MSRB Supports Ratings Transparency

Date: April 15, 2009

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

Municipal Securities Rulemaking Board Supports
Disclosure and Accessibility of Municipal Credit Ratings

Alexandria, VA - The Municipal Securities Rulemaking Board (MSRB) supports increased accessibility to all credit ratings for municipal bonds.  The MSRB recognizes that the Securities and Exchange Commission (SEC) is reviewing credit rating agency regulation as it relates to transparency and conflicts of interest for bond ratings. The MSRB has previously articulated its support of the SEC's goal to improve transparency in the credit rating process.  The MSRB believes retail investors would benefit from clearer articulation of the considerations used in the ratings process, increased transparency in that process, and the disclosure or elimination of potential conflicts of interest.

The MSRB commends SEC Chairman Mary Schapiro for making credit ratings a priority and for holding today's SEC Credit Rating Agencies Roundtable on the oversight of credit rating agencies.

The municipal bond market is dominated by retail investors and credit ratings are an important indicator of credit quality. Investors need access to all relevant ratings to adequately determine certain risks related to a municipal security.  However, it is important for investors to realize that ratings are only one tool to evaluate a security and cannot substitute for separate investment analysis.

The MSRB believes that recent bond insurer and liquidity bank downgrades have made access to underlying and enhanced credit ratings even more important for municipal investors.  "Access to all credit ratings is vitally important for investors given the recent downgrades of bond insurer and liquidity bank ratings," said Ronald A. Stack, Chair of the MSRB. "We applaud the SEC for convening today's roundtable and look forward to progressive discussions on these issues that will benefit investors. We also support providing better disclosure of credit ratings of municipal bonds because knowledge of all ratings is a critical piece of investor protection."

The MSRB is considering options to make credit ratings more readily available, including disclosure to investors on the MSRB's Electronic Municipal Market Access ( system.

The MSRB has previously noted that the underlying rating (or the lack thereof) may be relevant to a transaction, particularly when the credit rating of the bond insurer is downgraded or is the subject of information from the rating agency about a potential rating action. An underlying credit rating is assigned to reflect the credit quality of an issue, independent of credit enhancements such as bond insurance.  In order to ensure all required disclosures are made under MSRB Rule G-17, the MSRB has noted that a dealer must take into consideration information on underlying credit ratings that is available in established industry sources (or information otherwise known to the dealer) and must incorporate such information when determining the material facts to be disclosed about the transaction. 

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.