New rules would give muni issuers more control over distribution

The Municipal Securities Rulemaking Board today proposed new rules aimed at ensuring that municipal bond underwriters honor issuers’ wishes to preserve retail investors’ access to new bond issues < http://www.msrb.org/msrb1/whatsnew/2009-47.asp>. If approved, the changes would give bond issuers more control over the distribution of their bonds in primary offerings and increase the number of investor orders that are filled, the Alexandria, Va.-based MSRB said in a statement. Underwriters would be required to follow priorities in MSRB rules and document instances in which securities are distributed in ways that is not consistent with the rules. Retail order periods, in which municipal bond issuers allocate bonds valued a certain amount to individual customers before opening up the sale to all investors, have become popular with issuers, the MSRB said. However, there is no standard definition of what constitutes a retail order, the MSRB said. The proposal would require underwriters to document issuers’ definition of a retail order and honor issuers’ wishes when it comes to retail customer orders. “These changes would establish a true standard for priority of customer orders and ensure that underwriters understand and honor issuers’ wishes when it comes to retail customer orders,” the MSRB’s executive director, Lynnette Kelly Hotchkiss, said in the statement. Dealers are generally obliged to fill orders for all customers before buying for their accounts, she said. “We want to ensure that they are doing so in order to preserve investors’ access to new issues.” The MSRB is accepting comments on the rule proposal until Sept. 11, and it will consider the measure at its October meeting. The rule changes would require approval of the Securities and Exchange Commission before becoming effective.