Contact: Jennifer A. Galloway, Chief Communications Officer
(703) 797-6600
jgalloway@msrb.org
THE MUNICIPAL SECURITIES RULEMAKING BOARD REQUESTS COMMENT
ON PRIORITY OF ORDERS FOR NEW ISSUES OF MUNICIPAL BONDS
Changes Would Improve Distribution of New Issues to the Market
Alexandria, VA - The Municipal Securities Rulemaking Board (MSRB) is seeking comment on proposed rules on priority of orders for new municipal bond issues. The changes would improve the distribution of new issues to the market by ensuring that underwriters follow priority provisions outlined in MSRB rules and document instances in which securities are allocated in a manner inconsistent with those rules.
Retail order periods, in which municipal bond issuers allocate a certain amount of bonds to individual customers before opening up the sale to all investors, have become popular with issuers but there is no standard definition of what constitutes a retail order. Under the proposed changes, underwriters would be required to document an issuer's definition of a retail order and honor the issuer's wishes with respect to retail order periods.
"These changes would establish a true standard for priority of customer orders and ensure that underwriters understand and honor issuers' wishes when it comes to retail customer orders," said Lynnette Kelly Hotchkiss, Executive Director of the MSRB. "Dealers are generally obliged to fill orders of all customers before buying for their own accounts," she said. "We want to ensure that they are doing so in order to preserve investors' access to new issues."
The changes would affect 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 would be expanded to cover all primary market offerings and provide that the syndicate manager or sole underwriter generally must give priority to customer orders over orders for its own and related accounts. The amendments to Rules G-8 and G-9 would require dealers to maintain records necessary for the enforcement of revised Rule G-11 for a period of six years.
If approved, the changes would give issuers more control over the distribution of their bonds in primary offerings and increase the number of investor orders that are filled, said Ms. Hotchkiss.
The MSRB is accepting comments on the proposed rules until Sept. 11, 2009, after which it will consider the measure at its October meeting.If approved by the Board, the rule changes would require the approval of the Securities and Exchange Commission before becoming effective.
