Control Relationships

Rule G-22. (a) Control Relationship. For purposes of this rule, a control relationship with respect to a municipal security shall be deemed to exist if a broker, dealer, or municipal securities dealer (or a bank or other person of which the broker, dealer, or municipal securities dealer is a department or division) controls, is controlled by, or is under common control with the issuer of the security or a person other than the issuer who is obligated, directly or indirectly, with respect to debt service on the security.

(b) Discretionary Accounts. No broker, dealer, or municipal securities dealer shall effect a transaction in a municipal security with or for the discretionary account of a customer if such broker, dealer, or municipal securities dealer has a control relationship with respect to such security unless such transaction has been specifically authorized by such customer.

(c) Disclosure. No broker, dealer, or municipal securities dealer shall effect a transaction in a municipal security with or for a customer if such broker, dealer, or municipal securities dealer has a control relationship with respect to the security unless, before entering into a contract with or for the customer for the purchase, sale, or exchange of such security, the broker, dealer, or municipal securities dealer discloses to the customer the nature of the control relationship, and if such disclosure is not made in writing, such disclosure must be supplemented by the sending of written disclosure concerning the control relationship at or before the completion of the transaction.

 

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