MSRB might make underwriters give price, yield of bonds not reoffered

By Angela McDaniels

Tacoma, Wash., Jan. 30 - The Municipal Securities Rulemaking Board's board of directors will advance a proposal to prohibit underwriters from using the "not-reoffered" bond designation with third-party information vendors without accompanying price and yield information.

The topic was one of several touched on by the board at its quarterly meeting on Jan. 25 through 27 in Miami.

"Eliminating the ability for underwriters to mask price and yield by using the [not-reoffered] designation will provide full price discovery to the market and remove existing inconsistencies of information flow," MSRB said in a news release.

The board also agreed to seek approval from the Securities and Exchange Commission of a revised definition of "sophisticated municipal market professional." The board said the new definition will better reflect improvements in the availability of municipal market information and more closely harmonize the treatment of sophisticated municipal market professionals with recent changes to the Financial Industry Regulatory Authority's rules on suitability for institutional accounts.

Conflicts of interest

The board also continued to address the topic of potential conflicts of interest. The SEC is considering an MSRB rule proposal that would require muni underwriters to provide their issuer clients with clear disclosure of risks and conflicts of interest. The MSRB planned to submit comments to the SEC on Monday in response to concerns about the potential burdens of the proposal.

The board agreed to issue a concept proposal on whether to propose requiring public disclosure, through the MSRB's EMMA system, of financial incentives received or paid by underwriters or municipal advisers from or to any third party in connection with an underwriting or municipal advisory engagement with a municipal entity.

"There is clearly a need to address the potential for undue influence resulting from undisclosed payments from third-parties in connection with engagements with state and local governments," MSRB chair Alan Polsky said in the release. "Such influence has been cited in a series of bid-rigging cases across the country and as one of the potential causes of the hardships faced by Jefferson County, Alabama, and other governmental entities."

Document changes

Another issue the board addressed that affects the rights of bondholders is the process of changes to bond documents. The board said it is concerned that underwriters are providing bondholder consent to document changes, such as elimination of a reserve fund or change in priority of debt service, in cases that could adversely affect existing bondholders.

The board agreed to publish a proposal to identify particular circumstances in which underwriters would be prohibited from consenting to amendments because of the potential impact on existing bondholders.

Retail issues

At its meeting, the board agreed to publish a rule proposal that would increase requirements on underwriters related to the distribution of new bonds to retail investors. The MSRB believes "additional requirements to ensure that underwriters honor issuers' intentions with respect to so-called retail order periods will help provide fairer pricing for retail investors."

In another retail investor initiative, the board agreed to seek approval from the SEC to establish new regulations covering the activities of broker's brokers and dealers that use them. The new MSRB rules would establish guidelines for broker's brokers to satisfy their duty to make a reasonable effort to obtain a fair and reasonable price for municipal securities.

Other issues

The board agreed to publish a notice encouraging issuers to voluntarily disclose the salient terms of their bank loans to the EMMA system, which the board agreed to modify to better categorize these disclosures.

The board agreed to publish a concept release to collect additional public input on details related to broadening public access to 529 plan disclosure documents. The concept release will precede formal rule proposals or information system changes.

At the meeting, the board also approved a long-range plan to guide the evolution of the MSRB's market transparency products. The MSRB will release details of the plan in February.

"This plan establishes a long-range vision for EMMA and all the systems that support it. The plan will provide clear direction for the MSRB's initiative roadmap for system enhancements over the coming years," Polsky said in the release.

The board of directors will meet next on April 25 through 27 in Alexandria, Va.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.