MRSB publishes draft guidance for fair pricing, dealer compensation

By Tali Rackner

Norfolk, Va., Feb. 18 – The Municipal Securities Rulemaking Board proposed new regulatory guidance on how municipal securities dealers price bonds and calculate their compensation, according to a press release.

The draft guidance seeks to promote consistent compliance by municipal securities dealers with existing fair-pricing obligations to investors and better align standards on these subjects with those that apply to other fixed-income securities.

The MSRB said it believes the draft guidance also could support development of a possible mark-up disclosure rule for the benefit of retail investors in the municipal securities market.

MSRB rules “require dealers to engage in municipal securities transactions with customers at an aggregate price that is fair and reasonable,” the release said.

“To meet this standard, the aggregate price must bear a reasonable relationship to the ‘prevailing market price’ of the security, and, as part of the aggregate price, the dealer’s compensation – in the form of a ‘mark-up’ or ‘mark-down’ – must also be fair and reasonable.”

The board said its reevaluation of what factors dealers should consider in setting the market price of a municipal security seeks to promote consistent compliance with existing fair-pricing obligations.

“The MSRB also believes that additional guidance on prevailing market price may be necessary for its development of a possible new requirement that municipal securities dealers disclose on customer confirmations the amount of the mark-up or mark-down in certain transactions with retail investors,” the release said.

Public comments are due March 31.

The MSRB is an Alexandria, Va.-based organization whose mission is to protect investors, municipal entities and the public interest by promoting a fair and efficient municipal market, regulating firms that engage in municipal securities and advisory activities, and promoting market transparency.

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