WASHINGTON — The Municipal Securities Rulemaking Board and the Commodity Futures Trading Commission are in a jurisdictional dispute over which agency will regulate municipal swap advisers, sources said.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the MSRB obtained jurisdiction over muni swap and other advisers to municipal entities as of Oct. 1.
But during the past two months, the CFTC has interpreted the Dodd-Frank law as giving it exclusive jurisdiction over the regulation of all muni advisers who hold themselves out as swap advisers, these sources said.
A CFTC spokesman declined to comment.
But sources said that with limited exceptions, the CFTC believes that muni swap advisers have to register with it as commodity trading advisers. CTAs are one of the few categories of advisers that are explicitly exempted from MSRB jurisdiction under the law, under the law.
Registration of CTAs with the CFTC would begin in July, when the rest of the swap provisions of Dodd-Frank are set to kick in. In other words, even though the law explicitly states that the MSRB should regulate muni swap advisers, the CFTC's interpretation would instead leave the vast majority of these advisers under the commission's oversight, these sources warn.
But MSRB officials believe that the CFTC interpretation of Dodd-Frank is highly flawed because the law clearly gives the MSRB jurisdiction over muni swap advisers, sources said. If the CFTC's interpretation were to prevail, the MSRB would have no jurisdiction of muni swap advisers, despite Dodd-Frank provisions providing it with such jurisdiction.
The dispute surfaced publicly last week when the outgoing Senate Banking Committee chairman Christopher Dodd, D-Conn., sought to clarify the matter in a public statement entered into the Congressional Record.
In the statement, Dodd said it was Congress' intent to have the MSRB -- and only the MSRB -- regulate independent muni swap advisers. The exemption for CTAs, he said, was meant to apply only to firms or individuals registered under the Commodity Exchange Act as swap dealers or major swap participants.
In an unusual statement released Monday that draws heavily on Dodd's remarks, the MSRB noted that the senator, who retires next month, "made clear the Dodd-Frank Act directed 'the MSRB to write rules regulating municipal advisers.'"
Under the law, these advisers include financial advisers, swap advisers, placement agents, and others that advise municipal borrowers, the MSRB said.
The MSRB said it is already in the process of extending core MSRB rules of conduct to all municipal advisers and those who provide advice to municipal borrowers.
"The MSRB looks forward to working with the [CFTC] to ensure that MSRB rules for independent swap advisors are consistent with CFTC rules for swap dealers and major swap participants that provide swap advice," the MSRB added.