MSRB seeks comment on draft rule about broker's brokers, three others

By Susanna Moon

Chicago, Feb. 24 - The Municipal Securities Rulemaking Board said it is requesting comment on draft Rule G-43 on broker's brokers, as well as associated draft amendments to Rule G-8 on books and records, G-9 on records preservation and G-18 on execution of transactions.

The board said additional guidance and rules were needed regarding the activities of broker's brokers because of rule violations brought to light by the Securities and Exchange Commission as well as Financial Industry Regulatory Authority.

Comments should be submitted by April 21. They may be sent to CommentLetters@msrb.org with the notice number in the subject line of the e-mail. Comments by regular mail may be sent to Ronald W. Smith, corporate secretary, MSRB, 1900 Duke St., Alexandria, VA 22314.

Written comments will be available for public inspection on the MSRB's website.

Questions about this notice may be directed to Peg Henry, deputy general counsel, at 703-797-6600.

Draft rule on broker's brokers

The board laid out a summary of the draft Rule G-43 on broker's brokers as follows:

• Draft Rule G-43(a) sets forth the basic duties of a broker's broker;

• Draft Rule G-43(a)(i) incorporates the same basic duty found in Rule G-18 regarding fair and reasonable dealing;

• Draft Rule G-43(a)(ii) provides that a broker's broker must not take any action that works against the client's interest to receive advantageous pricing;

• Draft Rule G-43(a)(iii) notes that the potential seller is presumed to be the client of the broker's broker in a bid-wanted unless both the potential seller and the potential buyers (bidders) agree in writing to dual representation;

• Draft Rule G-43(a)(iv) requires disclosure to clients if the highest bid received in a bid-wanted or offering does not represent a fair and reasonable price in relation to prevailing market conditions;

• Draft Rule G-43(b) and (c) concern bid-wanteds, not offerings;

• Draft Rule G-43(b) provides that a bid-wanted conducted in a manner that satisfies the requirements of draft Rule G-43(c) will generally satisfy the obligation of a broker's broker under draft Rule G-43(a)(i);

• Draft Rule G-43(c) provides rules for the conduct of a bid-wanted; and

• Draft Rule G-43(d) provides for the adoption and following of policies and procedures for a fair process consistent with the role of the broker's broker as an intermediary between two dealers.

Amendments to three rules

The draft amendments to Rule G-8 and Rule G-9 would make it express that broker's brokers must retain records of all bids received for three years, whether amended or withdrawn, together with the time of receipt.

Upon adoption of draft Rule G-43, the draft amendments to Rule G-18 would remove the sentence concerning broker's brokers from Rule G-18, because the same language is included in draft Rule G-43(a)(i).

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