Applicability of Trade Reporting for Certain Allocations to Customer Accounts By Dually-Registered Broker-Dealers/Investment Advisers¹

[Th]e MSRB acknowledges that in certain circumstances a customer allocation may be subject to trade reporting under Rule G-14. However, the MSRB observes that in the case of a purchase of a block order by a dually registered dealer/investment adviser (“BD/IA firm”) of municipal securities that are then allocated internally to advisory accounts at the same price as the block order (i.e., without transaction-based compensation, such as with a non-transaction-based wrap or similar advisory fee), the MSRB historically has only required that the original block order be reported and not the subsequent related allocations to customers in advisory accounts where, with respect to any such allocation, the BD/IA firm is acting as an investment adviser to such account directing an internal delivery of a portion of such block of municipal securities acquired by the BD/IA firm to the advisory account.²  This treatment would continue based on the core principle that, as a price transparency system, RTRS seeks to disseminate publicly only such pricing information that is indicative of market prices and not price information that may not reliably reflect such market prices. The MSRB believes that publishing price information for smaller customer allocations that were priced based on the larger block price of the original block trade is not only unlikely to be indicative of market prices, but could also be misleading.³

¹Excerpt from Letter to Secretary, Securities and Exchange Commission, from Ernesto A. Lanza, Chief Regulatory and Policy Officer, MSRB, dated September 5, 2025, at 5–6, available at https://www.msrb.org/sites/default/files/2025-09/SR-MSRB-2025-01-MSRB-Response-to-Comments_0.pdf (internal citations renumbered). See also Securities Exchange Act of 1934 (“Exchange Act”) Release No. 103987 (Sept. 16, 2025), File No. SR-MSRB-2025-01, 90 FR 45274, 45277 nn.58–60 and accompanying text (Sept. 19, 2025).

²See, e.g., Exchange Act Release No. 74564 (Mar. 23, 2015), 80 FR 16466, 16466 n.4 (Mar. 27, 2025), File No. SR-MSRB-2015-02 (“RTRS serves as an audit trail for municipal securities trading, with the exception of certain internal movements of securities within dealers that currently are not required to be reported”). See also MSRB Notice 2008-19, MSRB Seeks Comment on the Reporting of Proprietary Desk Transactions under Rule G-14, on Reports of Sales or Purchase (Apr. 11, 2008) (the “Prop Desk RFC”) (“Currently, internal movements of securities within a dealer organization are not considered to be reportable under Rule G-14.”). In the Prop Desk RFC, the MSRB proposed potentially requiring reporting to RTRS internal movements between a dealer’s proprietary desk and another part of the same dealer firm. The MSRB determined not to establish such a requirement with respect to such internal movements and continued to adhere to its position that internal movements are not reportable to RTRS. Of course, while the allocation is not reportable, the BD/IA firm would be subject to the full panoply of investment adviser duties, including a fiduciary duty to its customer, when it acts in this capacity as an investment adviser with respect to the customer’s advisory account.

³See, e.g., MSRB Notice 2003-20, Notice on Reporting and Comparison of Certain Transactions Effected by Investment Advisors: Rules G-12(f) and G-14 (May 23, 2003) (discussing the appropriateness of reporting only the price of the single block order trade with a third-party investment adviser rather than individual smaller transfers and allocations directed by such adviser that would be reportable at the same price as the block trade).

Municipal finance professional: supervisor.  This is in response to your inquiry seeking guidance regarding the possible classification as a municipal finance professional under rule G-37 of a Taxable Department Head at your firm. You stated that the Taxable Department Head is the direct supervisor of a Branch Manager and this Branch Manager manages a sales representative who has solicited municipal securities business from an issuer. You state that it is clear that the Branch Manager and the sales representative are both municipal finance professionals. However, you further state that the Taxable Department Head has delegated all Public Finance/Municipal oversight responsibilities to the Public Finance Department Head for the Taxable Department Head's personnel. You ask whether, under these circumstances, the Taxable Department Head would be considered a municipal finance professional under rule G-37 as a result of his or her supervisory position.

The term "municipal finance professional" is defined in rule G-37(g)(iv). Clauses (C) and (D) of the definition set forth the basis for considering an associated person of a dealer to be a municipal finance professional as a result of his or her supervisory position. Clause (C) includes any associated person who is both (i) either a municipal securities principal or municipal securities sales principal and (ii) a supervisor of any associated person either primarily engaged in municipal securities representative activities or who solicits municipal securities business (referred to herein as a "primary municipal securities supervisor"). Clause (D) includes any associated person who is a supervisor of a primary municipal securities supervisor up through and including (in the case of a non-bank dealer) the Chief Executive Officer or similarly situation official (referred to herein as a "secondary municipal securities supervisor").

Unlike in the case of a primary municipal securities supervisor, a secondary municipal securities supervisor is not required to be a municipal securities principal or municipal securities sales principal. The status of a secondary municipal securities supervisor as a municipal finance professional is not conditioned on the areas in which such supervisor has responsibility over a primary municipal securities supervisor, so long as such secondary municipal securities supervisor retains some degree of supervisory responsibility (whether or not relating to municipal securities activities) over the primary municipal securities supervisor.  MSRB interpretation of November 23, 1999.

Financial advisory relationship: private placements. This is in response to your letter in which you seek clarification on certain matters related to rules G-23, on activities of financial advisors, and G-37, on political contributions and prohibitions on municipal securities business.

You ask when it is "necessary in the process of commencing preliminary work with a potential financial advisory client to enter into a formal written financial advisory contract." Rule G-23(c) states that "[e]ach financial advisory relationship shall be evidenced by a writing entered into prior to, upon or promptly after the inception of the financial advisory relationship (or promptly after the creation or selection of the issuer if the issuer does not exist or has not been determined at the time the relationship commences)." Rule G-23(b) states that "...a financial advisory relationship shall be deemed to exist when a broker, dealer or municipal securities dealer renders or enters into an agreement to render financial advisory or consultant services to or on behalf of an issuer with respect to a new issue or issues of municipal securities, including advice with respect to the structure, timing, terms and other similar matters concerning such issue or issues, for a fee or other compensation or in expectation of such compensation for the rendering of such services."

You ask whether you are to advise the Board by means of reporting on Form G-37/G-38 or by any other means when you commence work on subsequent financing transactions with an issuer with which your firm has an ongoing financial advisory contract. The Instructions for Completing and Filing Form G-37/G-38 provide a guideline to use in determining when to report financial advisory services on Form G-37/G-38.[1] Pursuant to these Instructions, dealers should indicate financial advisory services when an agreement is reached to provide the services. In addition, the Instructions note that dealers also should indicate financial advisory services during a reporting period when the settlement date for a new issue on which the dealer acted as financial advisor occurred during such period. There are no other requirements for reporting financial advisory services to the Board.

Finally, you ask whether rules G-23 or G-37 contain requirements concerning private placement activities. The term "municipal securities business" is defined in rule G-37 to include "the offer or sale of a primary offering of municipal securities on behalf of any issuer ( e.g. , private placement)..." The Instructions for Completing and Filing Form G-37/G-38 provide that private placements should be indicated at least by the settlement date if within the reporting period.

With respect to rule G-23, section (d) of the rule states that no dealer that has a financial advisory relationship with respect to a new issue of municipal securities shall acquire as principal either alone or as a participant in a syndicate or other similar account formed for the purpose of purchasing, directly or indirectly, from the issuer all or any portion of such issue, or act as agent for the issuer in arranging the placement of such issue, unless various actions are taken.[2] In addition, rule G-23(g) states that each dealer subject to the provisions of sections (d), (e) or (f) of rule G-23 shall maintain a copy of the written disclosures, acknowledgments and consents required by these sections in a separate file and in accordance with the provisions of rule G-9, on preservation of records. Finally, rule G-23(h) states that, if a dealer acquires new issue municipal securities or participates in a syndicate or other account that acquires new issue municipal securities in accordance with section (d) of rule G-23, such dealer shall disclose the existence of the financial advisory relationship in writing to each customer who purchases such securities from such dealer, at or before the completion of the transaction with the customer. MSRB interpretation of October 5, 1999.

[1] I have enclosed a copy of the Instructions for Completing and Filing Form G-37/G-38 as contained in the MSRB Rule Book. The instructions are also contained on the Board's web site (www.msrb.org) under the link for rule G-37.

[2] These actions are: (i) if such issue is to be sold by the issuer on a negotiated basis, (A) the financial advisory relationship with respect to such issue has been terminated in writing and at or after such termination the issuer has expressly consented in writing to such acquisition or participation, as principal or agent, in the purchase of the securities on a negotiated basis; (B) the dealer has expressly disclosed in writing to the issuer at or before such termination that there may be a conflict of interest in changing from the capacity of financial advisor to purchaser of or placement agent for the securities with respect to which the financial advisory relationship exists and the issuer has expressly acknowledged in writing to the dealer receipt of such disclosure; and (C) the dealer has expressly disclosed in writing to the issuer at or before such termination the source and anticipated amount of all remuneration to the dealer with respect to such issue in addition to the compensation referred to in section (c) of rule G-23, and the issuer has expressly acknowledged in writing to the dealer receipt of such disclosure; or (ii) if such issue is to be sold by the issuer at competitive bid, the issuer has expressly consented in writing prior to the bid to such acquisition or participation.