The MSRB provided guidance (the "Guidance") on the application of certain investor/customer protection rules to transactions for managed accounts in which a registered investment adviser ("RIA") exercises discretion to buy and sell municipal securities on behalf of the underlying account holder.

When dealing with Sophisticated Municipal Market Professionals ("SMMPs"), MSRB Rule G48 relieves dealers of (i) the "time-of-trade disclosure obligation" under MSRB Rule G-47 for information reasonably accessible to the market, (ii) the pricing obligations under MSRB Rule G-30 under certain circumstances, (iii) the customer-specific suitability obligation under MSRB Rule G-19, (iv) certain obligations with respect to the dissemination of quotations under MSRB Rule G-13, and (v) the best-execution obligation under Rule G-18.

According to the Guidance, when an independent investment adviser (including an RIA) purchases securities from one dealer and instructs that dealer to make delivery of the securities to other dealers where the investment adviser's clients have accounts (and the identities of individual account holders are not given to the delivering dealer), the investment adviser is the customer of the dealer. Therefore, if that RIA is an SMMP, to whom the dealers' obligations are modified under Rule G-48, then, for purposes of complying with the rules addressed in Rule G-48, the dealer should not be required to satisfy any greater or additional obligations with respect to the ultimate investor who holds that account.

The Guidance also specified, that even if the RIA is not considered the dealer's customer per the above analysis, the result is the same when an investor has granted an RIA full discretion to act on the investor's behalf for all transactions in an account (i.e., the RIA has effectively become that investor for purposes of the application of Rule G-48 when engaging in transactions with the dealer).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.