MSRB Rule G-17 prohibits fraudulent conduct. Under the rule, broker-dealers and municipal securities dealers and advisors (collectively “dealers”) must deal fairly with all persons and may not engage in deceptive, dishonest, or unfair practices.
A dealer has the obligation to disclose all material information known by the dealer concerning the security at the time of trade, as well as material information about the security that is reasonably accessible to the market from established industry sources.
This requirement is relaxed for sophisticated municipal market professionals (SMMPs). SMMPs are defined as institutional customers that:
• The dealer has a reasonable basis to believe are capable of evaluating investment risks and market value independently (When making this judgment, the dealer should consider the amount and type of municipal securities owned or under management by the institutional customer.)
• Affirm either orally or in writing that they can exercise independent judgments in evaluating recommendations of the dealer
For SMMPs, a dealer is not obligated to disclose material information that is publicly available from established industry sources. However, intentionally withholding a material fact that is not accessible through established sources from an SMMP remains an unfair practice.
