MSRB Seeks Comment on Draft Interpretive Guidance Related to Application of MSRB Rules to Certain Prearranged Trading in Connection with Primary Offerings

Date: January 3, 2019

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

MSRB SEEKS COMMENT ON DRAFT INTERPRETIVE GUIDANCE RELATED TO APPLICATION OF MSRB
RULES TO CERTAIN PREARRANGED TRADING IN CONNECTION WITH PRIMARY OFFERINGS

Washington, DC – The Municipal Securities Rulemaking Board (MSRB) seeks comment on draft interpretative guidance regarding the application of several MSRB rules and prior interpretive guidance related to certain prearranged trading in connection with primary offerings of municipal securities. The MSRB is concerned about the negative impact of these trading practices on the fairness and efficiency of the municipal securities market and is soliciting comment on draft guidance to remind dealers how MSRB rules relate to these transactions.

Specifically, the draft interpretive guidance illustrates how MSRB Rule G-11, on primary offering practices, Rule G-17, on conduct of municipal securities and municipal advisory activities, and other rules and existing interpretive guidance relate to certain prearranged trading of primary offerings. The draft guidance would remind dealers of MSRB requirements and how prearranged trading may violate those requirements. The MSRB is soliciting comment on, among other things whether: there are variations on prearranged trading that are prevalent in the market and that should be addressed specifically in any final guidance; the draft guidance captures any conduct that should not be regarded as violative of the MSRB’s fair dealing and other MSRB rules referenced in the draft guidance; and there are any costs or burdens that would be created by the draft guidance, if issued.

“Underwriting syndicates engaged in the distribution of a primary offering of municipal securities must adhere to applicable allocation priorities,” said MSRB Chief Regulatory Officer Lanny Schwartz. “Distribution participants and others that enter into arrangements to subvert those priorities in order to secure bonds that they might not otherwise have been entitled to purchase in an offering cause market harm and may contravene MSRB fair dealing and other requirements,” he said. Schwartz noted that the U.S. Securities and Exchange Commission has recently brought a number of enforcement cases involving prearranged trading in connection with primary offerings of municipal bonds against distribution participants, dealers and others, alleging violations of MSRB rules and the federal securities laws.

Comments on the draft guidance should be submitted to the MSRB no later than March 5, 2019. Read the request for comment.