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Contact:           Jennifer A. Galloway, Chief Communications Officer
                       (703) 797-6600
                       jgalloway@msrb.org

 

MUNICIPAL SECURITIES RULEMAKING BOARD AND SECURITIES AND EXCHANGE COMMISSION ISSUE GUIDANCE ON CALIFORNIA REGISTERED WARRANTS
Sales and Trading of State's IOUs are Subject to MSRB
Rules for Municipal Securities   

 

Alexandria , VA - The staff of the Securities and Exchange Commission has issued guidance that registered warrants, also known as IOUs, being issued by the State of California are municipal securities, which means that any person or entity acting as an intermediary for the purchase and sale of warrants may need to be registered with the Securities and Exchange Commission.  Furthermore, sales and trading activities relating to California's registered warrants by securities firms and banks are subject to the rules of the Municipal Securities Rulemaking Board.  The MSRB today is publishing guidance for securities firms and banks buying, selling or trading California warrants on the application of MSRB rules, including in particular those on fair pricing and fair treatment of customers.

"The buying, selling and trading of California's warrants by intermediaries are subject to all MSRB rules of conduct and fair practice," said MSRB General Counsel Ernesto Lanza. "The MSRB is particularly concerned about compliance with obligations with respect to the prices at which such intermediaries buy California warrants from citizens who may be in need of immediate cash."  Lanza said, "Persons attempting to profit from the buying and selling of municipal securities must price those transactions based on their fair market value, and California's IOUs are no exception."

Due to a cash shortage, the State of California began issuing the warrants on July 2, 2009 to certain individuals and private businesses, including citizens of the state and vendors to whom payments were due from the state.

MSRB rules require that prices for the purchase and sale of municipal securities, including the California warrants, charged by securities firms and banks must be fair and reasonable based on their best judgment of the securities' fair market value.  These intermediaries would violate this rule if they attempt to take advantage of their customers by offering to purchase warrants at deep discounts that do not reflect fair market value.  Advertisements and published quotations for purchases and sales of California warrants also must meet MSRB standards.

Securities firms and banks buying and selling California warrants have a responsibility to understand their features and must tell their customers about their material terms.  Among other things, customers need to be apprised of the terms of repayment and any documentation they will need in order to receive payment on the warrants from the California State Treasurer's Office. 

For more information on MSRB rules that apply to the sale and trading of California warrants, please see MSRB Notice 2009-41.

 

The Municipal Securities Rulemaking Board (MSRB) protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in tens of thousands of communities across the country. MSRB fulfills this mission by creating trust in our market through informed regulation of dealers and municipal advisors that protects investors, issuers and the public interest; building technology systems that power our market and provide transparency for issuers, institutions, and the investing public; and serving as the steward of market data that empowers better decisions and fuels innovation for the future. MSRB is a self-regulatory organization governed by a board of directors that has a majority of public members, in addition to representatives of regulated entities. MSRB is overseen by the Securities and Exchange Commission and Congress.

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