Until the mid-1970s, banks and securities firms engaged solely in the municipal securities business operated without regulatory oversight. Their customers primarily consisted of banks, insurance companies and other large institutional investors. Municipal securities dealers generally held themselves to high standards of conduct and followed traditions designed to protect customers.
In the early 1970s, individual investors began to enter the rapidly expanding municipal bond market. Pushed into higher income tax brackets by inflation and often less sophisticated than institutional investors, individual investors were attracted by the tax-exempt features of municipal securities and entered the market in great numbers. At the same time, the growing volume of new issues of municipal securities led to a sharp increase in the number of dealers, a small portion of whom did not subscribe to industry standards.
Members of the industry sensed that traditionally rigorous industry standards could not easily be maintained in the face of a rapidly expanding market without some formal system of regulation. With the support of the industry and the SEC, Congress passed the Securities Acts Amendments of 1975, which, among other things, created the Municipal Securities Rulemaking Board and authorized it to create rules designed
"to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, and processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest."
The basic concern of Congress for equal regulation of all municipal securities dealers guides the MSRB in its rulemaking activities. Whenever possible, the MSRB's rules are intended to apply to all municipal securities dealers in a uniform and consistent manner. The MSRB also has sought to write rules that give clear guidance to industry members and enforcement organizations.
To see a timeline of municipal securities regulation, click here.