MSRB Holds Quarterly Meeting

Date: July 26, 2010

Contact:        Jennifer A. Galloway, Chief Communications Officer
                    (703) 797-6600



Alexandria, VA ­– The Municipal Securities Rulemaking Board (MSRB) held its quarterly Board meeting July 21-23, 2010 in Chatham, MA, where it discussed the MSRB’s expanded mission under the new federal financial reform law. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama on July 21, 2010, broadens the mission of the MSRB as of October 1, 2010 to include the protection of state and local governments and other municipal entities.

The Act charges the MSRB with regulating municipal advisors, including financial advisors to state and local governments in connection with municipal securities, and other advisors to issuers and other municipal entities about financial products such as derivatives and guaranteed investment contracts. With the MSRB’s expanded mission, the governing body of the MSRB will be reconstituted to consist of a majority of independent public members and include representation of municipal advisors, along with other regulated entities such as broker-dealers and banks.

“The MSRB is truly at a turning point in its 35-year history,” said MSRB Chair Peter Clarke. “The financial reform law deepens the public mission of the MSRB by giving it the responsibility to protect state and local governments in their financial transactions and creating a majority independent governing board consistent with that mission. We plan to implement these changes in a transparent manner that includes considerable input from the industry, including the municipal advisor community."

“We also plan to communicate in a timely way, information for municipal advisors so that they can ensure compliance with new rules that will cover the areas of fair practice,  fiduciary duties, pay-to-play and other conflicts of interest, gifts, disclosure, professional qualifications and other areas identified by the new governing board,” Chair Clarke said.

At its meeting last week, the Board also continued work on several measures that apply to the municipal securities dealer community. It approved an investor protection measure related to the allocation of new municipal bonds, agreeing to minor amendments to its original proposal on priority of orders for new issues. The proposal, which will become effective following approval by the Securities and Exchange Commission, seeks to improve distribution of new issues to the market by ensuring that underwriters follow the priority provisions for the offering. It requires that underwriters generally give priority to customer orders over those for their own and related accounts, and also must clearly understand and follow an issuer's wishes with respect to retail order periods. In a retail order period, municipal bond issuers provide retail investors with the opportunity to place orders for the new issue prior to institutional investors and other market professionals.

In its work on the activities of broker’s brokers – brokers that buy and sell municipal securities on behalf of dealers – the Board approved issuing detailed guidance to clarify and strengthen requirements surrounding transactions conducted by broker’s brokers. Ensuring that broker’s brokers fulfill their pricing obligations to their dealer clients under MSRB Rule G-18 is an essential factor in achieving the MSRB’s ultimate goal of fair transaction pricing by such dealer clients to their retail customers.

The Board also discussed potential changes to its rules governing activities of municipal securities dealers that act as financial advisors to municipal securities issuers. The MSRB will soon publish a notice seeking comment on amendments to MSRB Rule G-23.

The Board approved a budget for the fiscal year that begins October 1. The budget addresses the MSRB’s need to maintain and manage its existing market information and regulatory commitments, as well as implement new requirements provided for in the financial reform law. The budget also anticipates that the MSRB will diversify its revenue sources, particularly with regard to revenues needed to operate market information systems essential to market transparency and to provide for a more equitable distribution of fees.

“The $3 trillion municipal market relies entirely on the MSRB for access to trade data and disclosure documents,” Chair Clarke said. “It is critical that we ensure our systems operate to standards that reflect this role. To do that, we need to reinvest in our infrastructure and provide for replacement funds over the longer-term.”

Finally, the Board elected new officers, whose names will be announced at a later date. 

The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a self-regulatory organization governed by a 21-member board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.