MSRB to follow Finra regarding suitability rules

Mar 17, 2013 @ 12:01 am

By Dan Jamieson

The Municipal Securities Rulemaking Board last Monday asked for comments on proposed changes to its suitability rule that would parallel expansive revisions that the Financial Industry Regulatory Authority Inc. made to its own suitability rules last July.

“Our goal is to align suitability jurisprudence as much as possible,” said MSRB general counsel Gary Goldsholle.

Notably, the MSRB wants to adopt Finra's broad definition of investment strategies, which includes recommendations to hold securities. Finra requires brokers to have a reasonable basis to think that a security or investment strategy is suitable.

Finra's requirement to track investment strategies has raised concerns in the securities industry about defining and following strategies that a registered representative may be using. Recommendations to hold an investment, for example, aren't recorded in any trade records.

Regarding the issue of tracking investment strategies, “that's a question we're asking [about]” in the request for comments, Mr. Goldsholle said.

“We have the benefit of Finra having already spent a lot of time and analysis on [the issue],” he said.

“We do ask if there is something peculiar with our market that requires differentiation” of suitability rules, Mr. Goldsholle said.

“We don't believe so initially, but [the MSRB's board] encouraged us to solicit comment to that effect,” he said.


“We like rule harmonization,” said Mike Nicholas, chief executive of Bond Dealers of America, a group of regional underwriters. “But it's important to remember that B-Ds have suitability rules in place already.”

The MSRB proposal “could fall into the category of a rule looking for a problem,” Mr. Nicholas said.

“We want to make sure there are real issues here, [and with] the potential new requirements covering investment strategies, we need to know what that means and how that will be enforced,” he said.

The MSRB wants comments on its proposal by May 6.

As with Finra's rule, the MSRB's proposed revisions add specific factors that dealers must consider when recommending a transaction or investment strategy, such as the investor's age, investment experience, time horizon, liquidity needs and risk tolerance.


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