The main purpose of MSRB rules is to protect investors that buy or sell municipal securities. Municipal securities dealers are required to abide by MSRB rules on, among other topics, the suitability of transactions, fair pricing, disclosure of material information and conflicts of interest, and to in general, deal fairly with investors.
Suitability of Recommended Transactions
In many cases, a dealer may recommend to an investor a particular investment or course of investments. In making a recommendation, the dealer must have reasonable grounds for believing that the recommendation is suitable. The dealer must make this "suitability determination" based on the information available about an investor and the security he or she is purchasing. The same is true if the dealer recommends that the investor sell a security that the investors owns. Investors should note that a dealer is obligated to make a suitability determination only if it has made a recommendation. If an investor has already made a decision about a particular investment, the dealer generally will not be obligated to make a suitability determination.
Investors should consider their reasons for investing and when they will need the money being invested. Other considerations are the extent to which an investor depends on receiving interest on a bond over time (or upon the investment growing in value, in the case of 529 college savings plans), and the extent to which investment objectives may be affected if the investment loses money or if its earnings are lower than expected. Investors should know enough about an investment to understand whether it is likely to deliver their expected investment results and should work with a financial professional to ensure the investment is suitable. If an investor is making an independent investment decision without the guidance of a dealer, he or she needs to be doubly sure to make a personal suitability determination.
Disclosure to Customers
If an investor makes an investment through a dealer, the institution must provide the investor with information material to the transaction at or prior to the time the investor agrees to enter into that transaction. The investor should consider all relevant features of the security, including its yield, tax status and call or put features.
In connection with sales of new issue securities, the official statement must be made available by no later than the settlement of an investment (generally, when an investor takes ownership and has paid for an investment). The official statement will normally be available for review on the MSRB's Electronic Municipal Market Access (EMMA) website. Investors can also request a printed copy of the official statement from the dealer. The dealer also must provide an investor with a confirmation of the transaction, which generally must be provided on a transaction-by-transaction basis. For many 529 college savings plans, transactions may instead be confirmed through periodic statements. The transaction confirmation includes useful information about the transaction. In particular, information on the confirmation - particularly the CUSIP number of the security - can be used to search for information about the security on EMMA.
Investors should read the official statement carefully and should never hesitate to ask a financial professional to answer questions or clarify any information. Official statements are available through EMMA. In addition, many issuers may provide on their websites additional information that may be relevant in connection with making an investment in their securities.
The MSRB’s rules apply to municipal securities only. They do not apply to unit investment trusts, bond funds or other similar investment programs issued by investment companies. Municipal securities generally are defined as direct obligations issued by a state, county, city or any of their political subdivisions, such as a school district or a housing authority.