MSRB Rule G-43

General Obligations

The firm’s obligations when acting as a broker’s broker include;

• Making a reasonable effort to obtain a price for the dealer that is fair and reasonable in relation to prevailing market conditions;
• Avoiding any action that works against that dealer’s interest to receive advantageous pricing
• Presumably acting for or on behalf of the seller in a bid-wanted for municipal securities, unless both the seller and bidders agree otherwise in writing in advance of the bid-wanted

Conducting Bid-Wanteds

In conducting a bid-wanted, LPS Capital will make a reasonable effort to disseminate a bid-wanted widely (including, but not limited to, the underwriter of the issue and prior known bidders on the issue) to obtain exposure to multiple dealers with possible interest in the block of securities. No fixed number of bids is required.

• For securities with wide interest, LPS Capital intends to use Munibrokers for the purpose of disseminating its bid-wanteds.
• For securities with limited interest, LPS Capital will make a reasonable effort to reach dealers which LPS Capital is aware have specific knowledge of the issue or which LPS Capital is aware has a known interest in securities of the type being offered.
• For these securities, LPS Capital may employ the services of Munibrokers and/or seek to reach appropriate dealers through its own efforts.
• LPS Capital will not limit the audience for a bid-wanted (for example though the use of screening or filtering) unless explicitly directed by the seller.
• Should LPS Capital be directed to limit the dissemination of a bid-wanted by the seller, it will document (in writing) such instructions and the reasons for limiting the dissemination of the bid-wanted.

LPS Capital will adopt predetermined parameters, which will be disclosed prominently on the Munibrokers website as a service provided by Munibrokers forits Municipal Securities brokers and traders, in advance of the bid-wanted in which they are used. LPS Capital will periodically test the predetermined parameters to determine whether they have identified most bids that did not represent the fair market value of municipal securities that were the subject of bid-wanteds to which the predetermined parameters were applied.

Each bid-wanted must have a deadline for the acceptance of bids, after which the firm will not accept any bids or accept any changes to bids. Such deadline will be either a “sharp” deadline or an “around time” deadline. For around time deadlines, LPS Capital will not accept bids or changes to bids after the earlier of:

• the time the seller directs LPS Capital to sell the securities to the current high bidder;
• the time the seller informs LPS Capital that the bonds will not be sold in that bid-wanted; or
• the end of the trading day as publicly posted by LPS Capital prior to the bid-wanted (which will be the same time as identified by Munibrokers).
• The deadline must be noted in the order record.

Communications During Bid-Wanteds

LPS Capital will observe the following restrictions on communications during the bid-wanted:

• Where the high bid received in a bid-wanted is above or below the predetermined parameters and LPS Capital believes the bid may have been submitted in error, LPS Capital may contact the bidder prior to the deadline for bids to determine whether its bid was submitted in error. LPS Capital is not required, in such instances, to obtain the consent of the seller to initiate contact with the bidder.
• Where the high bid is within the predetermined parameters but LPS Capital believes that the bid may have been submitted in error, LPS Capital may not contact the bidder to determine whether its bid was submitted in error without first receiving the oral orwritten permission of the seller.
  • Such seller’s permission will be obtained by LPS Capital on a transaction-by-transactions basis.
  • LPS’s request, and the seller’s response thereto, will be documented in writing.
• Where the high bid received in a bid-wanted is below the predetermined parameters, LPS Capital must disclose that fact to the seller
  • LPS Capital will document, in writing, the notice provided to the seller, the time such notice was provided to the seller, the name of the person at LPS Capital providing the notice to the seller, the name of the person on behalf of seller who receives such notice, and the seller’s acknowledgment that it has in fact received such notice.
  • LPS Capital will execute the transaction at that price only if directed by the seller, and only after receiving authorization from seller after seller has acknowledgement that the seller has received notice that the high bid is below the predetermined parameters.
  • LPS Capital will document in writing any such direction to sell at a price that is below the predetermined parameters, including the name of the person at the seller that directs LPS Capital to sell at that price, when the direction was received, and by whom the direction was received.
• If the winning high bidder’s bid or cover bid in a bid-wanted has been changed, LPS Capital will disclose the change to the seller prior to execution and provide the seller with the original and changed bids.
• LPS Capital will inform the seller of the highest bid in a bid-wanted or offering.

Disclosures

LPS Capital will disclose information to bidders and sellers regarding its broker’s broker activities, including the following:

• The nature of its undertaking for the seller and bidders in bid-wanteds and offerings
• The manner in which the Firm will conduct bid-wanteds and offerings
• The commission or other economically similar compensation schedules for transactions, with such schedules reflecting at a minimum the maximum charge that LPS Capital could impose on a given transaction.
• A description of the manner in which it will satisfy its obligation to obtain a fair and reasonable price in the case of offerings and bid-wanteds not conducted in accordance with the section “Conducting Bid-Wanteds”
• At least annually, provide notice to sellers and bidders with the access location where a copy of LPS’ broker’s broker policies and procedures

Transaction disclosures:

• Where LPS Capital allows customers (as defined in Rule D-9) or affiliates (as defined in Rule G-11(a)(x)) to place bids, it will disclose this to both sellers and bidders in writing and disclose to the seller if the high bid in a bid-wanted or offering is from a customer or an affiliate of LPS Capital (such disclosure will not, however, disclose the name of the customer or affiliate).

Munibrokers Website disclosures

Through the website provided by Munibrokers, LPS Capital shall disclose prominently to its customers:

• the predetermined parameters in advance of the bid-wanted in which they are used;
• LPS’broker’s broker procedures;
• LPS’end of trading day time.

Compensation

With respect to bid-wanteds and offerings of municipal bonds, LPS Capital will be compensated on the basis of a % of the spread or other economically similar basis.

Prohibitions

As a broker’s broker, LPS is prohibited from:-maintaining municipal securities in any proprietary or other accounts, other than for clearance and settlement purposes;

• self-dealing;
• encouraging bids that do not represent the fair market value of municipal securities that are the subject of a bid-wanted or offering;
• giving preferential information to bidders in bid-wanteds, including but not limited to, “last looks” directions to a specific bidder that should “review” its bid or that its bid is “sticking out”;
• changing a bid price or offer price without the bidder’s or seller’s respective permission;
• subject to the provisions of bid-wanted requirements, if applicable, and the prohibition in the above bullet, providing any person other than the seller (which may receive all bid prices) and the winning bidder (which may only receive notice that its bid is the winning bid) with information about bid prices, until the bid-wanted has been completed, unless the Firm makes such information available to all market participants on an equal basis at no cost, together with the disclosure that nay bids may not represent the fair market value of the securities, and discloses publicly that it will make such information public.

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