Notice of Proposed Amendment to Rule G-28 on Sales to Employees of Other Dealers
On December 20, 2002, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) an amendment to Rule G-28, on transactions with employees and partners of other municipal securities dealers, that would exempt transactions in municipal fund securities from the requirements of Rule G-28.[1]
SUMMARY OF PROPOSED AMENDMENT
Rule 28 requires a broker, dealer or municipal securities dealer (dealer”) that opens a municipal securities account for an employee of another dealer (or a spouse or child of such employee) to first provide written notice to such other dealer and to subsequently follow any instructions provided by the other dealer with respect to transactions for the employee. The transacting dealer is also required to provide copies of all confirmations to the other dealer. The rule was adopted to prevent an employee of a dealer fromeffecting transactions that are contrary to the interests of the dealer or from otherwise acting illegally or improperly with respect to transactions in municipal securities.
As part of its ongoing review of the application of MSRB rules to municipal fund securities, it has come to the MSRB’s attention that the requirements of Rule G-28 may impose a burden on dealers and customers, particularly in the context of 529 college savings plan accounts, without any significant countervailing benefit. The MSRB is concerned that the requirements unnecessarily delay the opening of some accounts since dealers are required to provide written notice to a dealer that employs a new customer prior to opening an account. However, since it does not appear that transactions in municipal fund securities present the same potential for adverse impact on an employing dealer as might exist with respect to transactions in other types of municipal securities, the MSRB does not believe that any benefit is realized from imposing the requirements of Rule G-28 on transactions in municipal fund securities.
Thus, the MSRB has determined that it is appropriate to create an exemption from Rule G-28 for transactions and accounts involving municipal fund securities. The MSRB notes that transactions in registered mutual fund shares are currently exempted from similar requirements imposed under NASD Rule 3050. In addition, since there is no trading market in shares of 529 college savings plans or other types of municipal fund securities, the safeguards provided by Rule G-28 are not needed in the context of this market.
December 20, 2002
TEXT OF PROPOSED RULE CHANGE [2]
Rule G-28. Transactions with Employees and Partners of Other Municipal Securities Professionals
(a) – (b) No change.
(c) Exemption for Municipal Fund Securities. The provisions of this rule shall not be applicable to transactions in municipal fund securities or to accounts that are limited to transactions in municipal fund securities.
