WASHINGTON – The Municipal Securities Rulemaking Board plans at its quarterly meeting next week to discuss its proposal to require dealers to disclose on retail customer confirmations the markups and markdowns on principal transactions.
The agenda for the meeting, which will take place Oct. 21-22 at the MSRB’s office in Alexandria, Va., was outlined in a news release issued by the board on Wednesday. The meeting will be the first for seven new board members. It will also be the first meeting presided over by Nat Singer, the MSRB’s new chair and a senior managing director at Swap Financial Group in San Diego.
The markup disclosure proposal is the first of its kind in more than 20 years and would require a dealer buying or selling bonds for its own account to disclose the markup or markdown on a customer’s confirmation when: it executes a transaction on the same side of the market as the customer; the transaction is greater than or equal to the size of the customer’s and; the dealer transaction occurs within a two-hour window on either side of the customer transaction. The MSRB would limit the disclosures to secondary market trades.
Dealers disclosing their markups would have to list them both as a total dollar amount and a percentage of the principal amount of the customer transaction. The rule would also require dealers to provide investors a hyperlink and URL address to the Security Details on EMMA as well as a time of execution for the customer’s trade, regardless of whether they are required to disclose a markup.
Lynnette Kelly, the MSRB’s executive director, said the “new proposed approach would offer greater clarity for investors as to dealer compensation while leveraging the existing processes and systems dealers use to comply with their fair-pricing obligations.”
The markup proposal follows a previously floated rule to require that dealers disclose a “reference price” of the same security traded on the same day on their customers’ confirmations. Muni dealers said that the proposal was too complex and asked the MSRB to withdraw it. The new markup proposal included slight revisions to the reference price rule as an alternative but the MSRB has made clear it prefers markup disclosure.
As part of its ongoing effort to extend regulations to the municipal advisor community as the Dodd-Frank Act required, the MSRB also plans to have “a policy discussion about the development of continuing education requirements for municipal advisors,” according to the board’s release. Dealers are already subject to continuing education requirements.
The self-regulator is already working on expanding its fiduciary duty, pay-to-play, and gifts and gratuities rules to MAs. It also will hold its Series 50 pilot qualification exam for municipal advisory representatives from Jan. 15 through Feb. 15, 2016.
The MSRB said it will use the meeting to talk about an upcoming request for comment that it will circulate about changes to dealer “closeout” procedures for transactions under Rule G-12 on uniform practices. The changes will be part of the organization’s effort to revisit existing rules to make sure they are up to date with current industry practices.
Discussion about the changes required to move the industry to a settlement cycle of two days after a transaction is executed instead of the current three days are also on the board’s agenda as well. The shorter settlement cycle has been an industry initiative and has support from Mary Jo White, the Securities and Exchange Commission’s chair.—
