MSRB reminds Build America Bonds dealers to note customer confirmation yield disclosure rules

By Jennifer Chiou

New York, Aug. 26 - The Municipal Securities Rulemaking Board published a reminder that for transactions effected on the basis of "yield to average life," dealers must ensure that the confirmation displays that yield as well as the yield computed to the lower of an in-whole call or maturity.

The MSRB noted that it understands that many Build America Bonds contain certain redemption provisions, such as mandatory pro rata sinking funds, and that dealers frequently effect transactions on a basis of "yield to average life."

On April 24, the board published a notice clarifying that Build America Bonds and other tax credit bonds are municipal securities and, therefore, subject to MSRB rules.

According to an MSRB release, Rule G-15(a)(i)(A)(5) states requirements for dealers to calculate and display yields and dollar prices on customer confirmations. For transactions effected on the basis of yield to maturity, call or put date, the yield at which the transaction was effected as well as a dollar price computed to the lower of an in-whole call or maturity are required to be shown on a confirmation.

Similarly, for transactions effected on the basis of a dollar price, the dollar price at which the transaction was effected along with a yield computed to the lower of an in-whole call or maturity are required to be shown on a confirmation, the release noted.

The MSRB added that sinking funds do not represent in-whole call features. Accordingly, the confirmation requirements do not require dealers to compute yield or dollar price to a sinking fund call date or to compute a "yield to average life" using multiple sinking fund dates.

However, dealers should note that if the computed yield otherwise required by the above-mentioned rule is different than the yield at which the transaction was effected, the rule provides that both the computed yield and the yield at which the transaction was effected must be shown on the confirmation.

Questions may be directed to Justin R. Pica, director, uniform practice policy (703 797-6716) or Margaret C. Henry, associate general counsel (703 797-6625).

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