WASHINGTON — Appointed members of state and local governmental boards will likely be exempted from the Securities and Exchange Commission’s final definition of municipal advisor, which is expected to be released early this year, the SEC chairman indicated Thursday.

At a Senate Banking Committee hearing on the Dodd-Frank Act, Elisse Walter said the commission needs fiscal 2013 funds to implement the act’s rules, while another financial regulator told lawmakers agencies hope this year to complete the so-called Volcker Rule, which has been criticized by a range of market participants.

In her written testimony, Walter told the committee, "We anticipate that the final rules would address, among other things, the well-publicized concerns about the need for an exception from registration for appointed board members of municipal entities."

"The staff is continuing to discuss many interpretive issues with other regulators and interested market participants in pursuit of a final rule that requires appropriate registration of parties engaging in municipal advisory activities, without unnecessarily imposing additional regulation," she said.

The SEC's initial definition of an MA, released in late 2010, was widely criticized by market participants as being so broad it would cover appointed members of state and local governments.

The SEC received more than 1,000 comment letters about the definition, hundreds of which called for exemptions for appointed governmental board members.

Walter also urged lawmakers to enact President Obama's fiscal 2013 budget request, which would provide the SEC with $1.566 billion in funding for the year, up 19% from the SEC's fiscal 2012 appropriation.

She said the increase is needed to ensure the agency fulfills new mandates under the Dodd-Frank Act related to derivatives, MAs, fund advisors, clearing agencies and credit rating agencies. The funds would also help the SEC make needed technology improvements and hire an additional 676 staffers to focus on enforcement, examinations, regulatory oversight and economic analysis.

She noted that transaction fees collected by the SEC offset annual appropriations.

The Dodd-Frank Act required the agency to "undertake the largest and most complex rulemaking agenda in the agency's history," Walter said, noting that the agency has proposed or adopted 80% of the 90 rules required by the act.

Now the SEC is shifting to monitoring rule implementation, examination and enforcement, she said.

The so-called Volcker Rule, which restricts proprietary trading at banks, was also discussed at the hearing.

Daniel K. Tarullo, a member of the Federal Reserve's board of governors who also testified, told lawmakers that he hopes the rule will be completed sometime during the year.
The rule, which is being jointly developed by five agencies, exempts bonds issued by state and local governments, but not bonds issued by public agencies, like sewer, housing and turnpike authorities.

Market participants have said the failure to exempt all munis could divide the market and boost issuers' costs.

Tarullo said it's important for regulators to quickly complete Dodd-Frank related work to provide regulatory clarity and allow financial firms to "get on with planning their businesses accordingly."

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