MSRB Board of Directors Holds Special Meeting on Municipal Advisor Rules

Date: December 6, 2010

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) held a special meeting at the MSRB’s headquarters on December 2–3, 2010 to address development of key rules for municipal advisors, among other business. During the meeting, the Board of Directors agreed to issue a request for comment on a rule that would restrict municipal advisors from engaging in or soliciting business from municipal entities when an advisor has made certain political contributions to municipal officials responsible for awarding that business. Political contributions by municipal advisors to state and local government officials responsible for awarding advisory work can damage the public’s confidence in the municipal marketplace.

“We are wasting no time in seeking to implement a rule to address ‘pay-to-play’ practices in the municipal market,” said MSRB Chair Michael Bartolotta. “The MSRB already stringently regulates this area of the municipal market with rules restricting pay-to-play by municipal securities dealers, and putting similar rules in place for the advisory community is one of our top priorities.” Chair Bartolotta said that comments received to the proposed rule will provide important information to the Board about the details of the proposal.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) expanded the MSRB’s jurisdiction to include the regulation of municipal advisors, in addition to dealers, which the MSRB has regulated since 1975.

The Board also began discussing how to develop a fiduciary duty rule and associated interpretations for municipal advisors. The Dodd-Frank Act imposes a federal fiduciary duty on municipal advisors and charges the MSRB with writing rules to implement this duty. Chair Bartolotta said the Board has made considerable progress in reaching agreement on the details of the rule and related interpretation. The MSRB expects to publish for comment a principles-based fiduciary-duty rule and interpretive guidance early next year.

“The MSRB’s municipal advisor rulemaking is proceeding in a measured and timely manner,” Chair Bartolotta said. “We are committed to fulfilling our Dodd-Frank mission and doing so in a way that respects the complex nature of developing rules of conduct for a new set of regulated entities.

In other business, the MSRB Board of Directors began discussing fair and equitable fees for municipal advisors. The Board also discussed the registration process launched by the MSRB on November 15, 2010. The Board directed MSRB staff to monitor closely whether firms engaging in municipal advisory activities have met their obligation to register with the MSRB by no later than January 1, 2011.

In addition, the Board approved an SEC filing that would require a municipal advisor to notify the MSRB when the advisor ceases to engage in municipal advisory activities, whether voluntarily or due to sanctions by the SEC.

The Board of Directors also took up its ongoing discussion of contributions by political action committees of companies affiliated with dealers. In August, the MSRB filed with the SEC interpretive guidance on factors that may result in an affiliate’s PAC being viewed as controlled by the dealer itself and therefore subjecting the dealer to the pay-to-play restrictions under MSRB rules with respect to the activities of such affiliate’s PAC. This interpretive guidance takes effect on December 12, 2010 and the Board believes that a focused effort to enforce this guidance will address the more significant concerns that market participants have raised regarding the activities of affiliated PACs. Thus, the MSRB has determined not to take further action at this time on a proposal it published for comment earlier this year to require dealers to name PACs of their affiliated companies.

Finally, the Board announced that it is continuing its outreach efforts to dealers, municipal advisors and municipal entities in light of the significant changes brought about by the Dodd-Frank Act with an Outreach Seminar today in Chicago, Illinois and on January 25, 2011 in Los Angeles, California. The MSRB will be conducting its Los Angeles outreach event in conjunction with its next meeting of the Board of Directors, where the Board expects to continue its focused efforts on implementing the mandates of the Dodd-Frank Act.

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.