Orlando, Fla. -- The Municipal Securities Rulemaking Board should proceed with caution if it decides to follow a suggestion that it beef up customer suitability requirements for municipal bond dealers, an MSRB member says.

"I think there may in fact be some serious ramifications" for municipal bond issuers if broker-dealers are forced to document how they reach their suitability determinations, said Richard M. Evans, the director of finance for Savannah, Ga.

Mr. Evans, who was speaking during the Government Finance Officers Association's annual conference here Saturday, was referring to a letter that William H. Heyman, the Securities and Exchange Commission's director of market regulation, sent to the MSRB in May. The letter suggests that the board "consider strengthening" the suitability requirements.

Those requirements, under MSRB Rule G-19, require that broker-dealers, before recommending transactions in municipal securities, research the customer's financial background to determine whether the transaction would be suitable. The dealer must have reasonable grounds for his suitability determination in light of the information he receives, or have no reasonable grounds to believe the transaction is unsuitable, if not all the needed information is known.

In his May 8 letter, Mr. Heyman noted that the requirements "do not specify the manner in which the suitability determination should be made, and they do not require that the determination be made in writing."

Mr. Evans said that as the tax-exempt bond market has become more complex, dealers have complained they are having more difficulty meeting the MSRB's suitability requirements.

If dealers are required to keep written records on their suitability determinations as Mr. Heyman suggested, they may in turn force more disclosure requirements on municipal governments and thus give dealers more information on which to base their determinations, Mr. Evans told the association's govermental debt and fiscal policy committee. Mr. Evans is a member of that committee, and is one of two MSRB board members who represent issuers.

"If you pile on this additional requirement ... you're going to tip the scales in favor of industry pushing for more burdensome, more intrusive requirements on the issuers," he said.

Mr. Evans suggested the association may want to recommend that the regulators "go slow in imposing any new record-keeping requirements on their suitability determination, particularly in view of the fact that in the last few years a lot of progress has been made in our voluntary system."

The development of the voluntary disclosure system "should be allowed to play out and continue on before we start complicating it with more suitability requirements that may in turn trigger a call for more intrusive and extensive disclosure," Mr. Evans said.

He added that the MSRB "hasn't really discussed the issue at great length." But Robert B. Inzer, the other MSRB member who represents issures, said it would "certainly" be a topic of discussion for the board at its July meeting. Mr. Inzer, who is treasurer of Tallahassee, Fla., and a member of the association's debt committee, said he did not know if a proposal would be offered then.

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