How should a dealer handle pricing conventions in the secondary muni market?

• A. Pricing should be transparent, consistent, and disclose any special factors affecting price.
• B. Pricing should be opaque to protect confidential data.
• C. Pricing should be based solely on issuer credit rating.
• D. Pricing should be determined by internal models not disclosed.

Answer: (A)

Pricing conventions in the secondary muni market should be transparent, consistent, and disclose any special factors affecting price. Transparency helps investors understand how a price is derived and supports fair dealing by making the price justification clear. Consistency ensures similar securities are priced in a like manner across trades, which reduces surprises and builds trust in the market. When there are special factors—such as limited liquidity, a call feature, nonstandard maturities, or other security-specific attributes—those factors must be disclosed because they materially affect value.

Pricing is not based solely on issuer credit rating; while the rating matters, many other drivers shape price, including current market conditions, liquidity, the yield curve, and the security’s features. Opaque pricing or reliance on undisclosed internal models would undermine transparency and customer protection, even though models are useful when their underlying assumptions and factors are disclosed and understood.