MSRB Rule Changes: Series 51, 52, and 53

The MSRB has added two new rules effective July 9, 2014. They are Rule G-47 (Time of Trade Disclosure) and Rule G-48 (Transactions with Sophisticated Municipal Market Professionals). MSRB has also amended Rule G-3 (Classification of Principals and Representatives) and Rule G-19 (Suitability), effective September 30, 2014. These four changes coordinate MSRB rules with FINRA rules and remove regulatory redundancies. Continue reading

The MSRB has added two new rules effective July 9, 2014. They are Rule G-47 (Time of Trade Disclosure) and Rule G-48 (Transactions with Sophisticated Municipal Market Professionals). MSRB has also amended Rule G-3 (Classification of Principals and Representatives) and Rule G-19 (Suitability), effective September 30, 2014. These four changes coordinate MSRB rules with FINRA rules and remove regulatory redundancies.

MSRB Rule G-3.  MSRB narrows the definition of Limited Representative – Investment Company and Variable Contracts Products (Series 6). Under FINRA rules, a Series 6 license only allows individuals to be involved in the purchase and sale of funds and variable products. The new MSRB rule will now be consistent with the FINRA rules. Representatives who want to participate in broader activities, such as underwriting, research and investment advice must now take and pass the Municipal Securities Representative Qualification Examination (Series 52).

Amended Rule G-3 also eliminates the designation of Municipal Securities Financial and Operations Principal (FINOP). Since municipal securities dealers that require a FINOP are also FINRA members and since FINRA has similar FINOP requirements, Rule G-3 eliminates the redundancy by removing its separate FINOP designation.

MSRB Rule G-19.  MSRB’s amended suitability rule conforms to FINRA’s own recent changes to its rule. Specifically, the amended rule recognizes three components to a broker-dealer’s suitability obligations. First, a broker-dealer must understand the complexity and risks of a security or investment strategy and consciously decide its suitability for at least some investors. Second, it must reasonably believe that a recommendation is suitable for a particular customer based on the customer’s personal and investment profile. Third, when a broker-dealer has control over a customer account, it must reasonably believe that a series of recommended securities transactions are not excessive.

MSRB Rule G-47.  This new rule requires broker-dealers to disclose to its customers all material information about a transaction and the security at or prior to the time of trade. Information is considered “material” if a reasonable investor is likely to consider it important in making an investment decision. Disclosures must include a complete description of the security and any facts important to assessing the potential risks of the investment.

MSRB Rule G-48.  Rule G-48 exempts broker-dealers from any obligation to disclose material information to customers who are sophisticated municipal market professionals (SMMPSs). It also exempts broker-dealers from informing an SMMP that the price of a secondary market agency transaction is fair and reasonable, as long as the broker-dealer has not recommended the transaction or exercised discretion as to its execution. Finally, Rule G-48 exempts broker-dealers from the obligation to perform a customer-specific suitability analysis for an SMMP.

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