MSRB Seeks Comment on Alternative Standard of Independence for Investor Representative on its Board

Date: June 11, 2015

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today published a request for comment on a proposal to modify the application of the standard of independence for the one public member of its Board of Directors designated to be representative of institutional or retail investors in municipal securities. The proposed amendment to MSRB Rule A-3, on membership on the Board, seeks to allow the MSRB to consider and select an investor representative with significant knowledge of the municipal securities market from a broader group of applicants.

The 21-member Board, which establishes regulatory policies and oversees the operations of the MSRB, has 11 independent public members and 10 members drawn from entities regulated by the MSRB, including broker-dealers, banks and municipal advisors. The Securities Exchange Act requires that one public member be representative of institutional or retail investors.

The MSRB established the current standard of independence for its public Board members in 2010, adopting a stringent standard of what it means to have “no material business relationship” with any entity regulated by the MSRB. In practice, the current standard of independence eliminates qualified individuals, whom the Board believes have no material business relationship with a regulated entity, from service as a public member because these individuals have a regulated entity within their employer’s corporate structure.   

“The MSRB believes that the current standard of independence is too restrictive, resulting in the elimination of qualified individuals with relevant knowledge and expertise that are particularly needed as the Board discusses complex matters of market structure,” said MSRB Chief Legal Officer Robert Fippinger.

The MSRB is proposing a tailored approach to modifying this standard that applies only to applicants for the investor-focused position on the Board. Further, the MSRB’s proposal includes a requirement for the Board to undertake additional analysis to ensure that applicants for the investor representative role do not have material business relationships with regulated entities. The MSRB is seeking comments on its proposal and any reasonable alternative regulatory approaches.

The MSRB is also requesting comment on whether it should modify the length of Board-member service to improve the engagement and effectiveness of individual Board members, and improve the continuity and knowledge transfer on the Board as a whole. Additionally, the MSRB is asking the public to comment on whether it should remove or modify the requirement to announce publicly the names of all Board applicants. The current policy was aimed at providing transparency; however, the MSRB believes that the requirement deters applications from qualified individuals who are concerned that a failure to be selected will negatively affect their professional reputation.

Comments should be submitted to the MSRB no later than July 13, 2015.

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.