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).

MSRB Rule G-23 establishes certain basic requirements applicable to a broker, dealer, or municipal securities dealer (“dealer”) acting as a financial advisor with respect to the issuance of municipal securities.  MSRB Rule G-23(d) provides that a dealer that has a financial advisory relationship with respect to the issuance of municipal securities is precluded from acquiring all or any portion of such issue, directly or indirectly, from the issuer as principal, either alone or as a participant in a syndicate or other similar account formed for that purpose.  A dealer is also precluded from arranging the placement of an issue with respect to which it has a financial advisory relationship.  This notice refers to both of these activities as “underwritings” and provides interpretive guidance on when a dealer may be precluded by Rule G-23(d) from underwriting an issue of municipal securities due to having served as financial advisor with respect to that issue.  Rule G-23 is solely a conflicts rule.  Accordingly, this notice does not address whether provision of the advice permitted by Rule G-23 would cause the dealer to be considered a “municipal advisor” under the Exchange Act and the rules promulgated thereunder.

Rule G-23(b) provides, among other things, that a financial advisory relationship shall be deemed to exist for purposes of Rule G-23 when a dealer renders or enters into an agreement to provide financial advisory or consultant services to or on behalf of an issuer with respect to the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such issue or issues.  Rule G-23(b) also provides, however, that a financial advisory relationship shall not be deemed to exist when, in the course of acting as an underwriter and not as a financial advisor, a dealer provides advice to an issuer, including advice with respect to the structure, timing, terms, and other similar matters concerning the issuance of municipal securities.

Although Rule G-23(c) requires a financial advisory relationship to be evidenced by a writing, a financial advisory relationship will be deemed to exist whenever a dealer renders the types of advice provided for in Rule G-23(b), regardless of the existence of a written agreement.  However, a dealer that clearly identifies itself in writing as an underwriter and not as a financial advisor from the earliest stages of its relationship with the issuer with respect to that issue (e.g., in a response to a request for proposals or in promotional materials provided to an issuer) will be considered to be “acting as an underwriter” under Rule G-23(b) with respect to that issue.  The writing must make clear that the primary role of an underwriter is to purchase, or arrange for the placement of, securities in an arm’s-length commercial transaction between the issuer and the underwriter and that the underwriter has financial and other interests that differ from those of the issuer.  The dealer must not engage in a course of conduct that is inconsistent with an arm’s-length relationship with the issuer in connection with such issue of municipal securities or the dealer will be deemed to be a financial advisor with respect to that issue and precluded from underwriting that issue by Rule G-23(d).  Thus, a dealer providing advice to an issuer with respect to the issuance of municipal securities (including the structure, timing, and terms of the issue and other similar matters, when integrally related to the issue being underwritten) will not be viewed as a financial advisor for purposes of Rule G-23, if such advice is rendered in its capacity as underwriter for such issue.  In addition to engaging in underwriting activities, it shall not be a violation of Rule G-23(d) for a dealer that states that it is acting as an underwriter with respect to the issuance of municipal securities to provide advice with respect to the investment of the proceeds of the issue, municipal derivatives integrally related to the issue, or other similar matters concerning the issue.