased substantially, including information provided through the MSRB’s Electronic Municipal Market Access (EMMA®) website and other information vendors. These sources have made the material facts about municipal bonds more readily available.

Under the revised definition, SMMP is defined as an institutional customer of a dealer that: (1) the dealer has a reasonable basis to believe is capable of evaluating investment risks and market value independently, both in general and with regard to particular transactions in municipal securities, and (2) affirmatively indicates that it is exercising independent judgment in evaluating the recommendations of the dealer. The revised definition also permits natural persons with at least $50 million of assets to be considered institutional customers and eliminates the previous $100 million minimum investment in municipal securities required to qualify as an institutional customer.


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.