PHOENIX - The Municipal Securities Rulemaking Board should provide more interpretive guidance for its rules rather than allowing enforcement agencies to do it, the Securities Industry and Financial Markets Association told the MSRB this week.

SIFMA made its remarks in a comment letter after the MSRB requested feedback on its approach to enhancing compliance support.

The MSRB has made it a strategic goal to more effectively engage with dealers and municipal advisors with respect to how they can comply with rules, following several years of intensive rulemaking that included the creation of a brand new regulatory regime for MAs that is still being implemented.

Market reaction to the MSRB’s apparent eagerness to enhance compliance support has been generally favorable.

SIFMA took the opportunity to urge the board to be more forthcoming in providing interpretive guidance so that dealers and other regulated entities can improve their compliance with rules before inadvertently running up against some enforcement action from the Securities and Exchange Commission or the Financial Industry Regulatory Authority.

“It is the view of our members that, in recent years, too much interpretation of MSRB rules has occurred through examination and enforcement rather than by published MSRB guidance,” wrote Leslie Norwood, a managing director, associate general counsel, and co-head of munis at SIFMA. “Regulated entities oftentimes learn of regulatory interpretations ‘through the grapevine’ by talking to counterparts about FINRA and SEC exams.”

SIFMA's Leslie Norwood
SIFMA's Leslie Norwood

Norwood said that SIFMA members feel compliance with MSRB rules has suffered because they believe that if they call on the MSRB to request its help on how to interpret a rule, the staff will refer the matter to FINRA or the SEC for enforcement.

The MSRB should publish more rule interpretations, Norwood told the board, adding that prior to doing so it should have discussions with industry stakeholders.

SIFMA also told the MSRB that the board should be more clear about the recordkeeping required by its rules, because regulators conducting examinations have routinely asked for more extensive records than seem to be required by Rule G-8 on books and records.

A recent example is Rule G-42 on the duties of non-solicitor municipal advisors, Norwood wrote.

“The SEC has reportedly taken the position in examinations that a municipal advisor must demonstrate that it has reviewed comparable pricings to fulfill its fiduciary duty,” she told the board. “There is no commentary on this topic in the SEC Municipal Advisor Rule itself, or written MSRB guidance to that effect.”

SIFMA also added that the MSRB should be focused on improving the user experience with the board’s website, and should consider conducting rules training at the National Association of Bond Lawyers’ conferences. SIFMA said it has found that transactional attorneys are often not well-versed in MSRB rules.

Norwood told The Bond Buyer that SIFMA decided to file its comment prior to the deadline Feb. 9 so that MSRB members meeting in Washington, D.C. on Wednesday and Thursday could see them.

“We’re very happy that the MSRB has gone out with this request for comment,” Norwood said. “These are very helpful steps the MSRB is taking.”

The Investment Company Institute also submitted comments, telling the MSRB that its members do not see a need for new resources to facilitate compliance with rules applicable to 529 College Savings plans, but could benefit from additional “informal engagement.”

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