South Florida Arbitration & Litigation Lawyer Blog
REVISED DEFINITION OF SOPHISTICATED MUNICIPAL MARKET PROFESSIONAL
June, 2012:
The Municipal Securities Rulemaking Board (MSRB) recently announced that it received approval from the Securities and Exchange Commission (SEC) to redefine those institutional investors capable of independently evaluating investment risks and market value of municipal securities, and exercising independent judgment in evaluating recommendations of a municipal securities dealer. The revised definition is effective July 9, 2012.
Please keep in mind that this information is being provided for educational purposes only. It is not desigtned to be complete in all material respects. Thus, it should not be relied upon as investment or legal advice. If you have any questions concerning this post, please contact a qualified professional.
The revised definition of so-called “sophisticated municipal market professional” (SMMP) exempts dealers from requirements to make certain disclosures to institutional customers that they must make to other investors, and certain pricing and suitability obligations of dealers to those customers are deemed satisfied. The new definition vastly simplifies the analysis required by dealers when determining whether their customers qualify as SMMPs. The change will also provide consistency with a new Financial Industry Regulatory Authority rule on suitability for institutional customers.
Since the MSRB issued its original definition of SMMP in 2002, information available about municipal bonds has increased substantially, including information provided through the MSRB’s Electronic Municipal Market Access (EMMA®) website and other information vendors. These sources have made the material facts about municipal bonds more readily available.
Under the revised definition, SMMP is defined as an institutional customer of a dealer that: (1) the dealer has a reasonable basis to believe is capable of evaluating investment risks and market value independently, both in general and with regard to particular transactions in municipal securities, and (2) affirmatively indicates that it is exercising independent judgment in evaluating the recommendations of the dealer. The revised definition also permits natural persons with at least $50 million of assets to be considered institutional customers and eliminates the previous $100 million minimum investment in municipal securities required to qualify as an institutional customer.