MSRB Rule D-15 Defining the Term Sophisticated Municipal Market Professional

Summary

SIFMA provided comments to the Municipal Securities Rulemaking Board (MSRB) on MSRB Notice 2025-082, and applauds the MSRB’s goal to modernize the rules while continuing to provide appropriate municipal entity and investor protections without placing undue compliance burdens on regulated entities.

Excerpt

SIFMA ¹ appreciates this opportunity to provide input on MSRB Notice 2025-08 ² , and applauds the MSRB’s goal to modernize the rules while continuing to provide appropriate municipal entity and investor protections without placing undue compliance burdens on regulated entities.

In furtherance of this goal:

• Qualifying municipal entities can determine whether to certify as an SMMP to take advantage of certain broker-dealer trading services and are not required to do so.
• MSRB should reject the proposed new threshold for SMMP qualification for municipal
  entity customers.
• MSRB should approve the removal of the customer affirmation requirement to qualify for SMMP status for all Registered Investment Advisers (“RIAs”).

I. Qualifying Municipal Entities Can Determine Whether to Certify as an SMMP to Take Advantage of Certain Broker-Dealer Trading Services and Are Not Required to Do So

Currently, all qualifying municipal entities have a choice whether to be treated as an SMMP. SMMP status may have benefits for the municipal marketplace (i.e., additional liquidity) and for the municipal entity investor’s activities as part of that marketplace. SMMPs may have access to securities a broker-dealer may not offer to their less sophisticated investors and potentially lower trading costs associated with larger institutional-sized transactions provided from a broker-dealer’s institutional trading desk.

As noted, there is no regulatory requirement for a municipal entity to sign an SMMP certificate in order to trade municipal securities with a broker-dealer. However, should a municipal entity that qualifies as an SMMP under MSRB Rule D-15 choose to opt-in to SMMP status with a broker-dealer, it must affirmatively indicate that it:

(1) is exercising independent judgment in evaluating:
(A) the recommendations of the dealer;
(B) the quality of execution of the customer’s transactions by the dealer; and
(C) the transaction price for non-recommended secondary market agency transactions as to which (i) the dealer’s services have been explicitly limited to providing anonymity, communication, order matching and/or clearance functions and (ii) the dealer does not exercise discretion as to how or when the transactions are executed; and
(2) has timely access to material information that is available publicly through established industry sources as defined in Rule G-47(b)(i) and (ii).

Rule D-15(d) further requires broker-dealers to have a reasonable basis to believe that the
municipal entity investor is capable of evaluating investment risks and market value
independently, both in general and with regard to particular transactions and investment
strategies in municipal securities.

Importantly, a municipal entity representative should not sign an SMMP certificate if they do not clearly understand or are uncomfortable with the certifications therein or implications of that status. Municipal entities may also contact their broker-dealer and withdraw their SMMP status at any time.

SIFMA members believe that any potential or seemingly isolated issues related to compliance with MSRB Rule D-15 should be addressed through routine examination and enforcement, not with a wholesale rule change impacting the industry broadly.