In a move reminiscent of a full court press, FINRA and MSRB followed the SEC's Investor Alert Bulletin with their own publications and checklists targeted at the sales, due diligence and pricing obligations of municipal securities dealers.  In a coordinated effort, FINRA and the MSRB published a News Release and Regulatory Notice that, in particular, reminded dealers to obtain and disclose to their customers, at or before the time of trade, all material information about the bond that's either known to them or publicly available through established industry sources.  Dealers also must consider this information in assessing the suitability of a municipal security for their customer.

The regulators also reminded dealers that while credit ratings and ratings changes are generally material information about a municipal security, they are only one factor to be considered, and dealers should not solely rely on credit ratings as a substitute for their own assessment of a bond. 

FINRA has several ongoing sweeps involving municipal securities. While the results of the sweeps are still being evaluated, FINRA has concerns that firms may not completely understand their obligations with respect to the disclosure of material information to customers at the time of trade.

• Retail Municipal Securities Transactions (June 2009 Sweep).
• Municipal Underwriting and Municipal Derivative Instruments (May 2009 Sweep).  
  

Accompanying the News Release is a Checklist for Customer Disclosure that FINRA designed as a voluntary tool for dealers to use in connection with secondary market sales of municipal securities.  Among other things, material information about a bond will include its terms and features, ongoing disclosures, ratings and ratings changes, the existence of bond insurance or credit or liquidity enhancements, the bond's price and yield, interest payments, tax implications, call provisions and other material risks, including risk of default

For further details, including FINRA's recent muni sweeps and the Disclosure Checklist, click onto:

• [ FINRA News Release, 9/20 ]  
  
• [ FINRA RegNote 10-41, September ]
  
• [ MSRB Notice 10-37, 9/20 ]