WASHINGTON - The Municipal Securities Rulemaking Board has made "substantial progress" on implementing investor protection recommendations outlined in the Securities and Exchange Commission's 2012 Report on the Municipal Securities Market, the MSRB said, patting itself on the back Tuesday.

The board trumpeted its achievements in what it called its “Report Card on Investor Protection Initiatives." The document is an eight-page list of steps the MSRB has taken to achieve goals in different areas, specifically enhancing market structure, improving disclosure practices, and promoting regulatory efficiency.

“Six years ago, the MSRB dedicated itself to addressing the investor protection recommendations put forth by the SEC in its report,” said MSRB President and Chief Executive Officer Lynnette Kelly. “Our report card outlines the MSRB’s substantial progress in this endeavor, summarizing initiatives that have enhanced market structure, improved disclosure practices and the efficiency of retail transactions.”

The 2012 SEC report was spearheaded by then-SEC Commssioner Elisse Walter, who later became the commission's chair. The report took a comprehensive look at the market and the SEC staff made a series of recommendations. Not all of the recommendations for market improvements pertained to the MSRB, as others were directed at the SEC, Congress, and market participants.

MSRB president and chief executive officer Lynnette Kelly.
MSRB President and Chief Executive Officer Lynnette Kelly

The report card was broken down by year within certain categories. The recommended MSRB actions were juxtaposed with the report's other relevant recommendations.

For example, under the “Enhance Market Structure” objective, the report card quotes the SEC report’s recommendation that the MSRB enhance EMMA. The report card then shows checkmarks next to such actions as a 2016 move to add to EMMA indicators showing which trades were made over an alternative trading system or did not involve a markup, mark down, or a commission.

The report card indicates that there are “ongoing” efforts to improve pre-trade transparency, such as collecting and analyzing voluntary pre-trade data from ATSs and broker’s brokers.

In a release, the MSRB touted recent advances in market structure, particularly the creation of a best-execution rule in 2016 and a mark-up disclosure rule in 2018.

But one source told The Bond Buyer that the report card really appeared to be “puffery” designed to counteract the negative attention the MSRB received following the comments of Sen. John Kennedy, R-La. during a Senate Banking Committee hearing last week.

During the confirmation hearing for Trump nominees, including Elad Roisman proposed to become SEC commissioner, Kennedy said he thought the MSRB was "a club" and “incestuous” because some of its board members who are supposed to represent the public actually have close ties to securities firms or banks.

Kennedy, who was Louisiana treasurer from 2000 until assuming his Senate seat in January 2017, applied to become an MSRB board member in both 2011 and 2013 but was not chosen.

“It demonstrates that they don’t really understand their role,” said another source about the MSRB’s report card. The source pointed out that some of the SEC recommendations, such as “municipal market participants should follow and encourage others to follow existing industry best practices” were not meant for the MSRB but that the MSRB is taking credit for advancing those recommendations in the report card.

Kelly denied that the report card had anything to do with Kennedy’s remarks, and said the MSRB created the document long ago and has been continuously updating it. The board decided to publicize it now in commemoration of the six- year anniversary of the SEC report, she said.

Then-SEC Commissioner Michael Piwowar referenced the report card explicitly in his remarks at an MSRB celebration of transparency at a reception and dinner here in April.

The SEC has oversight over the MSRB, but the MSRB’s board of directors sets the organization’s agenda.

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