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October 02, 2023

Understanding Priority Orders of Municipal Bond Sales

In the world of municipal bonds, setting the order priority is a key move when distributing bonds in the primary market. It’s a decision in the hands of the issuing entity and it carries big weight, impacting bond allocation and compensation for the involved firms.

This plan is sketched out in the marketing blueprint, often developed alongside the issuer’s municipal advisor and underwriters, pinpointing goals like engaging retail investors and backing underrepresented businesses to shape the bond issuance.

The priority of orders brings transparency to the table, making sure everyone is on the same page about how bond orders will be handled. It’s a major factor in determining underwriter and dealer compensation since it outlines how they’ll be rewarded for different types of orders. Issuers have room to customize the order priority, with four main types: retail orders, group net orders, net designated orders, and member orders. The priority policy, closely linked to underwriter compensation, lays down the rules for net designated and retail orders, spelling out criteria and allocation percentages. It’s a tool that empowers issuers to recognize dealers in a way that matches their objectives and values. Effective communication and allocation procedures, following the order priority and priority policy, ensure a bond offering that meets specific goals while also fairly rewarding syndicate members and dealers.

To learn more about establishing priority of orders, please click on the following link recently published by the Municipal Securities Rulemaking Board.