[ by Howard Haykin ]

The MSRB proposes new criteria for determining suitability of recommendations to customers.  The changes to MSRB Rule G-19 would add additional considerations for analyzing the suitability of a recommendation and make explicit the requirement that recommendations of investment strategies must also be suitable for the customer.  

The proposal is part of a comprehensive review of MSRB rules and related interpretive guidance and, where appropriate, more closely align the regulator's rules with those of other regulators - in particular, FINRA.  As with FINRA’s rule, the MSRB proposed revisions make clear the specific factors that dealers must consider when recommending a transaction or investment strategy.  It also would entail adopting FINRA’s broad definition of investment strategies, and include recommendations to hold securities.  Finally, the MSRB proposal also would incorporate elements of its current interpretive guidance on suitability into Rule G-19. 

According to MSRB Executive Director Lynnette Kelly:

"These changes would help ensure investors are presented with municipal securities recommendations that are appropriate based on their investment profile. The proposed revisions are also part of an ongoing effort to promote regulatory efficiency by identifying opportunities to streamline or consolidate MSRB rules and related guidance, as well as to ensure that the rules continue to reflect current market practices and conditions.”

Ms. Kelly added, "the revisions are also consistent with the recommendations of a July 2012 report from the SEC on the municipal securities market."

Comment Period Ends 5/6/13.   The MSRB is requesting comment from the industry and other interested parties on the proposed revisions to Rules G-19 and G-8 set forth in it Regulatory Notice. should be submitted on or before May 6th.  In addition to the substance of the proposed revisions, the MSRB requests that commenters address the following questions:

• Is the proposal to harmonize the MSRB’s suitability rule with FINRA’s suitability rule an appropriate policy decision?

• Are their unique attributes of the municipal securities market that would justify differences in the MSRB’s suitability rule?  If so, please identity the particular attributes and regulatory alternatives for addressing such issues.  Where possible, provide supporting data or examples.

• Does harmonizing the MSRB’s suitability rule with FINRA’s suitability rule provide any benefits to investors or dealers?  If so, please provide detail regarding the benefits and to the extent possible, provide supporting data.

• Does harmonizing the rules impose any particular costs or burdens on investors or dealers?  If so, please provide detail regarding the costs or burdens and to the extent possible, provide supporting data.

• Does any of the existing interpretive guidance proposed to be retained conflict with the revisions to Rule G-19? Conversely, is any of the guidance proposed to be rescinded necessary in that it is not fairly implied from the revised Rule G-19?   Please be specific in identifying any conflicts or omissions.

MSRB Staff Contacts.   Direct questions about this notice to:  Lawrence Sandor, Deputy General Counsel, or Darlene Brown, Ass't General Counsel, at 703-797-6600.

 

For further details, including information on how the revisions pertain to institutional and discretionary accounts, go to:   [ MSRB Press Release, 3/11/13 ]    and     [ MSRB RegNote 13-07, 3/11/13 ].