MSRB Rules Governing Municipal Securities

The Municipal Securities Rulemaking Board (MSRB) writes rules that govern how dealers conduct business in the municipal securities market. These rules establish standards for quotations, fair dealing, pricing, and reporting. The MSRB does not enforce its own rules; FINRA and the SEC handle enforcement.

MSRB Rule D-12 - Definition of Municipal Fund Securities

  • Defines 529 plans, Local Government Investment Pools (LGIPs), and ABLE accounts as municipal fund securities
  • Subject to specific MSRB rules on sales practices, advertising, and reporting
  • This classification brings these products under MSRB jurisdiction even though they are not traditional bonds

MSRB Rule G-13 - Quotations Related to Municipal Securities

  • Dealers must not publish or circulate fictitious quotations
  • Quotations must represent bona fide bids or offers (genuine intent to buy or sell at the stated price)
  • If a quotation is nominal (for informational purposes only), it must be clearly labeled as such

Key distinction:

  • Bona fide quote = real intention to trade at that price
  • Nominal quote = informational only, no obligation to trade; must be labeled

Exam Tip: Gotchas

  • An unlabeled quote is assumed to be bona fide. If a dealer publishes a quote without marking it "nominal," they are obligated to trade at that price.

MSRB Rule G-17 - Conduct of Municipal Securities Activities

  • Dealers must deal fairly with all persons and must not engage in any deceptive, dishonest, or unfair practice
  • In a negotiated underwriting, the underwriter has duties of fair dealing to the issuer, including:
    • Not misrepresenting or omitting material facts
    • An implied representation that the price paid to the issuer is fair and reasonable
    • Disclosure of all material risks, conflicts of interest, and the nature of the arm's-length relationship

Exam Tip: Gotchas

  • G-17 applies to ALL persons, not just customers. This includes issuers in negotiated underwritings. The underwriter must disclose conflicts of interest to the issuer.

MSRB Rule G-30 - Prices and Commissions

  • Dealers must execute transactions at prices that are fair and reasonable considering prevailing market conditions
  • Principal transactions: the markup or markdown from the prevailing market price must be fair and reasonable
  • Agency transactions: the commission charged must be fair and reasonable
  • Factors considered: prevailing market price, expense of executing the transaction, the value of services rendered, and the dealer's total compensation

Exam Tip: Gotchas

  • G-30 covers both principal and agency transactions. Principal trades use markups/markdowns; agency trades use commissions. Both must be fair and reasonable.

MSRB Rule G-45 - Reporting of Information on Municipal Fund Securities

  • Dealers that sell municipal fund securities (529s, LGIPs, ABLE accounts) must report transaction information to the MSRB
  • Ensures transparency in the municipal fund securities market

Think of it this way: Rule D-12 defines what counts as a municipal fund security. Rule G-45 requires dealers to report transactions in those same products. They work as a pair: D-12 draws the boundary, G-45 requires transparency within it.

Exam Tip: Gotchas

  • The MSRB writes rules but does NOT enforce them. FINRA and the SEC enforce MSRB rules. Violations result in sanctions and fines from those agencies, not from the MSRB itself.