MSRB NOTICE 2012-37 (JULY 9, 2012)

REMINDER OF NEW DEFINITION OF SOPHISTICATED MUNICIPAL MARKET PROFESSIONAL (SMMP) AND CHANGES IN APPLICABILITY OF MSRB RULES TO SUCH MARKET PARTICIPANTS

The Municipal Securities Rulemaking Board (“MSRB”) reminds brokers, dealers, and municipal securities dealers (“dealers”) that a new interpretive notice setting out a revised definition of sophisticated municipal market professional ("SMMP"), and making certain modifications to the applicability of MSRB Rules G-17 and G-18, becomes effective on July 9, 2012.[1]  The definition of SMMP is an important element in determining how MSRB Rules G-13, G-17, G-18 and G-19 apply in the context of dealer transactions with certain sophisticated customers that qualify as SMMPs.  For the text of the new interpretive notice and a full description of the new definition of SMMP and the changes made with regard to the applicability of MSRB rules to SMMPs, see MSRB Notice 2012-27 (May 29, 2012).[2]


[1] See Restated Interpretive Notice Regarding the Application of MSRB Rules to Transactions With Sophisticated Municipal Market Professionals, July 9, 2012.  The new interpretive notice supersedes the MSRB's prior interpretation relating to SMMPs dated April 30, 2002.  The effectiveness of the new MSRB interpretive notice coincides with the effective date of new Rule 2111(b) of the Financial Industry Regulatory Authority (“FINRA”), which sets out the applicability of FINRA member firms' customer-specific suitability obligation to institutional customers for securities transactions other than municipal securities.

[2] The prior interpretation also provided guidance with regard to the application of Rule G-18 to broker's brokers.  Such guidance was deleted under the new interpretive notice in light of new MSRB Rule G-43 relating to broker's brokers, which becomes effective on December 22, 2012.