To assist industry market participants in complying with the new U.S. Treasury Department issue price rules for municipal securities, SIFMA released draft municipal security issue price model documents this week.
The new price rules for municipal securities will become effective on June 7, 2017. The rules were put in place to curb abuses by dealers who flip bonds –sell them to another dealer, who then sold them again at higher prices before the bonds were eventually sold to retail investors. Regulators were concerned that these flipped securities were not representative of the original prices of the bonds.
As the price at which the first 10 percent of a maturity of bonds is actually sold to the public, the new price rules seek to establish the issue price. If 10 percent of a maturity is not sold, a special rule can be used under which the issue price is the initial offering price.
“The issue price model documents will help reduce legal costs and regulatory risk while increasing legal certainty,” Leslie Norwood, managing director, associate general counsel and co-head of SIFMA’s Municipal Securities Division, said. “They are designed to make it easier for our members to assist their issuer clients in complying with the issue price rules and in understanding the expectations of market participants while promoting transparency of sales terms for both issuers and underwriters.”
The draft model documents include model riders to the Master Agreement Among Underwriters, Master Selling Group Agreement, Retail Distribution Agreement, Model Bond Purchase Agreement and the Notice of Sale.
SIFMA is accepting comments on the model documents until April 12. The documents will then be finalized, issued to SIFMA members and posted on SIFMA’s website for industry use.