MSRB Receives SEC Approval to Implement Measures to Strengthen Regulation of Broker's Brokers

Date: June 25, 2012

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) has received approval from the Securities and Exchange Commission (SEC) to establish specific obligations for municipal securities dealer firms that act as “broker’s brokers” and to provide additional guidance on the duties of dealers that use such firms.

Broker’s brokers help to provide secondary market liquidity in the municipal securities market. Such liquidity is critical to ensuring that retail investors receive fair and reasonable pricing for their purchases and sales of municipal securities.

The MSRB is establishing a new rule, MSRB Rule G-43, that affirms a broker’s broker’s duty to make a reasonable effort to obtain a fair and reasonable price for municipal securities, and reminds selling and bidding dealers of their fair pricing obligations. The rule is effective on December 22, 2012.

Broker’s brokers serve as intermediaries between other broker-dealers seeking to buy and sell municipal securities on behalf of their customers. One mechanism commonly used by broker’s brokers to bring together sellers and potential buyers of a specific municipal security is referred to as a “bid-wanted,” in which the broker’s broker seeks bids from dealers for a particular bond that another dealer wishes to sell. The new rule establishes a series of safeguards relating to the conduct of bid-wanteds designed to promote fairer results from such bid-wanteds.

The additional interpretive guidance reminds dealers that use broker’s brokers to sell municipal securities for their customers that they cannot rely conclusively on a bid-wanted producing a fair and reasonable price, but that such dealers retain primary responsibility for the fairness of the price that their customers receive. Selling dealers are cautioned against “screening” other dealers from their transactions through broker’s brokers for anti-competitive reasons and against automatically assuming customers prefer quick execution of their trades over better pricing.

The new rule also prohibits dealers that are placing a bid to purchase a municipal security in a bid-wanted from submitting “throw-away” bids and from attempting to profit by “picking off” other dealers at off-market prices.

Rule G-43 also requires broker’s brokers to establish and publicly disclose comprehensive policies and procedures designed to result in a fair process consistent with the special role of the broker’s broker as a market intermediary. Related amendments to existing MSRB rules strengthen the recordkeeping requirements of broker’s brokers.

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.