Finra conducts sweeps to examine retail sales practices in muni market

By Angela McDaniels

Tacoma, Wash., June 30 - The Financial Industry Regulatory Authority has launched an initiative to survey retail sales practices in the municipal securities market, according to a Finra news release.

Finra investigators are conducting three sweeps to gather information. One broad sweep is looking at industry sales and supervisory practices with respect to sales of municipal bonds to retail investors.

Firms are being asked to provide Finra with data on retail municipal bond transactions during the first quarter of 2009, including sales data, marketing data, pricing data and procedures, disclosure practices, customer complaints and supervisory procedures and practices.

A second, more targeted sweep is examining potential conflicts, disclosure practices and marketing by firms underwriting municipal securities involving swaps and derivatives for small municipalities.

The authority said a third, narrowly targeted sweep is seeking information from firms that engaged in retail sales of some so-called municipal Gas Bonds that were underwritten and guaranteed by Lehman Brothers and quickly became distressed.

Regulatory notice

Also as part of its municipal bond initiative, Finra said it issued a regulatory notice to securities firms and brokers reminding them of their obligation to disclose material information to customers - including changes in the financial condition of the issuing municipality - as well as their obligations regarding suitability of recommendations to customers and supervision of the firm's municipal securities activities.

At the same time, the authority issued an investor alert called "Municipal Bonds - Staying on the Safe Side of the Street in Rough Times" and an online municipal bond check list.

The investor alert, issued in partnership with the Municipal Securities Rulemaking Board, also informs investors that brokerage firms and banks that sell municipal bonds are required to have procedures to obtain annual financial and operating data from issuers.

Finra noted that beginning Wednesday, all ongoing municipal bond disclosures will be available for free through MSRB's Electronic Municipal Market Access web site at www.emma.msrb.org.

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