Underwriters may soon have to adapt to changes in the way they conduct and report the results of retail order periods if the Municipal Securities Rulemaking Board gets its way under a new proposal.
The securities regulatory agency is seeking to improve and make ROPs even safer for issuers and investors, and will soon make public the comments that it solicited back in March regarding proposed amendments to its rules governing preliminary pricing procedures.
“The board reviewed the comments received and, as sometimes happens, decided that changes are needed,” Jennifer Galloway, the MSRB’s chief communications officer, told The Bond Buyer in a statement last week. “We plan to publish for public comment an amended proposal on retail order periods fairly soon.” She said that announcement could come “within the next month.”
The board must also file any proposed rule changes with the Securities and Exchange Commission.
ROPs were created as a means of giving retail priority access to new-issue bonds ahead of the institutional pricing, and are governed by the MSRB. Over the last two years, the board has been concerned about reports that dealers are violating its rules by disregarding terms and conditions required by issuers, such as the timely dissemination of information by syndicate managers to all dealers, and maintaining fair pricing, according to a press release about the proposed amendments.
“The MSRB is proposing rule amendments and a related interpretation as part of its mandate to protect municipal entities and investors,” executive director Lynnette Kelly said in the release. “These proposed rules would provide additional protections to ensure that issuers’ requests are honored and help retail investors achieve fair pricing for their bonds.”
The proposal would tweak the MSRB’s Rule G-8 to require senior syndicate managers to maintain records of information related to retail orders. It also seeks to refine Rule G-11 on primary offering practices and Rule G-32 on primary offering disclosures. It will also define terms like “going-away order,” “selling group” and “retail-order period,” but let issuers define “retail,” the board said.
The proposed changes would require syndicate managers to maintain records and to give selling-group members written copies of issuers’ terms. In addition, dealers that submit orders during a ROP would need to report a variety of information in writing, including whether the order meets the issuer’s definition of “retail.” Underwriters would have to report on the board’s EMMA, the online Electronic Municipal Market Access platform, whether a primary offering included a ROP, and if so, when it was held.
The MSRB also issued a related interpretive notice in March, warning dealers they must treat issuers and other dealers fairly or risk violating Rule G-17. It also said large differences between institutional and individual prices — those that exceed normal “price-yield variances” in the primary market — could be evidence of fair-pricing violations.
Enforcement agencies urged the MSRB to adopt additional record-keeping requirements concerning ROPs to assist in enforcement. Industry groups recently called the proposed amendments heavy-handed, duplicative and unwarranted, saying they could raise costs, cause unreasonable administrative burdens and discourage the practice of retail order periods altogether.
