Expanded Regulation, Political Contributions and Credit Ratings Are Topics at MSRB Quarterly Meeting

Date: February 2, 2009

Contacts:           Lynnette Kelly Hotchkiss, Executive Director
                         (703) 797-6600

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

Expanded Regulation, Political Contributions and
Credit Ratings Are Topics at Quarterly Meeting of
the Municipal Securities Rulemaking Board

Alexandria, VA -The Municipal Securities Rulemaking Board held its quarterly meeting January 28-29, 2009 and authorized sending a letter to appropriate Congressional committees and federal regulators outlining MSRB's recommendations for regulating entities that provide important advisory services to municipal issuers but that operate without any oversight.  These entities include financial advisors, swap advisors and GIC brokers, which help municipal bond issuers make important financial and investment decisions. The MSRB initially called for regulation of these entities in its statement of January 9, 2009.

"A sound municipal bond market requires more complete regulation of the players who serve in an advisory capacity," said MSRB Chair Ronald A. Stack.  "Our 1975 Congressional charter limits MSRB regulation to conduct of the broker-dealer community. But other unregulated parties provide advice to municipal issuers on structuring their offerings, investing bond proceeds, or managing or hedging payment commitments and various other bond-related financial matters," he said. "Given the profound impact these activities can have on investors and the citizens served by state and local governments, the MSRB believes it is time to hold these unregulated parties to the highest standards of professional conduct in place for broker-dealers for the protection of investors."

The MSRB' letter to Congress and federal regulators also will address its recommendation for creating a federal-level position to coordinate the municipal market.

At its meeting, the Board also discussed a recent request to expand MSRB Rule G-37 on political contributions to include contributions to bond ballot campaign committees that authorize issuance of municipal bonds. Rule G-37 currently bans underwriters from doing municipal securities business with state and local governments if certain political contributions have been made to key elected officials.  Rule G-37 also requires underwriters to disclose their political contributions, which are made available to the general public by the MSRB at www.msrb.org.  The Board has directed staff to undertake a review of contribution and business practices in this area with a view to gaining a balanced understanding of such practices and their potential impact on investor protection and the integrity of the municipal marketplace. 

On the issue of disclosure, the Board discussed its concerns about the need for investors to have access to underlying credit ratings of municipal bonds.  "The extensive downgrading of credit ratings for many of the major bond insurers has elevated the importance of underlying credit ratings of securities," said Chair Stack. "This information, together with other issuer disclosures and transaction information currently available or soon to be made available by the MSRB on its EMMA website, is fundamental for investors to assess the credit quality of individual securities."  He said the Board would begin studying how to overcome existing barriers to making underlying ratings accessible to investors in a timely and equitable manner. This includes exploring whether to require disclosure of such underlying ratings to investors by broker-dealers.

In other business, the Board reviewed the next steps in developing its new short-term obligation rate transparency program.  The MSRB began collecting and disseminating interest rates on municipal auction rate securities on January 30, 2009, and will begin doing so for variable rate demand obligations on April 1, 2009.  The information is made available to the public for free through the MSRB's EMMA website at www.emma.msrb.org, representing the first time such information is being made readily available to individual investors. 

Subsequent phases of the transparency system will provide for the collection and dissemination of bidding information for auction rate securities as well as key documentation relating to auction rate securities and variable rate demand obligations.   This information will provide investors with greater insight into the securities they own and should promote greater liquidity in this critical sector of the municipal securities market.

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.