REQUEST FOR COMMENTS COMMENTS DUE BY DECEMBER 1, 2000
|Notice and Draft Interpretive Guidance on Dealer
Responsibilities in Connection with Both Electronic and Traditional Municipal
Comments on the draft interpretive guidance should be submitted no later than December 1, 2000, and may be directed to Carolyn Walsh, Assistant General Counsel, or Ernesto A. Lanza, Associate General Counsel. Written comments will be available for public inspection.
The MSRB has been reviewing electronic trading systems for municipal securities. During this review, the MSRB has focused on the application of MSRB rules to new market practices resulting from electronic trading systems for municipal securities and areas where the MSRB should consider providing interpretive guidance.
This notice describes certain MSRB rules and provides draft interpretive guidance in connection with the responsibilities of dealers under the MSRB’s fair practice, quotation, uniform practice and new issue securities rules. The MSRB is inviting public comment on all aspects of its draft interpretive guidance.
The MSRB believes that electronic trading systems can develop for the municipal securities market, while the market maintains the customer protection standards that are set out in MSRB rules. In issuing its draft interpretive guidance, the MSRB specifically reaffirms the standards embodied in MSRB rules and reiterates that the rules apply to electronically executed transactions just as they do to transactions with customers effected over the telephone. The draft guidance would apply whether or not the municipal securities transaction is done electronically and would allow dealers to satisfy customer protection obligations in different ways, depending upon the nature of the customer.
In order to facilitate the implementation of the MSRB’s draft interpretative guidance, the MSRB has defined a class of customers as “sophisticated market professionals.”The draft interpretive guidance defines a sophisticated market professional as a customer who has met the following criteria:
1. The customer has timely access to all publicly available material facts concerning a transaction;
2. The customer is capable of independently evaluating the investment risk and market value of the securities at issue; and
3. The customer is making independent investment decisions.
In the draft interpretive guidance, the MSRB has noted relevant considerations in making a determination as to whether a customer is a sophisticated market professional and specifically requests comment on the usefulness of this definition and the listed considerations.
The MSRB believes that dealers may in some cases consider the nature of the customer in determining the specific actions necessary to meet the fair practice standards set forth in rules G-17, on fair dealing, G-18, on execution of transactions, and G-19, on suitability of recommendations, for a given transaction. In general, the specific actions necessary for the dealer to assure that fair practice standards are met with respect to retail customers and unsophisticated institutional customers may be more comprehensive than the actions required when effecting transactions with or for customers who are sophisticated market professionals.
The MSRB clarifies the standards for dealer responsibilities in the making and dissemination of its own quotations and those of other dealers pursuant to rule G-13. The draft interpretation also provides that a dealer that disseminates a “quotation” made by a customer has the same responsibility for such quotation as if the dealer had made it. An exception is made where the customer is a sophisticated market professional, in which case the dealer’s responsibility is similar to when it is disseminating another dealer’s quotation.
Dealers serving as auction agent, settlement agent or other intermediary role in electronic “auction” sales of new issues by issuers have the same responsibilities relating to distribution of official statements and other documents as do dealers selling new issue municipal securities under rule G-32 and, in some circumstances, as underwriters under rules G-32 and G-36. The MSRB provides draft guidance on determining where these responsibilities would lie when multiple dealers participate in a primary offering without forming a syndicate.
The MSRB has been asked to provide guidance on the application of certain of its uniform practice rules to transactions effected on a proposed electronic trading system. This notice concludes with a description of the relevant features of the proposed system and the draft guidance offered by the MSRB in connection with clearance and settlement under rule G-12 and transaction reporting under rule G-14. Public comment is also invited on this aspect of the notice.
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Over the last few years, investors and dealers have expressed a growing interest in the use of the Internet and new technologies to realize efficiencies in securities trading. This has brought about the rapid development of a number of electronic trading systems for equity securities. The same advances that have fueled equity systems may well change the way that municipal securities are traded. The Internet has made information a relatively inexpensive and accessible commodity. Real-time trading and communication systems may have the capability to bring greater efficiencies to municipal securities trading and enhance the quality of market information available about these securities to investors, issuers and dealers. The ease of making electronic municipal securities purchases may help lower investor costs and increase investor participation in the market.
While these developments are positive, it is important to remember that there are substantial differences between municipal securities and other types of securities, both in terms of market structure and regulation. The vast majority of municipal securities trade infrequently after they are issued. Investors typically buy and hold the securities until their maturity. Less than one percent of outstanding municipal securities trade each day. In addition, there are approximately 1.4 million different municipal securities, ranging from simple non-callable general obligation debt to conduit financings involving complicated credit structures and multiple call features. These characteristics distinguish municipal securities from U.S. treasuries and corporate bonds, in which far fewer different types of securities are issued and the securities have features that are more standardized.
Issuers of equity securities also are subject to a vastly different regulatory regime, resulting in different disclosure obligations. Issuers of equity securities are subject to periodic registration and continuous public reporting requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934 (the “Exchange Act”) and are required to make standardized periodic filings to the Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system of the Securities and Exchange Commission (“SEC”). Corporate issuers also are subject to more standard and rigorous accounting principles. Consequently, substantial information about equity securities is available to investors. On-line equity investors can, frequently at no charge, find market data, historical charts and securities analyses (e.g., analyst reports, industry reports, earnings estimates and news stories) at many dealer and financial portal web sites. This level and timeliness of information simply is not available today in the municipal securities market.
While Exchange Act Rule 15c2-12 obligates underwriters to contract with municipal securities issuers to make certain primary and secondary market disclosures, these obligations are not nearly as extensive or as standardized as the disclosure requirements in the equity markets. In addition, while the MSRB, through its rule G-36, has created a centralized source of primary market disclosure by obtaining official statements from underwriters and providing them to the marketplace in electronic form, no such centralized source for secondary market information exists in the municipal securities market. Under the infrastructure created by the SEC in Rule 15c2-12, secondary market disclosures are provided by issuers and their agents, either on paper or electronically, to nationally recognized municipal securities information repositories (“NRMSIRs”), state information depositories (“SIDs”) and, to a lesser extent, the MSRB. No one of these sources receives all such secondary market information from issuers and there does not exist a centralized directory of the information. In the municipal securities market most investors still need to rely upon a market intermediary to access information about potential investments. Consequently, the dealer remains very important in explaining the product to the investor, ensuring that recommendations are suitable and that transactions are priced correctly.
In May 2000, the MSRB hosted a roundtable to begin a discussion about the use of electronic trading systems in municipal securities and the application of the MSRB’s rules to existing and proposed electronic trading systems. During that roundtable, as well as during subsequent conversations with industry members, it appeared that there is significant confusion about the applicability of MSRB rules to dealers who operate such systems. As an outgrowth of that roundtable, the MSRB has determined to seek industry comment on the draft interpretive guidance, set forth below, relating to dealer responsibilities under MSRB rules.
In reviewing the application of MSRB rules to electronic trading systems, the MSRB observed that there are two basic categories of systems. In the first category are systems, like alternative trading systems, which are the functional equivalent of an exchange. Such systems usually involve multiple dealers and sophisticated market professionals who make and view real-time quotations and place orders against those quotations. Customers with direct access to such systems are able to submit orders directly without going through a dealer. They also may be able to post orders for matching by the system. The system operator sets the rules for how buying and selling interests are displayed and are brought together to result in transactions. Matching mechanisms may involve real-time quotations, continuous order matching, or various types of auctions.
The other major type of system is a single dealer system that allows its customers, including retail customers, access to on-line trading. This type of system presents a more typical dealer-customer relationship. The assistance of a registered representative may be available as an alternative to on-line trading if the customer requests. Customers generally are able to view quotations, which may represent the dealer’s inventory or may come from other sources. The dealer may effect transactions on either a principal or agency basis.
The two paradigms above, of course, do not describe all of the systems that have been announced or that may develop. However, the MSRB believes that for the purposes of analyzing the appropriate reach of its rules, it is helpful to keep these two examples in mind.
The MSRB believes that the regulatory guidance it is proposing will allow electronic trading systems to develop for municipal securities while preserving the high level of customer protection standards now required by MSRB rules. In issuing its draft interpretive guidance, the MSRB specifically reaffirms the standards embodied in MSRB rules and reiterates that such rules apply in the electronic trading context.  For example, alternative trading systems, as dealers, are subject to regulation by the appropriate self-regulatory organization. Based on the information that the MSRB has received concerning existing and planned alternative trading systems for municipal securities transactions, the MSRB believes that transactions done through these systems must be considered for regulatory purposes as being “effected” by the dealer operating the system. Thus, those municipal securities transactions effected by the dealer operating the alternative trading system are subject to MSRB rules. A dealer operating an electronic trading system that wishes to determine whether, in the context of its particular system, it is considered to be effecting transactions in municipal securities traded through its system may seek further guidance from the SEC.
Finally, although the MSRB has issued the draft interpretive guidance presented below as a result of the recent emergence of electronic trading systems in the municipal securities market, the MSRB wishes to make clear that such draft guidance would apply regardless of whether the transaction is done electronically, over the telephone or in person.
Some of the most significant regulatory questions raised by electronic trading of municipal securities relate to the specific actions that a dealer must take to comply with the MSRB’s fair practice rules. The fair practice rules necessarily are written in very general terms, as they apply to all transactions, ranging from transactions with retail customers unfamiliar with the market to transactions with sophisticated market professionals. The discussion below illustrates the approach that the MSRB has taken to date in connection with these rules.
Rule G-17, the MSRB’s fair dealing rule, encompasses two general principles. First, the rule imposes a duty on dealers not to engage in deceptive, dishonest, or unfair practices. This first prong of rule G-17 is essentially an antifraud prohibition.
Second, the rule imposes a duty to deal fairly. It is under this second prong of rule G-17 that the MSRB has interpreted the rule to create affirmative disclosure obligations for dealers. These obligations require that a dealer disclose, at or before the sale of municipal securities to a customer, all material facts concerning the transaction, including a complete description of the security. This duty of affirmative disclosure in the municipal securities market is necessary for customer protection because dealers often have a substantial informational advantage over customers that is more pronounced in this market than in other securities markets. The disclosures made by a dealer pursuant to this obligation help a customer to make an informed investment decision. Because municipal securities tend to have less publicly available disclosure, industry custom and MSRB rules traditionally have required that dealers take responsibility for providing more descriptive information to customers than in the equity and other markets.
No such affirmative disclosure obligation has been interpreted to exist with respect to inter-dealer transactions because dealers are presumed to be market professionals and to know the material facts about the securities that they trade. However, the MSRB believes that a dealer’s intentional failure to disclose to another dealer an unusual feature of a security not accessible to the market (but known by the dealer) may constitute an unfair practice under rule G-17.
Rule G-18 requires that each dealer, when executing a transaction in municipal securities for or on behalf of a customer as agent, make a reasonable effort to obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions. A dealer acting as a "broker’s broker" is under the same obligation with respect to the execution of a transaction in municipal securities for or on behalf of another dealer. In its filing for approval of rule G-18, the MSRB stated that it “expects that a professional acting as agent for a customer in accordance with the standards of the rule will exercise the same level of care as the professional would if acting for its own account, including the exercise of diligence in ascertaining prevailing market conditions.”
Rule G-19:Suitability of Recommendations and Transactions
Rule G-19 states that for each recommendation of a municipal security transaction to a customer, a dealer shall have reasonable grounds, based upon information available from the issuer and facts disclosed by the customer or otherwise known about the customer, to believe that the recommendation is suitable. To fulfill the “customer specific” aspects of rule G-19(c)(ii), a dealer is required to make reasonable efforts to obtain information about a non-institutional customer’s financial status, tax status, investment objectives and such other information used or considered to be reasonable and necessary by the dealer in making recommendations to the customer. Prior rule interpretations have noted that “[d]epending upon the specific facts and circumstances, Rule G-19 may require that dealers make a greater effort to obtain information on which to base a suitability recommendation from a non-institutional account than from an institutional account.”
While neither the MSRB nor the SEC have defined what constitutes a recommendation, the SEC has stated that a “recommendation may be found to have been implied even where one has not been made expressly.” In addition, the SEC has noted that most situations in which a dealer brings a municipal security to the attention of a customer involve an implicit recommendation of the security to the customer.
The MSRB believes that municipal securities sales practices may differ from those involving equity securities in the area of recommendations. In the municipal securities context, it is unlikely that a customer will initiate a municipal securities transaction by contacting a dealer and identifying a specific municipal security that he or she wishes to purchase without reference to any security specific information given by the dealer to the customer. In the equity model, however, on-line trading accounts typically involve little interaction with anyone employed by the dealer. It is common for customers to access a dealer’s site to make a trade in a security that the customer independently heard about, researched, and chose to invest in.
Rule G-13 establishes standards for the distribution or publication by dealers of municipal securities quotations. The rule defines “quotation” as any bid for, or offer of, municipal securities, or any request for bids for or offers of municipal securities, including indications of “bid wanted” or “offer wanted.” The rule also provides that the terms “distributed” and “published” include dissemination by any means of communication. Although historically quotations had been disseminated by means of listings published on paper on a daily or other periodic basis, dissemination on a real-time basis by electronic means (e.g., the Internet, proprietary systems, etc.) also is covered by rule G-13.
The rule places responsibility on dealers to ensure that a quotation is bona fide (the “bona fide requirement”) and based on a dealer’s best judgment of fair market value (the “fair market value requirement”). Events occurring subsequent to the making of the quotation, such as the sale or purchase of the security (thereby making it no longer available or desired) or a change in the price for the security, do not result in a violation of rule G-13 if the quotation met the bona fide and fair market value requirement at the time the quotation was made. However, a quotation that has become stale or invalid because of any such occurrence must be withdrawn or updated. In the context of quotations published in a daily or other listing, the MSRB has stated that stale or invalid quotations must be withdrawn or updated in the next publication.
Bona Fide Requirement
A quotation is deemed to be bona fide if the dealer making the quotation is prepared to purchase or sell the security at the price stated in the quotation and under the conditions, if any, specified at the time the quotation is made. Unless otherwise indicated at the time a quotation is made, all quotations are subject to prior purchase or sale and to subsequent change in price. Requests for bids or offers or nominal quotations are not prohibited if they are clearly indicated as such by the dealer disseminating them.
The price stated in a quotation must be based on a dealer’s best judgment of the fair market value of the securities. Although the MSRB has stated that the rule does not require that the price quoted be exactly equal to the current “fair market value” of the security, such price must have a reasonable relationship to the fair market value. This price may take into account relevant factors, such as the dealer’s current inventory position (overall and in respect to a particular security) and the dealer’s anticipation of the direction of the market price for the securities.
Application of Rule Requirements
The specific level of responsibility for meeting the bona fide and fair market value requirements depends upon whether the dealer is making a quotation or disseminating a quotation made by another dealer. A dealer that disseminates its own quotation must ensure that the quotation meets the bona fide and fair market value requirements. A dealer merely disseminating a quotation made by another dealer does not have the same affirmative obligation to ensure that the bona fide and fair market requirements are met. However, the disseminating dealer must have no reason to believe that either: (i) the quotation does not represent a bona fide bid for, or offer of, municipal securities by the dealer making the quotation or (ii) the price stated in the quotation is not based on the best judgment of the dealer making the quotation of the fair market value of the securities.
Traditionally, dealers have underwritten new issue municipal securities through syndicates in which one dealer serves as the managing underwriter. In some cases, a single dealer may serve as the sole underwriter for a new issue. Typically, these underwritings are effected on an “all-or-none” basis, meaning that the underwriters bid on the entire new issue. In addition, new issues are occasionally sold to two or more underwriters that have not formed a syndicate but instead each underwriter has purchased a separate portion of the new issue (in effect, each underwriter serving as the sole underwriter for its respective portion of the new issue).
Rule G-32: Disclosures in Connection with New Issues
Rule G-32 generally requires that any dealer (i.e., not just the underwriter) selling municipal securities to a customer during the issue’s underwriting period must deliver the official statement in final form, if any, to the customer by settlement of the transaction. Any dealer selling a new issue municipal security to another dealer is obligated to send such official statement to the purchasing dealer within one business day of request. In addition, the managing or sole underwriter for the new issue municipal securities is obligated to send to any dealer purchasing such securities (regardless of whether the securities were purchased from such managing or sole underwriter or from another dealer), within one business day of request, one official statement plus one additional copy per $100,000 par value of the new issue municipal securities sold by such dealer to customers. Where multiple underwriters underwrite a new issue without forming an underwriting syndicate, each underwriter is considered a sole underwriter for purposes of rule G-32 and therefore each must undertake the official statement delivery obligation described in the preceding sentence.
Rule G-36: Delivery of Official Statements, Advance Refunding Documents and Forms G-36(OS) and G-36(ARD) to the MSRB
Rule G-36 requires that the managing or sole underwriter for most primary offerings send the official statement and Form G-36(OS) to the MSRB within certain time frames set forth in the rule. In addition, if the new issue is an advance refunding and an advance refunding document has been prepared, the advance refunding document and Form G-36(ARD) also must be sent to the MSRB by the managing or sole underwriter. Where multiple underwriters underwrite an offering without forming an underwriting syndicate, the MSRB has stated that each underwriter would have the role of sole underwriter for purposes of rule G-36 and therefore each would have a separate obligation to send official statements, advance refunding documents and Forms G-36(OS) and G-36(ARD) to the MSRB.
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The MSRB requests comment on all aspects of the following draft interpretive guidance.
DRAFT INTERPRETIVE GUIDANCE ON FAIR PRACTICE, QUOTATION, UNIFORM PRACTICE AND NEW ISSUE SECURITIES RULES
The MSRB recognizes that the development of electronic trading systems presents numerous questions concerning the application of certain of the MSRB’s rules. In particular, the MSRB notes that electronic trading systems present concerns about investor access to material information, suitability, and the quality of electronic municipal security transaction execution that differ from the equity markets. Nevertheless, the MSRB believes that dealers can develop screen-based systems that fulfill their obligations to customers under MSRB rules.
Industry participants have suggested that the MSRB’s fair practice rules should allow dealers to recognize the different needs of sophisticated market professionals and retail customers. They have urged the MSRB to consider issuing rule interpretations that will allow dealers to consider the nature of the customer in determining what specific actions are necessary in order to meet the fair practice standards for a given transaction.
The MSRB has considered this approach and notes that prior MSRB rule interpretations reflect that the nature of the dealer’s counter-party should be considered when determining the dealer’s duty to deal fairly. The MSRB has concluded that it is appropriate to issue draft guidance for comment in this area. The MSRB believes that dealers may consider the nature of the customer in determining what specific actions are necessary to meet the fair practice standards for a given transaction. In general, the specific actions necessary for the dealer to assure that fair practice standards are met with respect to retail customers and unsophisticated institutional customers may be more comprehensive than the actions required when effecting transactions with or for customers who are sophisticated market professionals.
This draft interpretive guidance will be particularly relevant to dealers operating electronic trading systems in which participation is limited to dealers and other sophisticated market professionals.
SOPHISTICATED MARKET PROFESSIONAL
The MSRB believes that, in the municipal securities context, there are three important considerations with respect to the nature of a dealer’s customer in determining the scope of such dealer’s obligations. They are:
When a dealer determines that a customer has met all three criteria, the customer can be considered a “sophisticated market professional.” As will be discussed later, by making a reasonable determination that a customer is a sophisticated market professional, a dealer would reduce the level of further actions necessary to fulfill its fair practice obligations with respect to a transaction with such sophisticated market professional. 
A determination that a customer has timely access to all publicly available material facts concerning the transaction will depend on the customer’s resources and the public availability/dissemination of material information concerning the transaction. In essence, this determination will mean that the customer is on an equal informational footing with the transacting dealer. Although the following list is not exhaustive, the MSRB notes that relevant considerations in determining that a customer has timely access to publicly available information could include:
· the resources available to the customer to investigate the transaction (e.g., research analysts);
· the customer’s independent access to NRMSIRs, SIDs, and information generated by the MSRB’s Municipal Securities Information Library® (MSIL®) system and Transaction Reporting System, either directly or through services that subscribe to such systems; and
· the customer’s access to other sources of information concerning material financial developments affecting an issuer’s securities (e.g., rating agency data).
Second, a determination that a customer is capable of independently evaluating the investment risk and market value of the securities that are the subject of the transaction will depend on an examination of the customer's ability to make its own investment decisions, including the resources available to the customer to make informed decisions. In some cases, the dealer may conclude that the customer is not capable of making the requisite risk and valuation assessments with respect to municipal securities in general. In other cases, the customer may have general capability, but may not be able to exercise these functions with respect to a particular type of instrument. This is more likely to arise with relatively new types of instruments or those with significantly different risk or volatility characteristics than other investments generally made by the customer. While the following list is not exhaustive, the MSRB notes that relevant considerations in determining that a customer is capable of independently evaluating investment risk and market value considerations could include:
· the use of one or more consultants, investment advisers, research analysts or bank trust departments;
· the general level of experience of the customer in municipal securities markets and specific experience with the type of municipal securities under consideration;
· the customer’s ability to understand the economic features of the security;
· the customer's ability to independently evaluate how market developments would affect the security that is under consideration; and
· the complexity of the security or securities involved.
Finally, a determination that a customer is making independent investment decisions will depend on the nature of the relationship that exists between the dealer and the customer. While the following list is not exhaustive, the MSRB notes that relevant considerations in determining that a customer is making independent investment decisions could include:
· any written or oral understanding that exists between the dealer and the customer regarding the nature of the relationship between the dealer and the customer and the services to be rendered by the dealer;
· the presence or absence of a pattern of acceptance of the dealer’s recommendations;
· the use by the customer of ideas, suggestions, market views and information relating to municipal securities obtained from sources other than the dealer; and
· the extent to which the dealer has received from the customer current comprehensive portfolio information in connection with discussing potential transactions or has not been provided important information regarding the customer’s portfolio or investment objectives.
FAIR PRACTICE RULES
Rule G-17: Conduct of Municipal Securities Activities
The actions of a dealer in complying with rule G-17’s obligation to “deal fairly” may depend on the nature of the customer. The MSRB believes that the dealer does not need to disclose all material public facts concerning the transaction where the dealer has reasonable grounds for concluding that the customer is a sophisticated market professional. Where the dealer has concluded that a customer is a sophisticated market professional, the dealer will necessarily have determined that the customer has timely access to relevant market information. This draft interpretation is consistent with rule G-17’s goal of ensuring that dealers treat customers fairly. It also provides a mechanism for more efficient transactions for those customers that are already doing their own investigation and do not want to pay a dealer to duplicate their research staff’s efforts. In essence, a dealer’s disclosure obligations to sophisticated market professionals are on par with inter-dealer disclosure obligations.
For example, a dealer that operates an electronic trading system that effects transactions for multiple dealers and sophisticated market professionals will not be responsible for providing system participants with all material public facts concerning transactions that are matched on the system. However, if the system allows customers other than sophisticated market professionals to submit orders without going through another dealer, the dealer operating the system will have affirmative disclosure obligations to such customers. The MSRB believes that dealers can design electronic trading systems to fulfill the dealer’s affirmative disclosure obligations to customers who are not sophisticated market professionals. It also recognizes, however, that dealers’ access to current material public information about the securities will impact their ability to design such systems, and that certain types of municipal securities may lend themselves more easily to such systems.
This draft interpretive guidance does nothing to alter a dealer’s existing duty not to engage in deceptive, dishonest, or unfair practices under rule G-17 or under the federal securities laws. Of course, a dealer may not knowingly misdescribe securities to any customer or any dealer. In addition, an intentional failure to disclose an unusual feature of a security not accessible to the market (but known by the dealer) may constitute an unfair practice violative of rule G-17. A dealer’s duty not to mislead its customers is absolute and is not dependent upon the nature of the customer.
The actions that must be taken by a dealer to make reasonable efforts to ensure that its agency transactions with customers are effected at fair and reasonable prices may be influenced by the nature of the customer as well as by the services explicitly offered by the dealer. If a dealer effects agency transactions for sophisticated market professionals and its agency responsibilities have been explicitly limited to providing anonymity, communication, matching and/or clearance functions then the MSRB believes the dealer is not required to take further actions on individual transactions to ensure that its agency transactions with customers are effected at fair and reasonable prices. By making the determination that the customer is a sophisticated market professional, the dealer necessarily concludes that the customer has met the requisite high thresholds regarding timely access to information, capability of evaluating risks and market values, and undertaking of independent investment decisions that would help ensure the customer’s ability to evaluate whether a transaction’s price is fair and reasonable.
This draft interpretation will be particularly relevant to dealers operating alternative trading systems in which participation is limited to dealers and sophisticated market professionals. It clarifies that in such systems rule G-18 does not impose an obligation upon the dealer operating such a system to investigate each individual transaction price to determine its relationship to the market. The MSRB recognizes that dealers operating such systems may be merely aggregating the buy and sell interest of other dealers or sophisticated market professionals. This function may provide efficiencies to the market. Requiring the system operator to evaluate each transaction effected on its system may reduce or eliminate the desired efficiencies. However, a dealer operating such system must act to investigate any alleged pricing irregularities on its system brought to its attention. A dealer may be subject to rule G-18 violations if it fails to take actions to address system or participant pricing abuses.
If a dealer effects agency transactions for customers who are not sophisticated market professionals, or has held itself out to do more than provide anonymity, communication, matching and/or clearance services within the scope of its agency responsibilities to sophisticated market professionals, it will be required to establish that it exercised reasonable efforts to ensure that its agency transactions with customers are effected at fair and reasonable prices.
Rule G-19: Suitability of Recommendations and Transactions
The MSRB recognizes that the manner in which a dealer fulfills its customer specific suitability obligations will vary depending on the nature of the customer and the specific transaction. As to whether a dealer is making a recommendation to customers, the MSRB believes that the determination will depend upon the facts and circumstances, specifically including the sophistication of the customer and the nature of the relationship between the dealer and the customer. For example, in evaluating the facts and circumstances of the nature of the relationship between the dealer and customer, the fact that the dealer is operating an alternative trading system and has expressly limited its agency obligations may be significant.
As noted previously, because of the nature of the municipal securities market, the SEC has noted that most situations in which a dealer brings a municipal security to the attention of a customer involve an implicit recommendation of the security to the customer. For example, it is possible that a retail customer will believe that a dealer that sends its inventory listing to its customers is making a recommendation, while a sophisticated market professional may recognize it as simply a list of available inventory, without any recommendation having been made or implied.
The MSRB believes that when recommendations are made, either implicitly or explicitly, in an electronic context, dealers can fulfill their suitability obligations through the use of appropriately designed screen-based inquiries that will limit a customer’s access to suitable investment choices. The MSRB notes that dealers should use a high degree of care in making initial determinations regarding an investor’s financial qualifications and suitability for the types of investments recommended on-line.
The MSRB also wishes to clarify dealers’ suitability obligations for recommended transactions with sophisticated market professionals. When the dealer has reasonable grounds for concluding that the customer is a sophisticated market professional with respect to a security, then the dealer is not required to take any further action to ensure that a recommended transaction is suitable for that particular customer. If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product in a recommended transaction, the scope of a dealer’s customer-specific obligations under the suitability rule would not be diminished. On the other hand, the fact that a customer initially needed help understanding a potential investment need not necessarily imply that the customer did not ultimately develop an understanding and make an independent investment decision.
The MSRB notes that this draft interpretation for rule G-19 is similar to the guidance issued in 1996 by the National Association of Securities Dealers, Inc. to its members in connection with their suitability obligations when making recommendations to institutional customers. As in other securities markets, some customers in the municipal securities markets have sufficient access to information and possess the requisite degree of market sophistication to fully and independently evaluate proposed transactions. In these cases, the dealer’s determination that the customer is a sophisticated market professional with respect to the security satisfies the purposes of rule G-19 and obviates the need for the dealer to apply its own judgment as to the suitability of a specific recommended transaction in the security. While this draft interpretive guidance applies both to electronic and non-electronic transactions, the MSRB believes that the guidance facilitates the participation of sophisticated market professionals on electronic systems in which dealers might be considered to be making explicit or implicit recommendations of transactions.
New electronic trading systems provide a variety of avenues for disseminating quotations among both dealers and customers. In general, except as described below, any quotation disseminated by a dealer is presumed to be a quotation made by such dealer. In addition, any “quotation” of a non-dealer (e.g., an investor) relating to municipal securities that is disseminated by a dealer is presumed, except as described below, to be a quotation made by such dealer. The dealer is affirmatively responsible in either case for ensuring compliance with the bona fide and fair market value requirements with respect to such quotation.
However, if a dealer disseminates a quotation that is actually made by another dealer and the quotation is labeled as such, then the quotation is presumed to be a quotation made by such other dealer and not by the disseminating dealer. Furthermore, if a sophisticated market professional makes a “quotation” and it is labeled as such, then it is presumed not to be a quotation made by the disseminating dealer; rather, the dealer is held to the same standard as if it were disseminating a quotation made by another dealer. In either case, the disseminating dealer’s responsibility with respect to such quotation is reduced. Under these circumstances, the disseminating dealer must have no reason to believe that either: (i) the quotation does not represent a bona fide bid for, or offer of, municipal securities by the maker of the quotation or (ii) the price stated in the quotation is not based on the best judgment of the maker of the quotation of the fair market value of the securities.
While rule G-13 does not impose an affirmative duty on the dealer disseminating quotations made by other dealers or sophisticated market professionals to investigate or determine the market value or bona fide nature of each such quotation, it does require that the disseminating dealer take into account any information it receives regarding the nature of the quotations it disseminates. Based on this information, such a dealer must have no reason to believe that these quotations fail to meet either the bona fide or the fair market value requirement and it must take action to address such problems brought to its attention. Reasons for believing there are problems could include, among other things, (i) complaints received from dealers and investors seeking to execute against such quotations, (ii) a pattern of a dealer or sophisticated market professional failing to update, confirm or withdraw its outstanding quotations so as to raise an inference that such quotations may be stale or invalid, or (iii) a pattern of a dealer or sophisticated market professional effecting transactions at prices that depart materially from the price listed in the quotations in a manner that consistently is favorable to the party making the quotation.
In the MSRB’s interpretation stating that stale or invalid quotations published in a daily or other listing must be withdrawn or updated in the next publication, the MSRB did not consider the situation where quotations are disseminated electronically on a continuous basis. In such case, the MSRB believes that the bona fide requirement obligates a dealer to withdraw or update a stale or invalid quotation by no later than the next business day, in any case, and may require such withdrawal or update to be undertaken more rapidly if necessary to prevent a quotation from becoming misleading as to the dealer’s willingness to buy or sell at the stated price.
NEW ISSUE SECURITIES RULES
In the primary market in recent years, some issuers have issued their new issue offerings through an electronic “auction” process that permits the taking of bids from both dealers and investors directly. In some cases, these bids may be taken on other than an “all-or-none” basis, with bidders making separate bids on each maturity of a new issue. Typically, issuers have engaged a dealer as an auction agent to conduct the auction process on their behalf. In addition, to effectuate the transfer of the securities from the issuer to the winning bidders and for certain other purposes connected with the auction process, issuers often have engaged a dealer to serve in the role of settlement agent or in some other intermediary role.
Although the MSRB has not examined all forms that these auction agent, settlement agent or other intermediary roles (collectively referred to as “dealer-intermediaries”) may take, it believes that in most cases such dealer-intermediary is effecting a transaction between the issuer and each of the winning bidders. The MSRB also believes that in many cases such dealer-intermediary may be acting as an underwriter, as such term is defined for purposes of the Exchange Act. A dealer-intermediary that is effecting transactions in connection with such an auction process has certain obligations under rule G-32. If it is also an underwriter with respect to an offering, it has certain additional obligations under rules G-32 and G-36.
Rule G-32: Disclosures in Connection with New Issues
If a dealer-intermediary is involved in an auction or similar process of primary offering of municipal securities in which all or a portion of the securities are sold directly to investors that have placed winning bids with the issuer, the dealer-intermediary is obligated under rule G-32 to deliver an official statement to such investors by settlement of their purchases. If all or a portion of the securities are sold to other dealers that have placed winning bids with the issuer, the dealer-intermediary is obligated to send an official statement to such purchasing dealers within one business day of a request. Further, to the extent that the dealer-intermediary is an underwriter for purposes of the Exchange Act, such dealer-intermediary typically would have the obligations of a sole underwriter under rule G-32 (as would the dealers that have placed winning bids, to the extent that they are underwriters for purposes of the Exchange Act).
The MSRB views Rule G-32 as permitting one or more dealer-intermediaries involved in an auction process to enter into an agreement with one or more other dealers that have purchased securities through a winning bid in which the parties agree that one such dealer (i.e., a dealer-intermediary or one of the winning bidders) will serve the role of managing underwriter for purposes of rule G-32. In such a case, a single dealer (rather than all dealers individually) would have the responsibility for distribution of official statements to the marketplace typically undertaken by the managing underwriter. Such an agreement may be entered into by less than all dealers that have purchased securities. All dealers that agree to delegate this duty to a single dealer may rely on such delegation to the same extent as if such dealers had in fact formed an underwriting syndicate.
Rule G-36: Delivery of Official Statements, Advance Refunding Documents and Forms G-36(OS) and G-36(ARD) to the MSRB
To the extent that the dealer-intermediary in an auction or similar process of primary offering of municipal securities is an underwriter for purposes of the Exchange Act, such dealer-intermediary would have obligations under rule G-36. If all or a portion of the securities are sold directly to investors that have placed winning bids with the issuer, the dealer-intermediary would be obligated to send the official statement and Form G-36(OS) to the MSRB with respect to the issue or portion thereof purchased by investors, as well as any applicable advance refunding document and Form G-36(ARD). If all or a portion of the securities are sold to other dealers that have placed winning bids with the issuer, the dealer-intermediary and each of the purchasing dealers (to the extent that they are underwriters for purposes of the Exchange Act) also typically would be separately obligated to send the official statement and Form G-36(OS) to the MSRB with respect to the issue or portion thereof purchased by dealers, as well as any applicable advance refunding document and Form G-36(ARD).
To avoid duplicative filings under rule G-36, the MSRB believes that one or more dealer-intermediaries involved in an auction process may enter into an agreement with one or more other dealers that have purchased securities through a winning bid in which the parties agree that one such dealer (i.e., a dealer-intermediary or one of the winning bidders) will serve in the role of managing underwriter for purposes of rule G-36. In such a case, a single dealer (rather than all dealers individually) would have the responsibility for sending the official statement, advance refunding document and Forms G-36(OS) and G-36(ARD) to the MSRB. Such an agreement may be entered into by less than all dealers that have purchased securities. All dealers that agree to delegate this duty to a single dealer may rely on such delegation to the same extent as if such dealers had in fact formed an underwriting syndicate.
APPLICATION OF CERTAIN MSRB UNIFORM PRACTICE RULES TO SPECIFIC ELECTRONIC TRADING SYSTEMS
The MSRB understands that, over time, the advent of new trading systems will present novel situations in applying MSRB uniform practice rules. The MSRB is prepared to provide interpretative guidance in these situations as they arise, and, if necessary, implement formal rule interpretations or rule changes to provide clarity or prevent unintended results in novel situations. The MSRB has been asked to provide guidance on the application of certain of its rules to transactions effected on a proposed electronic trading system with features similar to those described below.
Description of System
The system is an electronic trading system offering a variety of trading services and operated by an entity registered as a dealer under the Exchange Act. The system is qualified as an alternative trading system under Regulation ATS. Trading in the system is limited to dealers. Purchase and sale contracts are created in the system through various types of electronic communications via the system, including acceptance of priced offers, a bid-wanted process, and through negotiation by system participants with each other. System rules govern how the bid/offer process is conducted and otherwise govern how contracts are formed between buyers and sellers.
Participants are, or may be, anonymous during the bid/offer/negotiation process. After a sales contract is formed, the system immediately sends an electronic communication to the buyer and seller, noting the transaction details as well as the identity of the contra-party. The transaction is then sent by the buyer and seller to a registered securities clearing agency for comparison and is settled without involvement of the system operator.
The system operator does not take a position in the securities traded on the system, even for clearance purposes. Dealers trading on the system are required by system rules to clear and settle transactions directly with each other even though the parties do not know each other at the time the sales contract is formed. If a dealer using the system does not wish to do business with another specific contra-party using the system, it may direct the system operator to adjust the system so that contracts with that contra-party cannot be formed through the system.
Application of Certain Uniform Practice Rules to System
It appears to the MSRB that the dealer operating the system is effecting agency transactions for dealer clients. The system operator does not have a role in clearing the transactions and is not taking principal positions in the securities being traded. However, the system operator is participating in the transactions at key points by providing anonymity to buyers and sellers during the formation of contracts and by setting system rules for the formation of contracts. Consequently, all MSRB rules generally applicable to inter-dealer transactions would apply except to the extent that such rules explicitly, or by context, are limited to principal transactions.
One issue raised by the description of the system above is the planned method of clearance and settlement. Rule G-12(f)(i) requires that inter-dealer transactions be compared in an automated comparison system operated by a clearing corporation registered with the SEC. The purpose of rule G-12(f)(i) is to facilitate clearance and settlement of inter-dealer transactions. In this case, the system operator: (i) electronically communicates the transaction details to the buyer and seller; (ii) requires the buyer and seller to compare the transaction directly with each other in a registered securities clearing corporation; and (iii) is not otherwise involved in clearing or settling the transaction. The MSRB believes that under these circumstances, it is unnecessary for the system operator to obtain a separate comparison of its agency transactions with the buyer and seller.
Although automated comparison is not required between the system operator and the buyer and seller, the transaction details sent to each party by the system must conform to the information requirements for inter-dealer confirmations contained in rule G-12(c). Since system participants implicitly agree to receive this information in electronic form by participating in the system, a paper confirmation is not necessary. Also, the system operator may have an agreement with its participants that participants are not required to confirm the transactions back to the system operator, which normally would be required by rule G-12(c).
The system operator, which is subject to Regulation ATS, will be governed by the recordkeeping requirements of Regulation ATS for purposes of transaction records, including municipal securities transactions. However, the system operator also must comply with any applicable recordkeeping requirements in rule G-8(f), which relate to records specific to effecting municipal securities transactions. With respect to recordkeeping by dealers using the system, the specific procedures associated with this system require that transactions be recorded as principal transactions directly between buyer and seller, with notations of the fact that the transactions were effected through the system.
Rule G-14 requires inter-dealer transactions to be reported to the MSRB for the purposes of price transparency, market surveillance and fee assessment. The mechanism for reporting inter-dealer transactions is through National Securities Clearing Corporation (“NSCC”). In the system described above, the buyer and seller clear and settle transactions directly as principals with each other, and without the involvement of the dealer operating the system. The buyer and seller therefore will report transactions directly to NSCC. No transaction or pricing information will be lost if the system operator does not report the transaction. Consequently, it is not necessary for the system operator separately to report the transactions to the MSRB.
September 28, 2000
 The term “dealer” is used in this notice as shorthand for “broker,” “dealer” or “municipal securities dealer,” as those terms are defined in the Securities Exchange Act of 1934. The use of such term in this notice does not imply that the entity is necessarily taking a principal position in a municipal security.
 This information is from the MSRB’s Transaction Reporting System, which has been operational since 1995 and is the MSRB’s primary effort to improve price transparency for municipal securities. The MSRB’s collection and dissemination of transaction information has dramatically increased the availability of this information. Continued enhancements to the MSRB’s public pricing reports should enable the development of more reliable pricing models and greater understanding of municipal securities pricing.
 Rule 15c2-12 provides that underwriters must ensure that issuers of most new issues of municipal securities have undertaken (i) to provide certain financial and operating information on an annual basis to each NRMSIR and to any SID that may exist in the issuer’s states and (ii) to provide either to each NRMSIR and any appropriate SID or to the MSRB notice of certain specified events relating to such issue, if material. The MSRB understands that there are currently four NRMSIRs and three SIDs designated under Rule 15c2-12 by the SEC through no-action letters. See http://www.sec.gov/consumer/nrmsir.htm.
 In December 1998, the SEC adopted Regulation ATS to establish a regulatory framework for alternative trading systems. See Exchange Act Release No. 40760 (December 8, 1998). As noted in the adopting release, technological advances had effectively blurred the distinctions between “exchanges” and “broker-dealers.” Today, alternative trading systems are often used by market participants as functional equivalents for exchanges. Under Regulation ATS, trading systems can choose to register as a broker-dealer (i.e., an alternative trading system) or as an exchange. The option they choose affects their rights and responsibilities.
 Electronic trading systems are relatively novel in the municipal securities market. The MSRB recognizes that under some circumstances dealers that operate such systems may perform different functions from traditional dealers. Nonetheless, the MSRB has made a preliminary determination not to create a separate set of rules to govern the activities of these dealers. Rather, through this draft interpretive guidance the MSRB has sought to apply the current regulatory framework to the dealer operator’s activities.
 See also MuniAuction, Inc., SEC No-Action Letter (March 13, 2000) (expressing opinion that the system operator is a broker within the meaning of Section 3(a)(4) of the Exchange Act).
 Neither the SEC nor the MSRB has provided dealers with a checklist of material facts. However, the standard set forth in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), is that a fact is material if there is a substantial likelihood that its disclosure would have been considered significant by a reasonable investor.
 Rule G-17 Interpretation – Notice Concerning Disclosure of Call Information to Customers of Municipal Securities, March 4, 1986, MSRB Rule Book (July 1, 2000) at p. 122.
 See the discussion under the heading “Introduction” above. Statements in the MSRB’s filing for approval of rule G-17 and the SEC’s order approving the rule reveal that rule G-17 was implemented to enforce a minimum standard of fair conduct among dealers in municipal securities. In its filing, the MSRB noted that rule G-17’s standard was intended to “refer to the customs and practices of the municipal securities markets, which may, in many instances differ from the corporate securities markets.” See Exchange Act Release No. 13987 (Sept. 22, 1977).
 Through published interpretations the MSRB has reminded dealers of their duty of complete disclosure under rule G-17, and, while it has not provided dealers with a checklist of items that must be disclosed, it periodically has pointed out specific items that should be disclosed. For example, the MSRB has stated that dealers must disclose at the time of trade whether the bonds are subject to redemption, in whole or in part, prior to maturity. “In addition, a dealer, if asked by a customer for more specific information about a call feature, should obtain this information and relay it to the customer promptly.” Id. See also Rule G-17 Interpretation – Transactions in Municipal Securities with Non-Standard Features Affecting Price/Yield Calculations, June 12, 1995, MSRB Rule Book (July 1, 2000) at p. 124 (“Dealers should take particular effort to ensure that customers are aware of any non-standard feature of a security. If price/yield calculations are affected by anomalies due to a non-standard feature, this may also constitute a material fact about the transaction that must be disclosed to the customer.”)
 Rule G-30, on prices and commissions, is often cited as a corollary to rule G-18. The draft interpretive guidance would not alter the prohibitions in rule G-30, which provides, inter alia, that dealers must charge fair and reasonable prices in principal transactions, and charge fair and reasonable commissions in agency transactions.
 See Exchange Act Release Nos. 15247 and 15248 (Oct. 19, 1978).
 Exchange Act Release No. 43066 (July 21, 2000) at note 113. For purposes of rule G-19, an institutional account is defined as an account of: (i) a bank, savings and loan association, insurance company, or registered investment company, (ii) a registered investment adviser, or (iii) any entity or person with total assets of at least $50 million.
 National Committee of Discount Brokers, SEC No-Action Letter (May 27, 1980).
 Exchange Act Release No. 34961 (November 10, 1994) at note 143.
 The MSRB has previously given guidance concerning the application of suitability requirements to investment seminars and customer inquiries made in response to a dealer’s advertisement. In May of 1985 the MSRB stated that:
[R]ule G-19 applies to recommendations made by a professional at an investment seminar as follows: A dealer recommending a transaction in a particular security during the course of an investment seminar must have reasonable grounds for the recommendation in light of information about the security available from the issuer or otherwise. This duty applies to recommendations made generally to all participants in the seminar as well as to recommendations made to individual customers. In addition, a professional who makes a recommendation to a particular customer—whether during the course of the seminar or in response to an inquiry from the customer resulting from the customer’s attendance at the seminar—must have reasonable grounds for believing that the recommendation is suitable based upon information available from the issuer of the security or otherwise and the facts disclosed by such customer or otherwise known about such customer.
The Board also wishes to advise the industry that the requirements of rule G-19 apply to recommendations made to customers who contact a dealer in response to an advertisement for municipal securities in the same way as they apply to all other recommendations made to customers.
Rule G-19 Interpretation – Notice Concerning the Application of Suitability Requirements to Investment Seminars and Customer Inquiries Made in Response to a Dealer’s Advertisement,May 7, 1985, MSRB Rule Book (July 1, 2000) at p. 128.
 See generally On-Line Brokerage: Keeping Apace of Cyberspace, (“Unger Report”), (November 22,1999) at pp. 24-31, available at http://www.sec.gov/pdf/cybrtrnd.pdf.
 See Rule G-13 Interpretation – Notice of Interpretation of Rule G-13 on Published Quotations, April 21, 1988, MSRB Rule Book (July 1, 2000) at p. 88 (the “1988 Quotation Notice”).
 See Rule G-36 Interpretive Letter – Multiple underwriters, MSRB interpretation of January 30, 1998, MSRB Rule Book (July 1, 2000) at p. 186.
 See discussion above under the heading “Existing Standards Under Fair Practice Rules.”
 When a customer has delegated decision-making authority to an agent, such as an investment advisor or a bank trust department, this draft interpretation shall be applied to the agent.
 In addition, as discussed below, the fact that a quotation is made by a sophisticated market professional would have an impact on how such quotation is treated under rule G-13.
 The MSIL® system collects and makes available to the marketplace official statements and advance refunding documents submitted under MSRB rule G-36, as well as certain secondary market material event disclosures provided by issuers under Exchange Act Rule 15c2-12. The MSRB’s Transaction Reporting System collects and makes available to the marketplace information regarding inter-dealer and dealer-customer transactions in municipal securities. Municipal Securities Information Library and MSIL are registered trademarks of the MSRB.
 This draft interpretation only applies to the actions necessary for a dealer to ensure that its agency transactions are effected at fair and reasonable prices. If a dealer engages in principal transactions with a sophisticated market professional, rule G-30(a) applies and the dealer must charge a fair and reasonable price. In addition, rule G-30(b) applies to the commission or service charges that a dealer operating an electronic trading system may charge to effect the agency transactions that take place on its system.
 Similarly, the MSRB believes the same limited agency functions can be undertaken by a broker’s broker toward other dealers. For example, if a broker’s broker effects agency transactions for other dealers and its agency responsibilities have been explicitly limited to providing anonymity, communication, matching and/or clearance functions, then the MSRB believes the broker’s broker is not required to take further actions on individual transactions to ensure that its agency transactions with other dealers are effected at fair and reasonable prices.
 Exchange Act Release No. 34961 (November 10, 1994) at note 143.
 In fact, technology may enable dealers to do a better job of assessing customer suitability on-line. See, e.g., Unger Report at p. 28.
 See NASD IM-2310-3, Suitability Obligations to Institutional Customers.
 For purposes of this draft interpretation, a customer’s bid for, offer of, or request for bid or offer is included within the meaning of a “quotation” if it is disseminated by a dealer.
 The MSRB believes that, consistent with its view previously expressed with respect to “bait-and-switch” advertisements, a dealer that includes a price in its quotation that is designed as a mechanism to attract potential customers interested in the quoted security for the primary purpose of drawing such potential customers into a negotiation on that or another security, where the quoting dealer has no intention at the time it makes the quotation of executing a transaction in such security at that price, could be a violation of rule G-17. See Rule G-21 Interpretive Letter – Disclosure obligations, MSRB interpretation of February 24, 1994, MSRB Rule Book (July 1, 2000) at p. 133.
 See 1988 Quotation Notice.
 See, e.g., Exchange Act Rule 15c2-12(f)(8). Questions regarding whether a dealer acting in such an intermediary role for a particular primary offering of municipal securities would constitute an underwriter should be addressed to SEC staff.
 Each dealer that is party to this agreement would be required to inform any dealer seeking copies of the official statement from such dealer of the identity of the dealer that has by agreement undertaken this obligation or, in the alternative, may fulfill the request for official statements. In either case, the dealer would be required to act promptly so as either to permit the dealer undertaking the distribution obligation to fulfill its duty in a timely manner or to itself provide the official statement in the time required by the rule. Such agreement would not affect the obligation of a dealer that sells new issue securities to another dealer to provide a copy of the official statement to such dealer upon request, nor would it affect the obligation to deliver official statements to customers.
 The dealer designated to act as managing underwriter for purposes of rule G-36 would be billed the full amount of any applicable underwriting assessment due under rule A-13, on underwriting and transaction assessments. Such dealer would be permitted, in turn, to bill each other dealer that is party to the agreement for its share of the assessment.
 This situation can be contrasted with the typical broker’s broker operation in which the broker’s broker effects riskless principal transactions for dealer clients. The nature of the transactions as either agency or principal is governed for purposes of MSRB rules by whether a principal position is taken with respect to the security. “Riskless principal” transactions in this context are considered to be principal transactions in which a dealer has a firm order on one side of a transaction at the time it executes a matching transaction on the contra-side. For purposes of the uniform practice rules, the MSRB considers broker’s broker transactions to be riskless principal transactions even though the broker’s broker may be acting for one side of the transaction and may have agency or fiduciary obligations toward that party.
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