Kelly's departure a crossroads for the MSRB

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The impending retirement of Municipal Securities Rulemaking Board President and CEO Lynnette Kelly is a crossroads for the MSRB, following months of federal scrutiny and attempts at increased oversight.

Some market participants see the MSRB at a turning point following the Tuesday announcement that Kelly, 59, would step down Sept. 31 after 12 years leading the regulator. Amid changes in the Trump administration’s viewpoint on regulation, lawmakers looking to impose reform on the MSRB and the Securities and Exchange Commission taking more public interest in issuers’ timeliness in financial disclosures, the change in leadership could be significant.

The MSRB said Kelly’s leave was a planned retirement and that she will aid in the transition, but the accumulation of those other factors and the timing of the announcement shortly after the conclusion of a quarterly board meeting caused many market participants to conclude that the board decided a change was due.

The board has appointed Nanette Lawson, MSRB chief financial officer, as interim CEO while it looks for Kelly’s replacement.

Lawson has been with the MSRB since 2011 and Board Chair Gary Hall said though there may be some internal candidates in the search for a new CEO, Lawson herself will not be a candidate.

Kelly is only the fourth executive director at the MSRB since its creation in 1975. She replaced Christopher “Kit” Taylor, who had held that post for 28 years. She is turning 60 in a couple of weeks, and said it was a good time to think about the next chapter.

“The last couple of years I’ve been thinking more and more about it (retirement),” Kelly said. “I don’t think anybody ever wakes up one day and says today I’m going to retire. It’s sort of a process. The timing was right.”

But there was some doubt in the municipal market about the reason behind Kelly’s announcement.

The SEC has recently been more vocal about the municipal securities market and has had more contact with the MSRB, a market participant said. The individual, who asked not to be identified, said over the past several years the SEC has had more direct contact with the MSRB than ever before.

Twice in the past nine months, SEC Chair Jay Clayton has directed the SEC's Office of Municipal Securities to work with the MSRB in addressing concerns Clayton had about disclosure.

“I know it’s been challenging over there given the SEC’s control of the MSRB,” the market participant said. “The MSRB has really changed from the days Kit Taylor was there and in many ways for the better, but it still has changed.”

Recently, Sen. John Kennedy, R-La., introduced a bill to reform the MSRB, which a market participant said has turned up the pressure on the MSRB a lot. Also, in an administration that wants to cut regulation, the MSRB may feel some tension, the market participant said.

“There’s just some dynamic tension there,” the market participant said.

Kennedy has griped that the MSRB is a revolving door for industry long-timers, and has also complained about overcompensation of MSRB leadership. Tax documents show that Kelly has earned as much as about $1 million in annual total compensation in recent years.

During Kelly’s time at the MSRB, she looked to expand the board to beyond just rulemaking to more market transparency through formalizing its education and outreach program to help stakeholders comply with rules and better understand the market. She helped create EMMA, an official source for municipal securities data and disclosure documents that is continously changing to meet up with market needs.

During the Dodd-Frank Wall Street Reform Act era and under the Consumer Protection Act, Kelly oversaw the MSRB’s mission to protect municipal entities and obligated persons and began regulating municipal advisors.

Kelly noted another change in that the five new board members joining the MSRB Oct. 1 are all women.

“I certainly remember when I started in the industry many, many years ago, it was not uncommon to be the only woman in the room,” Kelly said. “I think that’s changed a lot.”

She added that the industry as a whole has been a leader in attracting people that represent the communities they serve.

Lawson said Kelly had high standards and put out excellent work.

“She is a passionate leader,” Lawson said. “You cannot outwork her.”

Most stakeholders want the future leaders to continue Kelly’s work in innovation, and some thought the MSRB could look to more ways to improve their data.

“I certainly hope that there will be someone who will want to continue the MSRB’s progress towards improving their data and working with technology,” said Marc Joffe, senior policy analyst at the Reason Foundation.

Overall Kelly did a good job, said Ben Watkins, director of the Florida Division of Bond Finance. He added though that more emphasis should have been put on improving EMMA, instead of lobbying on the Hill.

“Maybe there was a lack of focus on productive priorities,” Watkins said, adding that EMMA could have made more strides in improvements.

Stakeholders reacted to the news of Kelly’s retirement, including SEC Chairman Jay Clayton, who called her an effective leader.

“Lynnette has also been a valued partner to the commission in our investor protection mission and has been particularly cognizant of the fact that the majority of municipal securities are held, either directly or indirectly, by our Main Street investors,” Clayton wrote in a statement.

Rebecca Olsen, SEC’s muni chief, wrote that Kelly was a leader in the municipal securities market with her establishing EMMA and overseeing the implementation of muni advisor rules.

Dee Wisor, National Association of Bond Lawyers president, also praised those achievements. Wisor noted that though they didn’t always agree, NABL still had a great relationship with Kelly.

Securities Industry and Financial Markets Association President and CEO Kenneth E. Bentsen, Jr. wrote in a statement that Kelly leaves behind a legacy of accomplishment during a time of substantial change in the marketplace.

Mike Nicholas, Bond Dealers of America CEO, wrote in a statement about his time with working with Kelly at the Bond Market Association in 1998, saying she brought a “calm, practical, intellect to every job she’s undertaken, whether at the trade association or at the MSRB.”

“Her interest in the right, not just more, regulation has resulted in a beneficial rule-review process and the MSRB’s focus on cost-benefit analysis to ensure rules govern but don’t dictate the industry has been smart and successful,” Nicholas wrote.

Susan Gaffney, executive director at the National Association of Municipal Advisors wrote that Kelly made a tremendous impact on the industry during her tenure and throughout her career.

“While the players may change, the importance of rulemaking remains intact. MSRB is a very stable organization with a strong bench of leaders,” Gaffney wrote.

Chuck Samuels, general counsel to the National Association of Health and Educational Facilities Finance Authorities said Kelly brought the MSRB into the 21st century.

Kelly also handled criticism well, Samuels said, especially in a space that is knowledgeable and has high expectations.

“The irony of it is that probably people would be more critical of her and the MSRB because they expected more, but they also need to appreciate that they were getting more than from a normal regulator.”

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Municipal disclosure EMMA MSRB rules SEC enforcement Lynnette Kelly SEC MSRB SIFMA BDA NAMA NABL Washington DC