MSRB Reminds Dealers of Existing Guidance on Filtering of Bids and Offers

Date: January 3, 2018

Contact: Jennifer A. Galloway, Chief Communications Officer


Washington, DC – In light of developments in the use of alternative trading systems (ATSs) and the role of broker’s brokers in the municipal securities market, the Municipal Securities Rulemaking Board (MSRB) today reminded municipal securities dealers about their regulatory responsibilities related to filtering out bids on an ATS and offers from certain dealers when they transact municipal securities. The MSRB recognizes that the practice of filtering, which may also occur when a selling dealer directs a broker’s broker to limit the audience for a bid-wanted, may serve a legitimate purpose. However, as the MSRB noted in a recent letter to the Securities and Exchange Commission’s Investor Advocate, in some cases the practice of filtering could have a negative impact on retail investors, free competition and market efficiency.  

“In support of our mission to protect investors, the MSRB monitors market practices such as filtering that may have an adverse impact on retail investors,” said MSRB Executive Director Lynnette Kelly. “Certain credit, legal, regulatory and other legitimate issues can justify filtering by dealers. But since the practice has the potential to negatively affect prices received by retail investors, we think it’s important to remind dealers of their regulatory obligations.”

Today's regulatory reminder is intended to serve as a compliance resource to assist dealers in assessing their policies and procedures governing when and how to use, review and change filters to ensure compliance with existing regulatory obligations. This reminder does not create new legal or regulatory requirements, but rather summarizes existing guidance for dealers issued in 2012 on MSRB Rule G-43, on broker’s brokers, and MSRB Rule G-30, on prices and commissions, as well as implementation guidance provided in 2015 about MSRB Rule G-18, on best execution, that addressed filtering.

“Dealers have had almost two years to implement and comply with the best-execution rule, which has been an examination priority for enforcement agencies,” Kelly said. “Given the developments in the use of ATSs, it makes sense to remind dealers of the guidance about the appropriate use of filters to help support their compliance with the best-ex rule.”

Read the regulatory reminder.

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.