BDA Submits Comment Letter to MSRB on Request for Comment on Proposal to Clarify Minimum Denomination Rule

BDA submitted a comment letter in response to MSRB's request for comment on draft MSRB Rule G-49 on minimum denominations.

BDA submitted a comment letter in response to MSRB’s request for comment on draft MSRB Rule G-49 on minimum denominations.

BDA Letter Summary: 
  • The letter states that the proposed MSRB Rule G-49 should be focused on issuances with ‘minimum authorized denominations’ of $100,000 and above
  • Additionally, the letter argues that dealers should have increased flexibility to sell a portion of a below minimum denomination position acquired from a customer in an inter-dealer transaction
Background:
As a result of industry feedback, including the BDA’s previous comment letter submitted in response to an April 2016 request for comment on amendments to MSRB Rule G-15(f) minimum denomination rules, the MSRB has published a new draft proposal which proposes a draft MSRB Rule G-49, which renumbers G-15(f) and also adds additional draft provisions.
Proposed Draft Rule G-49 Summary:
 
Elimination of Minimum Increments from April 2016 Draft Exceptions: 
  • The MSRB proposes to eliminate the draft requirement that a dealer’s sale to a customer must be consistent with the minimum increment amounts in the issuer’s authorizing documents. The MSRB states that it is eliminating these provisions due to concerns raised about how the provision would limit the transferability of securities.
Liquidation Statement Amendments:
  • The draft rule proposal would eliminate the existing requirement that a dealer, when purchasing a below minimum denomination position from another dealer, confirm by receiving a written liquidation statement that the selling dealer is liquidating the entire position of its customer.
  • However, the draft Rule G-49 would not change the existing rule that when a dealer is purchasing a below minimum denomination position from its own customer that the dealer confirms the entire customer position is being liquidated.
Limitations on Inter-Dealer Trades:
  • For the first time, the MSRB is proposing to prohibit a dealer, in an inter-dealer trade, from selling less than all of a below-minimum denomination position that the dealer acquired in a transaction with another dealer or with a customer that fully liquidated its below-minimum denomination position.
We hope this information is valuable.  Please do not hesitate to contact the BDA with questions or comments.  Thank you.
Jessica Giroux at jgiroux@bdamerica.org
John Vahey at jvahey@bdamerica.org
Justin Underwood at junderwood@bdamerica.org
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