MSRB Seeks Approval on Revised Definition of Sophisticated Municipal Market Professional

Date: March 26, 2012

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today requested 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 change to the definition of so-called “sophisticated municipal market professional” is important because it exempts dealers from requirements to make certain disclosures to institutional customers that they must make to other investors, and from pricing and suitability obligations of dealers to those customers. The change also would provide consistency with a new Financial Industry Regulatory Authority rule on suitability for institutional customers.  

“The quality and availability of information concerning municipal securities has improved substantially in recent years and sophisticated municipal market professionals have a greater ability to make investment decisions on their own,” said MSRB Executive Director Lynnette Kelly. “Our proposed revision to the definition of SMMP also will provide important regulatory consistency with the revised FINRA rule.”

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.

If approved, an SMMP would be 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 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.