Muni groups urge MSRB to tread lightly with pricing guidance

Industry advocacy groups urged the Municipal Securities Rulemaking Board to remain flexible and avoid creating new compliance standards in resources regarding new issue pricing.

The comments, which were submitted Wednesday by four organizations, stemmed from the MSRB’s October request for comment on two draft resources regarding new issue pricing. One of the draft resources is for dealers and the other is for municipal advisors.

The first draft resource addresses underwriting activity and fair dealing obligations under MSRB Rule G-17 and supervisory obligations under MSRB Rule G-27. The second focuses on municipal advisor activities and standards of conduct under MSRB Rules G-42 and G-44 regarding supervisory and compliance obligations.

According to the MSRB, each resource speaks to rules concerning the provision of underwriting services or advice related to pricing a new issue of municipal securities. The resources also provide answers to some frequently asked questions and sample considerations to help regulated entities design and assess compliance and written supervisory procedures (WSPs).

When the request for comment was issued, MSRB chief regulatory officer Gail Marshall noted in a statement that examining authorities were speaking about new issue pricing and firms were getting examined on it.

“We're not saying that there are issues with pricing, we just wanted to remind our regulated entities that the supervisory procedures and controls and compliance policies should be speaking to pricing and in what instances that should happen,” Marshall said.

In its comment letter, Bond Dealers of America described the draft compliance resources as “useful… for underwriters and MAs with respect to compliance with relevant MSRB rules related to new issue pricing.”

Michael Decker, BDA’s senior vice president for research and public policy, added that the draft resources “helpfully lay out the key compliance requirements associated with pricing new issues.”

Susan Gaffney, executive director of the National Association of Municipal Advisors, similarly noted that the draft compliance resources contain “a lot of information that will help MAs think through their policies and procedures related to MA services.”

However, in separate comment letters, both BDA and NAMA stressed that the draft compliance resources should not be too prescriptive.

“It is vitally important that MSRB rules and compliance resources provide the maximum flexibility for underwriting firms in designing and implementing written supervisory procedures around the activity of pricing new issues,” BDA wrote.

According to BDA, that flexibility would facilitate compliance for firms of all types and sizes, including small dealers who the group said, “face challenges in developing and implementing robust supervisory procedures” due to limited resources.

NAMA sounded a similar sentiment, telling the MSRB that “firms, transactions and practices differ greatly.” Consequently, Gaffney added, “MA firms need to determine for themselves the appropriate level of documentation, supervisory procedures and discussion in their WSP about the services [that] their firm provides.”

As a result, NAMA urged the MSRB to “avoid language that appears to insist that MA firms incorporate written new issue pricing procedures into their WSPs…and have a conversation about its intentions and what this type of document may mean about the MSRB’s work related to MAs and specifically to the transaction-related work of MAs.”

Gaffney also highlighted the prescriptive nature of the draft compliance resources, writing that NAMA is “concerned that this document is veering away from the MSRB’s traditional principles-based approach in guidance and resources.”

For example, according to its comment letter, NAMA has “concerns about the MSRB’s focus on new issue pricing without discussion of at what point the 'pricing' process starts.”

The Securities Industry and Financial Markets Association also submitted comments to the MSRB in which the organization expressed appreciation for the draft resources but pointed to member concerns regarding record-keeping and oversight roles.

Some SIFMA members noted that language in the resources “may create record keeping requirements that are not contemplated on the face of” MSRB Rule G-8, according to SIFMA’s letter. SIFMA suggested that the MSRB revise language in the dealer compliance resource to “eliminate the reference to records that dealers are ‘required to maintain and preserve.’”

SIFMA also pointed to questions that it says arose in discussing the oversight of pricing municipal securities.

“Many firms have supervisory practices in place that provide for spot checking or reviewing a sampling of transactions based on risk assessment,” the SIFMA letter states, adding, “SIFMA members believe that in-depth supervisory review of every transaction is neither efficient, practicable nor required.”

Overall, Gaffney considers new issue pricing an important issue for MAs to address.

However, similar to some of the views expressed in comment letters submitted by BDA, SIFMA, and independent firm, First River Advisory LLC, Gaffney asserted that the “MSRB should not impose or imply additional requirements for MAs and MA firms.”