MSRB Statement on Regulation of the Municipal Market

Date: January 9, 2009

Contacts:            Jennifer A. Galloway, Chief Communications Officer
                          (703) 797-6600
                          jgalloway@msrb.org


STATEMENT OF THE MUNICIPAL SECURITIES RULEMAKING BOARD
REGARDING REGULATION OF THE MUNICIPAL MARKET

Alexandria, VA - The continuing allegations and federal investigations of the behavior of certain participants in the municipal marketplace across the nation, and the widespread confusion over how this market is regulated, are of grave concern to the Municipal Securities Rulemaking Board.   We do not know if any of the investigations will show wrongdoing or any violations of law and what the ultimate outcomes will be.
 
Nevertheless, we are concerned that the appearance of improper activity, specifically related to political contributions, has the danger of tainting the reputation of the municipal marketplace which the MSRB works very hard to preserve.

Indeed, since our inception, the MSRB has sought to ensure the highest levels of investor protection and a marketplace that operates both fairly and efficiently through our regulation of municipal brokers and dealers, with special attention to eliminating both the fact and the appearance of impropriety.

Most importantly, we instituted in the 1990's a rule (G-37) that severely limits the ability of municipal banking and underwriting professionals to make state and local political contributions which has virtually eliminated the previous atmosphere known as "pay-to-play".   Through our G-37 rule, investors and the public at large have been assured that banking and underwriting firms are chosen by the issuers of municipal debt based on their qualifications, and without consideration of political contributions.

However, we have been limited to regulating the conduct of only the broker dealer community, and have been unable to affect certain participants in the municipal market who are not registered, not licensed and not regulated by the MSRB, the SEC, the Federal Reserve, the Comptroller of the Currency, FINRA or any other federal regulatory body.

Specifically, we believe that these currently unregulated participants -- such as Guaranteed Investment Contracts (GICs) brokers and the various financial advisors -- should be brought under federal regulation in order that all segments, and not only broker dealers, meet the high standards a fair municipal market that protects investors requires.

Thus, we strongly recommend to the new Administration and its current transition groups, as well as the new Congress, that in reviewing the current financial markets regulatory organizations and responsibilities, and in considering possible changes and improvements,  specific consideration be given to placing financial advisors, GIC brokers and other unregulated market participants in the municipal market under federal regulation.   The MSRB would be pleased to work with appropriate federal officials in discussing options and developing an appropriate regulatory scheme.


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.