MSRB Board of Directors Holds Quarterly Meeting

Date: April 18, 2011

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) held its quarterly Board of Directors meeting April 14-15 in Nashville, TN where it advanced rulemaking proposals for municipal advisors and municipal securities dealers.

Consistent with its effort to establish a set of core rules for municipal advisors, the Board agreed to seek approval from the Securities and Exchange Commission on proposed MSRB Rule G-42 to address potential “pay to play” activities of municipal advisors – the practice whereby municipal advisors may seek to influence the award of business by government officials by making or soliciting political contributions to those officials.

If approved, the MSRB’s rule would for the first time, regulate pay to play activities of firms and individuals that advise municipal entities on municipal securities and municipal financial products, including derivatives. The rule also would cover municipal advisor firms and individuals that solicit certain business from municipal entities, such as state and local governments, and public pension plans, on behalf of others.

Municipal advisors would be prohibited from engaging in municipal advisory business with municipal entities for compensation for two years if they make certain political contributions to state or local government officials with authority to hire such municipal advisors. A similar ban on compensation resulting from such political contributions would apply to municipal advisors that solicit certain types of state and local public sector business on behalf of third parties.

“This proposal is fundamental to preserving the integrity of the municipal market,” said MSRB Chair Michael G. Bartolotta. “It extends to municipal advisors the basic principles of the MSRB’s existing pay to play rule for municipal securities dealers that has been enormously successful in curbing connections between political contributions and the award of underwriting business. The proposed rule for municipal advisors will ensure that all municipal market professionals do business on the basis of skill.”

The Board also agreed to publish for public comment a draft rule governing the supervision of municipal advisory activities and compliance with MSRB rules. The draft rule would require all municipal advisors to adopt a basic supervisory structure, including the designation of a municipal advisor principal qualified by training and experience, to supervise compliance with MSRB rules. It also would require municipal advisors to adopt written supervisory procedures for compliance with MSRB rules, annual compliance training and review of the firm’s municipal advisory activities, and review of correspondence and maintenance of the advisor’s books and records.

At its meeting, the MSRB Board of Directors continued its ongoing discussion of potential assessments for municipal advisors with the goal of providing for adequate regulatory oversight and ensuring that all MSRB-regulated entities are fairly assessed. The MSRB assumed regulatory jurisdiction for municipal advisors on October 1, 2010 as a result of the Dodd-Frank Wall Street Reform Act. The MSRB is developing an interim plan to assess fees on municipal advisors as it begins to collect data from municipal advisors to establish the basis for a fair and equitable permanent assessment structure. The interim plan will take into account the Dodd-Frank Act requirement that the MSRB not create a burden for smaller municipal advisory firms.

The Board also will begin to consider rebalancing assessments paid by different categories of entities regulated by the MSRB. This could entail potential reductions in existing dealer assessments, such as the underwriting assessment, transaction assessment, or technology fee, as new revenues are realized through municipal advisor assessments.

In other action, the Board agreed to file a partial amendment to its existing proposal on MSRB Rule G-23, which seeks to prohibit a broker, dealer, or municipal securities dealer from acting both as a financial advisor to an issuer of municipal securities and as an underwriter for the same new issue of municipal securities. The partial amendment would modify an interpretive guidance included in the original proposal to further clarify the role of the underwriter and its provision of issue-related advice in its capacity as an underwriter.

Since October 2010, the MSRB has been working to establish a regulatory framework for municipal advisors based on a set of principles-based rules consistent with provisions of the Wall Street Reform and Consumer Protection Act. The MSRB Board of Directors will hold a special meeting in May to discuss other municipal advisor rule proposals, including on the topics of municipal advisors’ fiduciary duty and fair dealing obligations, as well as the MSRB's proposal relating to fair practice duties of underwriters to municipal entities.

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.