Yesterday, BDA sent a letter to the MSRB on the definition of Sophisticated Municipal Market Investor (SMMP) in MSRB Rule D-15. We supported a MSRB proposal to eliminate the need for SEC-registered Investment Advisers (IAs) to positively affirm their status as SMMPs and we opposed a proposal to raise the definitional threshold for state and local government SMMPs from $50 to $100 million and apply the test only to municipal securities.
BDA told the MSRB “We agree with the Board’s proposal to eliminate the requirement for SEC-registered IAs to provide an affirmation in order for a customer to be a SMMP and we believe this treatment should be applied to state-registered IAs as well.” We also told the Board “They [registered IAs] are professionals who bear a fiduciary duty to their customers and often have access to more market information than the dealers they trade with. The fact that they are RIAs by itself speaks to their sophistication.”
On the proposal to change the asset test for state and local government entities who may also be SMMPs, we told the MSRB “This would be an unnecessary change that would be difficult to administer and comply with and which would severely limit municipal entity choice.” We told the Board they have not made a strong case for this rule change, that the amendment would force nearly all state and local governments into retail municipal accounts, that the change would create further discrepancies between MSRB and FINRA rules, and that state and local officials who invest public money should be and generally are able to fully understand the investments they make.
BDA’s letter was in response to a MSRB Request for Comment on amending Rule D-15. Thanks to all who contributed to this project. BDA’s letter is available here.