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

MSRB URGES EXPANSION OF EXEMPTION FOR GOVERNMENTAL
OBLIGATIONS UNDER PROPOSED FEDERAL PROPRIETARY TRADING RULE

The Municipal Securities Rulemaking Board (MSRB) today urged expansion of the exemption for governmental obligations in a proposed federal banking rule on proprietary trading because the MSRB is concerned that a significant class of municipal securities would be excluded from the exemption, resulting in a “bifurcation” of the municipal securities market without benefiting the soundness of the banking system.

In a letter filed today with the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission, the MSRB responded to a proposed rule, also known as the Volcker Proposal, that would implement a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act that contains certain prohibitions and restrictions on the ability of banks and their affiliates to engage in proprietary trading.

The MSRB urged the agencies to broaden the “governmental obligations” exemption from the proposed rule’s restriction on proprietary trading to include all “municipal securities” as defined in the Securities Exchange Act of 1934.  The MSRB feels strongly that this change is needed to avoid a bifurcation of the municipal securities market that will, in the MSRB’s view, achieve no meaningful additional benefit to the safety and soundness of the banking system,” the MSRB’s letter says.  

The letter points out that “the narrowness of the ‘government obligations’ exemption is not mandated by the statute” and that, “In fact, banking and securities law definitions of ‘political subdivision’ that pre-dated the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),  and that gave expansive meaning to the words ‘political subdivision’ to effectively parallel the definition of ‘municipal securities’ under the Exchange Act, might well have been considered by Congress in drafting this provision of the Dodd-Frank Act.”

The MSRB told the agencies that, “It is essential that the governmental obligations exemption be expanded, because the other exemptions from the proprietary trading prohibition (for underwriting activities, trading on behalf of customers, and market making activities) are structured in such a way that they are not useful in the municipal securities market.  The MSRB is respectfully of the view that, without modification, the Volcker Proposal will serve as an impediment to a free and open market in municipal securities to the detriment of investors and issuers of municipal securities.”

The Municipal Securities Rulemaking Board (MSRB) protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in tens of thousands of communities across the country. The MSRB fulfills this mission by creating trust in our market through informed regulation of dealers and municipal advisors that protects investors, issuers and the public interest; building technology systems that power our market and provide transparency for issuers, institutions, and the investing public; and serving as the steward of market data that empowers better decisions and fuels innovation for the future. The MSRB is a self-regulatory organization governed by a 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.

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