MSRB amends proposed rule eliminating broker's brokers' unfair pricing

By Toni Weeks

San Diego, May 3 - The Municipal Securities Rulemaking Board has filed a partial amendment with the Securities and Exchange Commission for Proposed Rule G-43, which strives to eliminate unfair pricing of municipal securities by broker's brokers.

The MSRB is proposing the revision to the original proposed rule change because the text of the rule might be read to prohibit new or changed bids from any bidders after another bidder had been informed of whether its bid was being used in a bid-wanted, which was not the MSRB's intent.

The amendment would clarify wording to specify that the rule would only prohibit a broker's broker from accepting such a bid from a bidder in a bid-wanted after the broker's broker had notified that same bidder whether its bid was the high bid in the same bid-wanted.

The amendment would also specify that a security will be considered to have traded through a broker's broker when it has been purchased by the broker's broker from the seller and sold to the bidder by the broker's broker, as an intermediary.

As previously reported, the MSRB's proposed rule includes policies and procedures that are intended to address the special role of the broker's broker as an intermediary between two dealers.

Broker's brokers would be required to disclose these policies and procedures to sellers and bidders in writing and to post them on its website.

Related amendments to existing MSRB rules would require broker's brokers to retain records for six years of all of the received bids for municipal securities.

The MSRB is requesting that the new rules become effective six months after approval by the SEC.

"Most retail investors are unaware of what broker's brokers are," MSRB executive director Lynnette Kelly said in a press release in March, when the original rule was proposed.

"But broker's brokers play a critical role in providing secondary market liquidity for retail investors by acting as intermediaries between selling and bidding dealers. Our proposed rules would ensure investors receive fair prices when buying and selling municipal securities."

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