Alert October 02, 2012

MSRB Announces Modification to Improve Price Transparency for "Not Reoffered" Municipal Securities

The municipal securities market is critical to the nation’s infrastructure. As of December 31, 2011, there were over one million different municipal bonds outstanding, in the total aggregate principal amount of more than $3.7 trillion.[1] Notwithstanding the size and importance of the municipal securities market, historically the municipal bond market has not been subject to the same level of regulation as other sectors of the U.S. capital markets.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), regulation and oversight of the municipal securities market is increasing. Dodd-Frank contained several provisions affecting the municipal securities market, including a requirement for the U.S. Comptroller General to conduct a study examining, among other things, municipal disclosure requirements. The Dodd-Frank Act also called for the creation of a stand-alone office that reports directly to chairman of the SEC, administers SEC rules and coordinates with the Municipal Securities Rulemaking Board (“MSRB”). On August 2, 2012, the SEC announced that John J. Cross III was named the director of the SEC’s new Office of Municipal Securities.

The Report on the Municipal Securities Market by the SEC was issued on July 31, 2012 (the “SEC Muni Report”). Much of it focuses on the need for additional disclosures and price transparency in the municipal securities market. According to the report, the secondary market for municipal securities is “opaque” and “not broadly accessible by the public.” To enhance disclosure and price transparency, the SEC Muni Report recommends, among other things, that the SEC to “continue to work with the MSRB to strengthen its rules and further enhance EMMA.”  (EMMA is the Electronic Municipal Market Access website). The MSRB has taken two steps in the past several weeks to act on these recommendations.

  • On September 12, 2012, the MSRB announced that it enhanced the market statistics available on EMMA to include monthly data on new issuance of municipal securities as reported to the MSRB. The new data includes disclosure of the par amount issued, number of issues and average issue size. EMMA also includes summaries of municipal securities transactions for all published trades since May 15, 2006.
  • On September 24, 2012, the MSRB received approval from the SEC to limit the use by brokers, dealers and municipal securities dealers of the designation of “not reoffered” or “NRO” without also including price or yield information in written communications about new issues of municipal securities. The new limits on the use of the NRO designation is designed to improve the availability of current information about initial offering prices or yields of new issues of municipal securities. The limitation on the use of the NRO designation is an amendment to existing MSRB Rule G-34 and it becomes effective on November 1, 2012. MSRB Rule G-34 will apply to any written communication sent at or after the time an issuer accepts the terms of the new issue of municipal securities from an underwriter.

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Please visit Goodwin Procter’s municipal bankruptcy blog, MuniBK (, for additional news and developments regarding the municipal securities market.

[1] Report on the Municipal Securities Market, U.S. Securities Market, U.S. Securities and Exchange Commission, July 31, 2012.