UPDATE 1-US muni board looks into changing pricing system

(Adds industry reaction)

WASHINGTON, April 21 (BestGrowthStock) – The board overseeing much
of the U.S. municipal bond market is investigating whether
prices charged and paid by brokers and dealers are fair to
customers, according to a notice released on Wednesday.

The Municipal Securities Rulemaking Board (MSRB) may change
the system of deciding the prevailing market price of bonds,
which could affect broker and dealers’ “mark-downs” and
“mark-ups”, the statement said.

A mark-down is the difference between the prevailing market
price of a bond and the lower price a broker-dealer pays a
customer to buy it. A mark-up is the mirror opposite — the
difference between the market price and the higher price paid
by a customer to the broker-dealer.

According to the notice, mark-ups or mark-downs must “not
exceed a fair and reasonable amount,” and the total price a
customer pays must “be reasonably related to the market value
of the security.”

Liquidity in the U.S. municipal market can be thin at
times, a problem that has recently grown worse as many dealers
were made nervous by the credit crunch and have become
reluctant to stock inventory and make markets. That, in turn,
can put individuals who buy small lots at a disadvantage.

The board, which writes the rules for the market that the
Securities and Exchange Commission enforces, is not addressing
the size of the mark-ups and mark-downs, said an MSRB
spokeswoman.

Instead, it is seeking ways to standardize how the
prevailing market price is set.

The board would harmonize how the prevailing market prices
for municipal securities are determined with the method the
Financial Industry Regulatory Authority has created for
deciding the market prices of other debt securities, according
to the notice.

“The existing fair pricing rules for municipal securities
are well understood and flexible enough to accommodate rapidly
changing market condition,” said Leslie Norwood, co-head of the
municipal securities division at the Securities Industry and
Financial Markets Association.

SIFMA is concerned that the MSRB proposal “may have
implications on the willingness of firms to make markets and
hold inventory,” she said.

Right now, the MSRB is taking comments on the idea through
June 4.

For much of 2010 the board, a self-regulatory organization
made up mostly of bankers, has sought to offer more
protections to bond buyers, following SEC Chairwoman Mary
Schapiro’s pledge to treat investors in the municipal bond
market the same as those in the equities markets.

It has proposed that underwriters give priority to customer
orders over their own orders or related accounts and is
evaluating how to keep qualifying examinations for brokers and
dealers up to date.
Stock Market Advice

(Reporting by Lisa Lambert; Editing by Andrew Hay and Leslie
Adler)

UPDATE 1-US muni board looks into changing pricing system