The ability for sophisticated municipal market professionals (SMMPs) to have full access to electronic platforms without an intermediating dealer to perform fair practice obligations will spur the on-line trading of municipal securities, The Bond Market Association emphasized in a letter to the Securities and Exchange Commission (SEC).
The Association’s letter was sent in response to a filing by the Municipal Securities Rulemaking Board (MSRB) to the SEC regarding proposed amendments to various MSRB rules governing transactions with SMMPs.
The MSRB’s filing explained that by making a reasonable determination that an institutional customer is an SMMP, certain of the dealer’s fair practice obligations, including rule G-17’s affirmative disclosure obligations, rule G-18’s duty to ensure that agency transactions are effected at fair and reasonable prices, and rule G-19’s suitability obligations, remain applicable but are deemed fulfilled.
Trading platforms will be able to simplify their regulatory obligations, cut costs and improve their ability to compete by limiting access to SMMPs, the Association’s letter noted.
However, trading efficiencies and technologies developed through these platforms will accrue, most probably, to retail investors. By initially limiting SMMP access to trading platforms, the Association noted that all classes of investors will benefit by improved liquidity and transparency throughout the municipal market.
“From the Securities Act of 1933 to the Gramm-Leach-Bliley Act of 1999, Congress has afforded separate regulatory treatment to securities transactions with certain defined categories of sophisticated investors,” the Association’s letter explained. “The SMMP designation of highly sophisticated municipal securities investors is entirely consistent with this legislative approach.”
The Bond Market Association represents securities firms and banks that underwrite, trade and sell debt securities both domestically and internationally.