MSRB Proposes Amendments and Interpretative Guidance for Retail Order Provisions

March 15, 2012

On March 6, 2012, the Municipal Securities Rulemaking Board (“MSRB”) issued a Request For Comment On Proposed Rule Amendments And Interpretive Notice On Retail Order Provisions (“Proposal”). The new MSRB rule would require that every syndicate participant in an offering with a retail distribution component conform to the issuer’s definition of who constitutes a retail investor, and would require a retail order period of adequate length to facilitate the participation of retail investors. In addition, the MSRB proposes to issue an interpretive notice (“Notice”) regarding the application of MSRB Rules G-17 (Conduct of Municipal Securities and Municipal Advisory Activities) and G-30 (Prices and Commissions) to retail order periods. Comments on the Proposal and Notice are due to the MSRB by April 13, 2012.

The Proposal

MSRB Rule G-11 was drafted to address issues of concern related to underwriting syndicates purchasing municipal bonds from issuers. The rule addresses the priority of allocations in an offering, information that must be provided by the syndicate manager to members in the syndicate, the designation and allocation of securities, and certain other issues.

The Proposal would add certain definitions to the rule, including a definition for “retail order period.” Specifically, the Proposal would define “retail order period” as “an order period during which orders will be solicited solely from customers that meet the issuer’s definition of ‘retail.’” This proposed definition would confirm that it is the issuer who decides what is deemed “retail” for purposes of a municipal bond offering.  The Proposal further addresses communications relating to issuer syndicate requirements and would require the senior syndicate manager to furnish, in writing, to the syndicate group and the selling group a written statement of the issuer’s terms and conditions, including any retail order period requirements.

Previously, G-11 did not require retail order period representations to be furnished in writing to the syndicate or selling group. The Proposal, however, would require, under new section G-11(k), that each broker, dealer or municipal securities dealer submitting an order during the retail order period to provide in writing — at the end of the retail order period, but no later than the Time of Formal Award — the following information related to the orders submitted during the retail order period:

  • Whether the order meets the issuer’s definition of “retail;”
  • Whether the order is a “going away” order;
  • Whether the dealer received more than one order from a single customer for a security for which the same CUSIP has been assigned;
  • Identifying information for natural person customers as required by the issuer in connection to the retail order (not to include names or social security numbers);
  • The par amount of the order; and
  • For orders from a trust department, an investment adviser or a firm representing customers with separately managed accounts, the par amount and identifying information required by the issuer in connection with the retail order.

The Proposal would amend Rule G-8 to require the senior syndicate manager to maintain records that include, among other things, all orders received from the syndicate and the selling group, as well as all information required under proposed Rule G-11(k).

Finally, the Proposal would amend Rule G-32 to require the underwriter in any primary offering of municipal securities for which information is required to be submitted to EMMA to include, in a timely and accurate manner, whether there was a retail order period as part of the primary offering, and information regarding whether a retail order period was conducted and the dates on which it was conducted.

Interpretive Notice

Issuer Terms and Conditions for Retail Order Period

In addition to the proposed rule amendments, the MSRB is proposing the issuance of the Notice regarding the application of MSRB Rules G-17 (Conduct of Municipal Securities and Municipal Advisory Activities) and G-30 (Prices and Commissions) to retail order periods. The Notice would set forth the obligations of all dealers placing orders in retail order periods and would require such dealers to deal “fairly with all persons” and without “any deceptive, dishonest or unfair practice.” The Notice also would reiterate prior guidance indicating that underwriters may not “disregard an issuer’s definition of ‘retail’ or any other terms and conditions imposed by an issuer regarding ‘retail’ orders or retail order periods.”1  According to the Notice, issuers may “reasonably expect” that dealers will deal fairly with them and abide by the issuers’ terms and conditions — including the issuers’ definitions of “retail” — applicable to the retail order periods. A dealer would violate Rule G-17 if he or she placed an order during the retail period and knew the order did not meet the particular issuer’s terms and conditions for that order period.

Misrepresentations Regarding “Retail” Orders

The Notice further would address a dealer’s obligation to deal fairly with all persons, including other dealers during the retail order period. The Notice references the proposed requirements under Rule G-11(k) regarding information to be provided by dealers submitting orders during the retail order period. By providing the information required in Rule G-11(k), a dealer is deemed to be making a representation to the senior syndicate manager with respect to the information provided. If it is not accurate, the dealer could be deemed in violation of Rule G-17.

Notice of Retail Order Periods

The Notice would clarify the need for all members of a selling group to receive adequate and timely notice of retail order periods from syndicate managers. Without adequate and timely notice, dealers may be unable to place orders during the retail order period. The Notice refers to the proposed amendment to Rule G-11(f) which would require notice to, not only the syndicate members, but members of the selling group, of the issuer’s terms and conditions. A syndicate manager must provide this information no later than the beginning of the retail order period. Withholding this information in an effort to advantage themselves or their clients, or disadvantage other dealers or their clients, also may be considered a violation of Rule G-17.

Retail Order Pricing Period

The Notice would remind dealers that there is an implied representation in the duty of fair dealing under Rule G-17, that the price paid to an issuer by the underwriter in an offering is fair and reasonable. The Notice reminds underwriters of their obligation to “balance the competing interests of issuers and customers when pricing a new issue,” particularly when the new issue will be priced for sale to retail investors.

The Notice strongly reinforces the MSRB’s belief that dealers, pursuant to their duty of fair dealing pursuant to Rule G-17, must adhere to the issuer’s instructions for retail order periods. This includes making a bona fide public offering of securities to retail investors at their initial offing prices if so directed by the issuer. Such an instruction can benefit retail investors given the method by which dealers are compensated in such an arrangement (e.g., a negotiated takedown paid by the issuer, versus a mark up paid by the investing customer).


The MSRB is seeking to provide more defined rules and guidance regarding the retail order period. Specifically, MSRB seeks to ensure that, if there is a retail period in a municipal offering, that all of the dealers in the syndicate, and their retail sales forces, have adequate and timely notice thereof and that appropriate disclosures are made and records are maintained. The Proposal and Notice require adherence to the issuers’ expectations with respect to retail participation and enhance the dealers’ obligations related to the retail offering period. 

Municipal securities dealers should consider the Proposal and Notice in light of their existing business to determine the impact thereon. It may be difficult to provide compelling reasons as to why the proposed requirements and guidance should not be approved, particularly for tax-exempt bonds. However, to the extent dealers have suggestions as to how the Proposal and/or Notice could be better structured or have thoughts regarding further defined parameters of certain components of the Proposal, they should consider submitting comments for MSRB consideration.


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1 See Interpretation on Priority of Orders for Securities in a Primary Offering under Rule G-17 (Oct. 12, 2010).

This article was originally published by Bingham McCutchen LLP.