Exam Alert: MSRB establishes regulation of broker’s brokers and related dealers

Effective December 22, 2012, the MSRB will implement a new rule that imposes fairness obligations on both broker’s brokers and the dealers who interact with them. The MSRB will also put in effect related amendments and interpretive guidance. Continue reading

Effective December 22, 2012, the MSRB will implement a new rule that imposes fairness obligations on both broker’s brokers and the dealers who interact with them.  The MSRB will also put in effect related amendments and interpretive guidance.  For broker’s brokers:

-The new rule requires broker’s brokers to make a reasonable attempt to buy securities at a fair price and that requires them to sell securities at a fair price.

-The rule puts in place safeguards regarding the use of a “bid-wanted,” which is where a broker’s broker seeks out bids for a bond that a dealer wishes to sell.

-The new rule also requires broker’s brokers to establish and publicly disclose policies designed to ensure that the broker maintains their place as a market intermediary.

-Amendments to existing rules impose additional recordkeeping requirements.

 

For dealers who interact with broker’s brokers:

-The rule prohibits dealers from making “throw-away” bids (bids below the fair market value of a security) on a bid-wanted in order to shut other dealers out of the market.

-An interpretive guidance warns dealers who use broker’s brokers that the dealer retains the responsibility to ensure a fair price for their customers, and that they cannot rely on a bid-wanted to produce a fair price.

-The guidance advises against “screening” out other dealers when selling securities through a broker’s broker, unless the dealer has a legitimate reason to do so (one that is not anti-competitive).

-The guidance adds that a dealer should not assume that a customer values fast trade execution over getting a better price.

 

Source: MSRB Receives SEC Approval to Implement Measures to Strengthen Regulation of Broker’s Brokers

This alert applies to the Series 7.

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