MSRB Seeks Mark-up Disclosure for Municipal Securities Transactions

Date: September 2, 2016

Contact:  Jennifer A. Galloway, Chief Communications Officer
202-838-1500
              jgalloway@msrb.org


MSRB SEEKS MARK-UP DISCLOSURE FOR MUNICIPAL SECURITIES TRANSACTIONS

Washington, DC –  In an effort to improve investors’ ability to assess the cost of transacting in municipal bonds, the Municipal Securities Rulemaking Board (MSRB) today advanced a plan to require dealers to provide retail investors information about compensation dealers receive when buying municipal bonds from, or selling them to, investors.

Currently, retail investors in municipal securities receive less information about the cost of their transactions than investors in the equity market. The MSRB’s plan, which was submitted to the Securities and Exchange Commission (SEC) for approval, seeks to provide municipal retail investors with meaningful and useful pricing information to help them better evaluate the overall cost of their transactions.

“The concept of providing this type of transparency of transaction costs for municipal securities was first floated 40 years ago,” said MSRB Executive Director Lynnette Kelly. “Changes in technology and in the municipal market have made it possible for investors to receive similar transaction information as investors in the equity market. This is a meaningful and historic shift for the municipal market.”

If approved, the MSRB’s proposal will require a dealer to make the new disclosure when, for example, it sells a municipal bond in a principal capacity (for the dealer’s own account) to a retail customer and on the same day buys the same security from a third party. In this case, the dealer would disclose on the customer’s confirmation its compensation, or “mark-up,” from the “prevailing market price” of the security. In addition to providing the dollar value and percentage of the dealer’s compensation on a trade, the confirmation would include a reference to trade price data about the security on the MSRB’s Electronic Municipal Market Access (EMMA®) website.  

“Our proposal will provide dealer compensation information on an estimated 8,000 retail investor municipal securities transactions each day,” Kelly said. “That’s a significant number of people who will have additional information about the cost of their transactions.”  

The MSRB’s rule filing includes guidance for dealers on establishing the prevailing market price of a security for the purpose of calculating their compensation. Because of the significance of the proposed rule, the MSRB wants dealers to understand its intent with respect to how the rule would apply to different trading situations and the practical realities of the unique municipal market, which has more than one million individual bonds, the majority of which do not trade frequently. The MSRB’s guidance specifically addresses establishing the prevailing market price for contemporaneous customer transactions; the ability of dealers to calculate their compensation at the time of disclosure to a customer; the frequent absence of pricing information for sufficiently comparable municipal securities; and the implications of transactions with affiliated dealers.

If approved, the proposed mark-up disclosure rule will be effective no later than one year following SEC approval. 


The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a Congressionally-chartered, self-regulatory organization governed by a 21-member board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is subject to oversight by the Securities and Exchange Commission.