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Alexandria, VA ­– The Board of Directors of the Municipal Securities Rulemaking Board (MSRB) held the first meeting of its new fiscal year on October 26-28, 2011 in Alexandria, Virginia, where it agreed to launch new market transparency initiatives, advanced rulemaking proposals and met with Securities and Exchange Commission (SEC) Chairman Mary Schapiro and senior SEC staff to discuss market issues of joint concern.

“The MSRB acts as both a resource to and partner with the SEC,” said MSRB Chair Alan Polsky. “We have the common goal of protecting investors in the municipal market, and working together we can address issues that could hinder a fair and efficient market.”

The SEC is in the process of defining the universe of financial professionals that provide advisory services to municipal entities so the MSRB can begin to implement rules governing their conduct. The MSRB Board told Chairman Schapiro it would provide the SEC with information to assist it in determining who is a municipal advisor. Another area of joint concern is pre-trade price transparency due to its importance to the fair pricing of municipal securities owned by retail investors. The Board plans to share with the SEC conclusions drawn from the MSRB’s study of the subject. Both regulators are also concerned about the rise in so-called “bank loans” in municipal financings, which may, in some cases, be municipal securities. Guidance from the SEC on this topic could help market participants better understand the regulatory implications of these financings, Polsky said. The Board also continued to emphasize its concern about the timeliness and quality of continuing disclosures by issuers about their securities.

At its meeting, the MSRB Board discussed other initiatives to help protect investors and municipal entities, including a long-range plan for the MSRB’s EMMA website to ensure that it remains aligned with the needs of the municipal market and responsive to changes. 

One part of this long-range plan that the Board decided to pursue is to permit municipal securities dealers to fulfill their obligation to deliver 529 college savings plan documents to investors electronically through the EMMA website rather than in paper form -- sometimes referred to as “access equals delivery.” The MSRB regulates dealers that sell 529 plan investments because these are municipal securities. Allowing all-electronic delivery of 529 plan documents would speed investor access to the documents and reduce overall costs to the market.

Another transparency-related project the Board approved is to display on EMMA the yield on municipal securities traded between dealers. Once complete, EMMA will display the same yield and price information currently available for customer trades.

The Board also agreed to improve market efficiency by eliminating the need for municipal underwriters to submit data associated with new securities both to EMMA and to another platform. The MSRB will begin necessary technology development and rulemaking to create a straight-through-processing system between EMMA and the New Issue Information Dissemination System operated by the Depository Trust and Clearing Corporation that will increase market efficiency and reduce chances for data errors.

“We know the industry has sought this change for a long time and we are pleased to be in the position to make it happen,” Polsky said.

Another priority for the MSRB in the coming year is to evaluate electronic trading systems to determine whether the rules governing their operation should be updated. As a precursor to this work, the Board will seek public comment on updating the MSRB’s definition of so-called “sophisticated municipal market professional” (SMMP). The current definition of an SMMP was intended to ensure that only the most sophisticated investors were likely to use electronic trading systems. Municipal market information has since become much more widely available though EMMA, and the Financial Industry Regulatory Authority also recently updated its rules on suitability for institutional accounts. The MSRB believes that changes are needed in the SMMP definition to reflect these developments.

At its meeting the Board also reviewed comments it received on an earlier notice regarding underwriters’ duties to issuers of municipal securities. The Board agreed to require more robust disclosures about the role of the underwriter and to clarify the types of risk disclosures required to be provided to underwriters’ municipal issuer clients. The MSRB will file a partial amendment to the proposed notice with the SEC that contains details of the changes.

Finally, the MSRB Board met with Richard Ketchum, chairman and chief executive officer of the Financial Industry Regulatory Authority (FINRA) and senior FINRA staff. FINRA enforces MSRB rules, and close cooperation between the two regulatory authorities ensures coordinated examination and enforcement support.

The Board meets next on January 25-27, 2012.