MSRB Recommends Actions by the Securities and Exchange Commission to Protect Investors

Date: August 9, 2011

Contact: Jennifer Galloway 
             (703) 797-6600 


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) on August 8, 2011 provided recommendations on municipal market disclosure to the Securities and Exchange Commission (SEC), including changes that would provide investors with additional information about municipal securities in both the primary and secondary market. The SEC is updating its interpretive guidance on federal laws governing disclosure in the municipal market. 

“We appreciate the SEC’s continued commitment to issues affecting the municipal market and the opportunity to work with the Commission to enhance investor protections,” said MSRB Executive Director Lynnette Kelly Hotchkiss.

The MSRB recommended removing the exemption for disclosure documents for primary offerings of variable rate demand obligations. These types of offerings are currently exempt from the official statement requirements of SEC Rule 15c2-12.

The MSRB asked the SEC to consider elaborating on the importance of disclosing to investors risk factors associated with a primary offering of municipal securities such as market, credit, liquidity and legal risks as well as risks associated with new products and risk mitigation strategies. The MSRB’s recommendations also covered conflicts of interest disclosure (e.g., requiring disclosure of third-party payments) and standardized disclosure on the use of bond proceeds and other sources of funds.

To improve disclosure in the secondary market, the MSRB provided suggestions on improving compliance by municipal securities issuers and obligated persons with terms of their continuing disclosure agreements. These agreements are undertaken by issuers and obligated persons pursuant to SEC Rule 15c2-12 and require public disclosure of annual financial information as well as material events, such as a change in credit rating.

In 2009, the MSRB’s Electronic Municipal Market Access (EMMA) system, at, became the official repository for continuing disclosure documents. Some market participants have expressed frustration with the unavailability, due to issuer non-compliance, of audited financial statements within a reasonable time after the date agreed upon in the continuing disclosure agreement has passed. One of the MSRB’s recommendations is for the SEC to require issuers or obligated persons to make robust disclosures of previous breaches of continuing disclosure agreements in official statements for new issues of municipal securities.

“The MSRB recognizes that the majority of issuers are diligent in complying with their continuing disclosure obligations,” Hotchkiss said. “However, we would like to see initiatives that help ensure investors have access to key investment-related information, perhaps including an issuer’s continuing disclosure track record.”

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.