WASHINGTON - The Municipal Securities Rulemaking Board will seek Securities and Exchange Commission approval of its proposal to extend its pay-to-play rule to include municipal advisors as well as changes to post-trade disclosure requirements.
MSRB chair Kym Arnone announced the board's decisions Monday following the self-regulator's first meeting of the new fiscal year, and the first for Arnone as chair, last week. The board voted to seek SEC approval its amendments to rule G-37 on political contributions and prohibitions as proposed in August, Arnone said. The changes would generally prohibit MAs from engaging in municipal advisory business with state or local governments for two years after making political contributions to officials of those entities who can influence the award of MA business.
Arnone said the MSRB's existing rule has been effective at curbing the impropriety and the perception of impropriety among broker-dealers.
"Two decades ago, the MSRB adopted its landmark pay-to-play rule to address any actual link, and the appearance of a link, between political contributions and municipal securities underwriting, a bold move that dramatically improved the integrity of the market," Arnone said. "Extending the well-established principles of this rule to municipal advisors will similarly work to promote the integrity of the market and the municipal advisory industry."
Arnone added that the board will send the proposal to the SEC as soon as possible. Dealers had said that the de minimis exception for political contributions to candidates for whom an individual is entitled to vote should be bumped up to $350 from the current $250 to be consistent with the de minimis exceptions under the SEC's rules for investment advisers and Commodity Futures Trading Commission rules for swap-dealers.
The MSRB also approved requiring dealers to indicate in their electronic trade reports which transactions were based on a non-transaction-based fee and when an alternative trading system was utilized. The MSRB will eliminate the requirement that dealers disclose yields on customer trades, Arnone said, because the MSRB will now calculate that figure itself.
"These changes are among the many steps the MSRB is taking to enhance EMMA and ensure it continues to evolve in response to user needs, changing municipal market practices and technological capabilities," she said.
The MSRB elected not to pursue a proposal to require dealers to disclose which transactions resulted from conditional trade commitments. CTCs occur when dealers solicit, accept, and conditionally allocate orders prior to the signing of the bond purchase agreement. The prices agreed upon in a CTC may not reflect market conditions at the time of the formal award of the bonds. Comments from market participants supported the concept of such an indicator, though dealers warned that it would be difficult and costly to implement. Other market participants had suggested that the MSRB could require a CTC indicator without disclosing when the CTC was arranged, but the board elected not to do so.
Arnone indicated that the board also expects its best-execution rule proposal to receive SEC approval before the calendar year ends, and will also seek SEC approval to allow securitizers of certain asset-backed securities to make required disclosures via the MSRB's EMMA system rather than the SEC's EDGAR system. The MSRB will collaborate with FINRA on best execution guidance for dealers, Arnone said, which should be available prior to the rule's effectiveness a year after SEC approval.
The board also met with SEC chair Mary Jo White and Financial Industry Regulatory Authority chairman and chief executive officer Richard Ketchum, an annual meeting MSRB executive director Lynnette Kelly said was organizational in nature.
