Indemnity agreement. This is in response to your letter dated March 18, 1981, regarding your client's (the "Bank") proposal to sell participations in industrial development bonds to one or more unit investment trusts or closed-end investment company (the "trust"), which bonds would be insured against default by the American Municipal Bond Assurance Corporation (AMBAC). Specifically you ask whether an agreement by the Bank to indemnify AMBAC to the extent of 25 percent of any losses suffered in the event of default would violate Board rule G-25(b) which generally prohibits a municipal securities dealer from guaranteeing a customer against loss in municipal securities transactions.

As you note in your letter, the Board has taken the position that a municipal securities bank dealer issuing a letter of credit which is publicly disclosed and for the benefit of all holders of the security would not violate the provisions of rule G-25(b). You state that the Bank’s agreement to indemnify AMBAC would be disclosed to and, at least indirectly would be for the benefit, of all investors.

Based upon the facts contained in your letter, it appears that the proposed agreement would not be prohibited by rule G-25(b). MSRB interpretation of March 26, 1981.