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Contact: Jennifer A. Galloway, Chief Communications Officer
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Alexandria, VA – The Board of Directors of the Municipal Securities Rulemaking Board (MSRB) held its quarterly meeting July 25-27, 2012, where it evaluated issues related to the protection of municipal market investors and state and local governments. These issues include the use of indices in the municipal market, financial contributions made by municipal securities dealers to bond ballot campaigns and regulation of the sale of 529 college savings plans, among others.

In response to concerns about the integrity of financial market indices such as LIBOR, the Board agreed to study the processes used to develop municipal market indices.

“Like other regulators, the MSRB is concerned about the transparency surrounding the development of market indices,” said MSRB Chair Alan Polsky. “We plan to review indices used by the municipal market — and develop educational materials about their use — to ensure that the market operates fairly and transparently.”

The MSRB undertakes many activities to ensure the integrity of the municipal market. At its meeting, the Board agreed to publish for comment proposed changes to regulations to address real or perceived linkages between contributions made by dealers to bond ballot campaigns and the award of municipal securities underwriting business. This relationship can contribute to public perception of corruption in the municipal market and damage the integrity of the market. The proposed changes would require additional disclosures from dealers to provide the MSRB and the public with more information on market practices related to bond ballot campaign contributions and their relationship to the award of business.

The Board addressed several investor protection issues. It agreed to publish a concept release related to protections for individual investors who buy and sell municipal securities through electronic brokerages. The MSRB is assessing whether investors who trade municipal securities online adequately understand their features and risks, and whether they purchase appropriate securities based on the investor’s financial situation and risk tolerance. The concept release will explore whether electronic brokerages should be required to strengthen their account opening and supervisory procedures related to individual investors who purchase municipal securities online.  

The Board advanced its discussion of initiatives related to 529 college savings plans, which are municipal fund securities used by families to save for college expenses. The MSRB regulates dealers that sell and distribute the plans on behalf of states. The Board agreed to publish a draft rule proposal for public comment to create a centralized collection system for market information about 529 college savings plans. Last year the MSRB solicited public comment on the concept of creating such a database to assist it in assessing the sale and distribution of 529 plans.

The Board also agreed to publish guidance related to the manner in which dealers may deliver 529 plan disclosure documents to investors electronically. The MSRB earlier sought public comment on the concept of moving to an all-electronic disclosure paradigm for 529 plan documents but decided not to pursue this development at this time.

The Board will continue to refine its proposal related to so-called “retail order periods” established by state and local governments. The proposal seeks to ensure dealers do not misrepresent to issuers their activities related to the distribution of bonds in a primary offering and to ensure fair pricing for retail investors.

The Board also agreed to make changes to its rules on telemarketing to make them consistent with those of the Financial Industry Regulatory Authority.

The Board continued its ongoing discussion of the costs and benefits associated with rulemaking. The MSRB seeks to develop rules that fairly balance their benefits to the market with perceived burdens on regulated entities, and continues to study possible ways of refining its cost-benefit analysis.

The Board met with Erik Sirri, professor of finance at Babson College and former director of the Securities and Exchange Commission (SEC) Division of Trading and Capital Markets, who is conducting a study of municipal trade data and the effects of the 2005 implementation of real-time transaction reporting. The Board provided further guidance for the study.

The Board agreed to seek approval from the SEC to display in real-time the exact par value on transaction price data displayed for all trades of $5 million and under on the MSRB’s Electronic Municipal Market Access (EMMA®) website. The Board intends to eventually move forward with a real-time display of the par value on all trades and will evaluate the effects on municipal market liquidity of the interim step of displaying the value of all trades of $5 million and under. EMMA currently displays in real-time the par value on all trades under $1 million.

In another system-related change, the Board also will seek SEC approval to allow underwriters to satisfy their new issue submission requirements to EMMA with data they already submit to the New Issue Information Dissemination Service (NIIDS). If approved, the measure will create a straight-through process system for municipal new issue data and provide for a faster display of the data on the EMMA website.

Both changes to EMMA are elements of the MSRB’s long-range plan for market transparency. The Board reviewed other aspects of the plan under development.

The Board approved a budget for the fiscal year that begins October 1, 2012 that supports the MSRB’s role as the primary regulator of the municipal market and operator of market transparency systems essential to a fair market.

As previously announced, the Board elected officers for the fiscal year that begins October 1, 2012. Jay M. Goldstone will serve as Chair and Stephen E. Heaney will serve as Vice Chair. The Board also elected seven new Board of Directors members, who will serve three-year terms beginning October 1, 2012. Their names will be announced August 1, 2012.