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Feb. 12, 2002 – The Securities and Exchange Commission this week published comment notices for two Municipal Securities Rulemaking Board notices on the responsibilities of dealers to municipal securities customers. The notice published today proposes an interpretation of dealers’ affirmative disclosure obligations. Release No. 34-45361 (Jan. 30, 2002).
In general, a dealer is required to disclose, at or before the sale of a muni to a customer, all material facts concerning the transaction, including a complete description of the security; the obligation applies even when a dealer is acting as an order taker and effecting non-recommended secondary market transactions. The proposed interpretation would clarify that the dealer’s responsibility is to disclose (i) all material facts about a transaction known by the dealer and (ii) material facts about a security when such facts are reasonably accessible to the market. If the dealer does make a recommendation, then it must have a reasonable basis for doing so; if this “reasonable basis” suitability cannot be obtained from the established industry sources, then further review may be necessary before making a recommendation. Comments on the proposed interpretation are due by March 5, 2002.
The notice published yesterday proposed an interpretation of dealers’ responsibilities to sophisticated municipal market professionals (“SMMPs”). Release No. 34-45364 (Jan. 30, 2002). In general, an SMMP would be an entity that has total assets of at least $100 million invested in munis in the aggregate in its portfolio and/or under management and that is sophisticated regarding investments in munis. Once a dealer determines that a customer is an SMMP, then certain of the dealer’s fair practice obligations, including much of the affirmative disclosure obligations discussed above, would be deemed fulfilled. Comments on the proposed interpretation are due by March 4, 2002.
The SEC notices may be downloaded from the Federal Register web site, which is at http://www.access.gpo.gov/su_docs/aces/aces140.html
Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, http://www.egroups.com/group/fundlaw. To subscribe to FundLaw, send a blank e-mail to email@example.com
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
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