The Municipal Securities Rulemaking Board (MSRB)'s market regulation activities include rulemaking, regulatory support and qualification of municipal market professionals.
The Securities Exchange Act sets forth certain areas in which the MSRB is directed to conduct rulemaking, including rules to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and to serve various other specific purposes described in the Act. In order to provide the maximum opportunity for industry participation, the MSRB generally publishes rulemaking proposals as requests for comment and provides for public comment periods. In the earliest stages of rulemaking, the MSRB may issue a concept proposal. A concept proposal assists the Board in assessing whether to undertake rulemaking with regard to a particular matter. A concept proposal does not represent a formal rulemaking proposal by the Board and its issuance does not obligate the Board to move forward with a proposal. Substantive comments on rule proposals received as a result of these procedures continue to influence the MSRB’s deliberations.
Upon adoption by the MSRB in final form, rule proposals are filed with the Securities and Exchange Commission (SEC). In its rule filings, the MSRB is required to address the terms and purpose of the proposed rules, the statutory basis for their adoption, an analysis of the comments received and the statutory justification for any anticipated burden on competition the rule proposals might impose.
The Securities Exchange Act requires the SEC to publish the MSRB’s rule proposals in the Federal Register for public comment. MSRB rules only become effective upon approval by the SEC or, in very limited circumstances provided under the Securities Exchange Act, immediately upon filing with the SEC. Upon becoming effective, MSRB rules have the force and effect of federal law.
The MSRB’s rules are enforced by the Financial Industry Regulatory Authority (FINRA) for securities firms, by bank regulatory agencies (the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation) for banks, and by the SEC for municipal advisors and all securities firms and banks. An important aspect of its rulemaking activities involves the ongoing interpretation of its rules. This is done by means of interpretive letters and notices.
MSRB rules reflect the special characteristics of the municipal market and its unique regulatory needs, and are designed to govern the conduct of regulated entities. MSRB rules can generally be categorized as (1) professional qualification rules that establish qualifications for conducting business; (2) fair practice rules that protect investors, municipal entities, obligated persons and the general public; (3) uniform practice rules that ensure consistent behavior of regulated entities in the marketplace; (4) market transparency rules that provide for full and timely flow of information to the marketplace; and (5) regulated entity administration rules that set internal requirements for firms.
These rules require regulated entities to observe the highest professional standards in their activities and relationships with customers and municipal entities, and go significantly beyond the general anti-fraud principles of the federal securities laws.
By statute, the MSRB may provide guidance and assistance to FINRA, the SEC and bank regulators in the enforcement of, and examination for compliance with, MSRB rules. In this regard, the MSRB conducts a variety of activities including the following: (a) training of examination and enforcement staff; (b) interpretation of MSRB rules in connection with examinations and enforcement activities; (c) delivery of information products that assist these other regulatory authorities in their surveillance, examinations and enforcement actions; and (d) collaboration with the other regulators regarding such activities by identifying emerging risks in the municipal securities market. The MSRB also provides the Internal Revenue Service (IRS) with municipal market data to assist the IRS in its enforcement of tax laws related to municipal securities.
The MSRB fosters competency of municipal market professionals and compliance with MSRB rules through required examinations and continuing education. Industry professionals serve on committees, established by the MSRB, that regularly develop and review content for MSRB examinations, as well as municipal securities content used in FINRA-sponsored examinations used to qualify financial professionals working in the municipal securities industry. In concert with other regulators and members of the securities industry, the MSRB also contributes to the development of content and procedures for a mandated industry-wide continuing education program.