MSRB Provides Guidance to Dealers on Sales Practice Obligations to Individual Investors

Date: July 14, 2009

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

Also Proposes Greater Transparency for Variable Rate Securities

Alexandria, VA - The Municipal Securities Rulemaking Board (MSRB) today provided guidance to municipal securities dealers on their disclosure duties and other obligations to individual investors, emphasizing the need to provide material information about credit-enhanced municipal bonds and provisions of bank agreements that provide liquidity for variable rate demand obligations. 

MSRB rules require dealers to provide investors with material information about municipal securities transactions by the time they place a purchase order. Dealers also must follow rules on the fair pricing and suitability of recommended transactions.  Dealers must apply these principles to transactions in variable rate demand obligations (VRDOs) and must consider the different forms of liquidity support for VRDOs and potential implications of credit downgrades on VRDO liquidity when making recommendations to investors. The MSRB is filing today's guidance with the Securities and Exchange Commission.

"Investors must weigh many factors when considering the purchase of municipal securities and dealers are required to provide them with all material information related to a particular bond," said Lynnette Kelly Hotchkiss, Executive Director of the MSRB. "Municipal securities have grown increasingly complex and dealers must be aware of their features prior to offering them for sale," she said. 

As a new established industry information source, the MSRB's Electronic Municipal Market Access (EMMA) website, at, has significantly increased the amount of municipal securities information available to the marketplace.  The MSRB wants to ensure that dealers are paying close attention to their obligations to individual investors, especially the need to provide them with all relevant and material information about a security.

In a related action, the MSRB also today published a proposal to increase disclosure and transparency related to VRDOs and municipal auction rate securities (ARS). The proposed plan would require VRDO remarketing agents and ARS program dealers to submit additional documents to the MSRB for public dissemination on EMMA to provide investors access to critical information about ARS programs and VRDO issues.  Specifically, dealers would be required to submit to the MSRB documents defining auction procedures and interest rate setting mechanisms as well as VRDO liquidity facility documents, including letters of credit and stand-by bond purchase agreements.  As with all other information on EMMA, additional disclosures about VRDOs and ARS would be available for free to investors.

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.