MSRB Files with SEC to Change Rule on Allocation of New Issues of Municipal Bonds

Date: November 18, 2009

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


Changes Affect Priority of Orders and Distribution to the Marketplace 

Alexandria , VA - The Municipal Securities Rulemaking Board (MSRB) today filed with the Securities and Exchange Commission (SEC) rule changes and an interpretive notice on priority of orders for new municipal bond issues. The changes seek to improve distribution of new issues to the market by ensuring that underwriters follow priority provisions outlined in MSRB rules.

The changes require that new issue syndicate managers and sole underwriters generally give priority to customer orders over those for their own and related accounts.  They also must clearly understand and follow an issuer's wishes with respect to retail order periods.  In a retail order period, municipal bond issuers allocate a certain amount of bonds to retail investors before opening up the sale to all investors.

"The MSRB wants to ensure there is a broad distribution of municipal securities among all investors and that issuers see their wishes honored when it comes to retail customer orders," said Lynnette Kelly Hotchkiss, Executive Director of the MSRB.

The changes filed with the SEC relate to MSRB Rule G-11, on new issue syndicate practices, MSRB Rule G-8, on books and records, and MSRB Rule G-9, on preservation of records. Rule G-11 will be expanded to cover all primary market offerings and provide that customer orders must be given priority over orders from underwriters or their related accounts. The amendments to Rules G-8 and G-9 will require dealers to maintain records necessary for the enforcement of revised Rule G-11 for a period of six years. The interpretive notice provides guidance on the application of MSRB Rule G-17, on fair dealing, to promote a fair distribution of new issues to customers.

The proposed rule change is effective for new issues of municipal securities for which the "Time of Formal Award," as defined in Rule G-34(a)(ii)(C)(1)(a)), occurs more than 60 days after approval of the proposed rule change by the SEC.  The MSRB reminds dealers that, pending adoption of these changes, interpretive guidance on priority of customer orders issued by the MSRB in 1987 remains in effect, but such guidance will be superseded by the new interpretive notice.

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.