WASHINGTON - The Municipal Securities Rulemaking Board, at its meeting next week, plans to discuss draft guidance on its best execution rule, its proposal to require dealers to provide pricing information to customers, and the reaction to its bid to ease standards for the public investor representative on its board.
The meeting, which will take place July 29-31, is expected to tackle a total of seven topics, according to an MSRB release.
The best execution guidance is expected to be released in a question and answer format. Rule G-18 was adopted on Dec. 8, 2014 and is slated to take effect on Dec. 7 of this year. It generally would require dealers to use "reasonable diligence" to determine the best market for a security and then buy or sell the security in that market so the resulting price to the customer "is as favorable as possible under prevailing market conditions."
But some dealers have voiced questions about how traders will be able to demonstrate due diligence. MSRB chief legal officer Robert Fippinger said in April that the FAQs will interpret the rule, but not modify it in any way.
Confirmation disclosure is aimed at giving retail investors a better sense of the amount of money dealers are making on principal trades. The MSRB in November 2014 proposed changes to Rule G-15 on confirmation that, "for same-day, retail-size principal transactions, dealers disclose on the customer confirmation the price to the dealer in a 'reference transaction' and the differential between the price to the customer and the price to the dealer."
"This potential disclosure, made in connection with the investor's transaction, may be significantly beneficial for purposes of the investor's understanding of the market for the traded security," the MSRB had said in its November notice.
But the Securities Industry and Financial Markets Association and Bond Dealers of America, in January warned the proposal could lead to confusion among investors and would also not provide an accurate picture of the market. Rick Fleming, the Securities and Exchange Commission's Investor Advocate, supported the proposal, saying it would allow retail investors to better evaluate transaction costs and quality of service by dealers.
The MSRB's proposed amendments to its Rule A-3 on board membership to loosen requirements for the public investor board member recently drew support from former MSRB board members, who said the current rule, which prohibits consideration of individuals associated with a regulated entity, disqualifies a number of qualified individuals.
However, the SEC's Investor Advocate and several groups, such as the Government Finance Officers Association and National Association of Municipal Advisors, opposed the rule change, saying the loosening of restrictions could lead to a member getting placed on the board who would not have the best interests of investors, issuers and individuals in mind. Some of them accused the MSRB of trying to ensure a buy-side fund advisor would have that seat on the board.
Fleming said the proposal was "deeply flawed" and would "undermine the very purpose" of provisions of the Dodd-Frank Act that mandate the MSRB have a majority-public board.
In addition to considering those proposals, the self-regulator is also scheduled to discuss proposed changes to its uniform practice rule as well as findings from a "holistic review of all fees on regulated entities" and consider possible changes to its Rule A-12 on registration fees and Rule A-13 on underwriting, transaction and technology fees.
Further, the board will discuss changes its Rule G-10 on the delivery of the investor brochure and the customer complaint process, and the securities industry initiative to shift the settlement cycle to two days after a transaction is executed (T+2) instead of the current three days (T+3).
