In preparing materials for a conference my company is sponsoring, I had the opportunity to review the MSRB’s activities for the year. Quite honestly as one who is always in the trenches, I found this 20,000 foot level review (20,000 feet since I live in Colorado and 10,000 feet is ground level in many places!) enlightening.
Reacting to financial crisis in 2008 Congress, under the Dodd Frank Act directed the MSRB to take action to build a regulatory framework for Municipal Advisors as Congress understood that Municipal Advisors have a fiduciary duty to the entities and municipalities they advise. So MSRB has been busy doing exactly that. So far this year they have adopted rules establishing standards of conduct, supervisory systems, and registration and professional requirements. Mirroring the MSRB requirements for dealers, they adopted rules related to allowable political contributions, consequences of unallowable contributions and the reporting of contributions to MSRB for public disclosure. That’s a lot of activity for a regulatory body to accomplish in nine months.
But just so you know, MSRB has not ignored the dealer and broker section of the industry. There has been plenty of activity in this realm as well. They have out for industry and public comment, a proposal to adopt a best-execution standard for the municipal securities market. It is somewhat based on FINRA Best Execution Rule, and that fact is causing consternation in the municipal bond industry. MSRB includes the “number of markets checked” in the “factors” used for consideration of reasonable diligence in obtaining the best price for the customer. This factor is based on the equities market practices and certain members of the bond industry believe that by including this factor, it is a detriment to the customer.
Again following FINRA’s lead, MSRB has been reviewing their rule books and taking opportunities to consolidate rules that are the same or address similar requirements and putting them all in one rule citation.
Addressing their concern that they have overlooked continuing education requirement for municipal professionals, they now require annual continuing education sessions for all municipal professionals. Responding to industry request, MSRB has adopted a specific definition for a Sophisticated Municipal Market Professional providing the industry with clear understanding of this type of customer. MSRB also adopted a suitability standard for the municipal market that falls in line with the requirements of the FINRA suitability.
Then looking to the future, MSRB plans to consolidate their various reporting and data storage platforms into a single platform. They are seeking input from the public and the industry to guide the strategic direction of the MSRB. One area that is currently being addressed is post-trade transaction data disseminated through the new Central Transparency Platform. MSRB, in responding to previous industry comments has determined it to be in the best interest of the industry to maintain the current utilities for broker or dealer reporting of executed transactions. They have committed to making further enhancements to the utilities to address the industry’s pain points when making corrections to previously reported trades.
To allow for further distinction of the types of transactions being reported to the MSRB tape, they are requesting industry and public comment of a new indicator to identify new issue trades. Another pain point being addressed in this request for comment is the yield calculation issue. Again, following FINRA’s lead, MSRB proposes to eliminate the reporting of a yield on executed transactions. Finally, if you heard a big sigh of relief, it was in response to MSRB announcing that they will maintain the current 15-minute reporting window rather than shortening it. This was good news for the industry.
So that’s what the MSRB has been up to so far this year. Please call us or email us for additional information.