WASHINGTON - The Municipal Securities Rulemaking Board should consider tightening its customer protection rules, the National Association of Bond Lawyers said in a letter yesterday.

Responding to a Sept. 4 request by the MSRB for comments on the adequacy of these rules, an association panel said the board should consider requiring a salesman to record at the time of sale that a recommendation to a particular customer is suitable.

But them group's securities law and disclosure committee warned that salesmen should not be required to spell out their rationale for recommending a particular bond.

The latter idea has been pushed repeatedly by Securities and Exchange Commissioner Richard Roberts. But Roberts has said he is open to less "intrusive" moves.

Moreover, the panel said the board may want to change its suitability rule to require bond firms to alert investors on confirmations that unrated bonds may be risky, according to a six-pabe letter signed by John Gardner, chairman of the bond lawyers association's committee on securities law and disclosure and a partner with Baliard Spahr Andrews & Ingersoll in Denver.

The panel also said it has "no fundamental objection" to the board dropping a controversial rule that permits brokers to sell bonds to investors whose backgrounds are unknown, says the letter, which was co-signed by Dean Pope, vice chairman of the association panel and a partner with Hunton & Williams in Richmond.

But it said such a move is, in reality, unnecessary, since current customer protection rules "prove flexible and effective tools for attacking improper behavior."

In fact, said the NABL panel, "the overwhelming majority of complaints regarding the marketing of municipal securities allege conduct that violates existing rules rather than requires amendments or additions to those rules."

"This strongly suggests that the limited resources of the board shold be directed toward encouragement of increased enforcement rather than promulgation of new rules."

The letter comes only a month after Roberts bitterly attacked bond lawyers for not pushing issuers to undertake more reforms in secondary market disclosure.

"While I too wear tasseled loafers, it often seems to me that lawyers are against everything and for nothing," he said in a speech before the Oct. 22 Bond Buyer Municipal Finance Conference in New York City.

Gardner and Pope warned that requiring brokers to document their reasons for recommending certain bonds is "fraught with risk." Requiring brokers to come up with individual suitability statements that customers can understand but that the firm's lawyers can sign off on is a "daunting task," they added.

"The goal is for salesmen to concentrate on serving their customers rather than protecting themselves," they said in response to the board's Sept. 4 notice asking for comment on the adequacy of its three key customer protection rules.

Those rules include: Rude G-17, which requires brokers to deal fairly with customers and make appropriate disclosures; Rule G-19, which says brokers can sell only suitable securities to customers; and Rule G-30, which requires fair and reasonable pricing.

Comments on the notice, which includes 27 questions about the three rules, were due Dec. 1. However, the board has informally indicated it will continue to accept comments for the next few weeks.

The association's panel said it is "hardly surprising" that customer complaints tend to cluster around high-risk bonds, particularly those financing nursing homes and retirement centers that never achieve occupancy goals.

But the panel said there is "no evidence" that special rules are needed. "We are not aware of any case where either offering statements or sales practices have been identified as harmful but not in violation of current standards," the association said in its letter.

Gardner and Pope also warned that any broad "tainting" of unrated securities by special labelling may be misleading, may unfairly affect the marketability of all unrated issues, and may indirectly cause investors to ignore the risks of rated bonds.

They said if the MSRB finds that the public does not understand what risks can exist in some nonrated bonds, then the association committee would back a requirement that confirmations contain these words: "The security you have purchased has not, to our knowledge, received a rating from any national credit rating agency. Absence of a rating may involve special circumstances of which the purchaser should be aware."

The panel said it has no "fundamental objection" to the MSRB dropping the language in Rule G-19 that permits a broker-dealer to sell a bond if he or she has no reason to believe it is unsuitable. But it may not be meaningful since the rule already requires a broker-dealer to take positive steps, including learning about both the customer and the security being sold, the association said.

While it is not common, some firms already warn customers in writing on confirmations about higher-risk bonds. For instance, in an interview earlier this year. Mark Ringel, vice president for compliance at New Jersey-based J.B. Hanauer & Co.. said the firm has an array of warnings it places prominently on confirmations of purchase orders from investors.

Also, Frederick Stoever, president of Stoever. Glass & Co. in New York City, said the firm has had a policy for over 20 years of putting the words "Speculative Elements" in capital letters prominently on some confirmations.

Two brokerage firms have commented so far on the MSRB's customer protection notice. Edward D. Jones & Co. and Coastal Securities Ltd. said in letters to the board that they oppose requiring brokers to take additional steps to protect customers when bonds are sold. Such a move, they warned, could backfire and cut available credit to reputable small issuers.

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