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U.S. Municipal Securities Rulemaking Board warns on volatility, issues advisor rules

Aug 16 2011 Nick Paraskeva, for Compliance Complete recommended

Municipal debt advisors must not take advantage of retail clients in volatile markets following the rating downgrades of the U.S. government and of some municipal issuers, under guidance issued last week by the Municipal Securities Rulemaking Board. The MSRB reminded firms of their obligation to retail clients in the event of muni downgrades following S&P's action on US government issues. These include rules on fair practices, pricing, suitability and disclosure, with muni dealers being prohibited from using the market disruption to manipulate prices. The volatility does not impact the existing need to purchase bonds from a customer at fair and reasonable prices. If a client is taken advantage of, the MSRB stated that it will notify enforcement authorities and may recommend severe sanctions. Indication of unfair behavior would be a purchase at a low price, followed by quick resale at a much higher price. Firms are recommended to review such prices using a pricing model, and to make

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