MSRB responds to Sen. Kennedy's criticism of governance rules

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The Municipal Securities Rulemaking Board will start to look at its board governance rules, including the time period between when individuals leave their industry jobs and when they are allowed to become public board members, said MSRB Chair Gary Hall.

At a Government Finance Officers Association Debt Committee meeting during the group's annual conference in Los Angeles, Hall told issuers that the MSRB is mindful of the repeated public criticisms leveled at the board by Republican Sen. John Kennedy of Louisiana. Kennedy has said on several occasions that he believes that the MSRB needs structural reform, and he has introduced legislation to that end.

Kennedy's primary concern, which is not new to the market, is that the MSRB's board is not truly a majority public body as required by federal law because its members who represent the public are frequently retired brokers. The board's public membership requirements state that individuals may not be “associated” with a regulated firm for at least two years or “employed by” a regulated firm for at least three years.

Kennedy's bill, the MSRB Reform Act, would stretch that time period to five years and require the Securities and Exchange Commission to approve the MSRB's board member selections.

“Public seats on the board shouldn’t be filled by executives who just quit their Wall Street jobs,” Kennedy said in a press release introducing the bill.

Kennedy told SEC Chair Jay Clayton that the SEC should be responsible for the MSRB. Like other self-regulatory organizations such as the Financial Industry Regulatory Authority, the MSRB operates under SEC supervision. The SEC is already responsible for approving MSRB rules, but Kennedy told Clayton during a recent hearing that he wants that supervision to go further.

“You didn't father the child, but you've got to raise it, so I figure give you some parental control,” Kennedy said during the hearing.

Hall said that while he is listening, he has not personally seen a reason to be concerned.

“I have not seen any sort of dilution of the public perspective based on their experience,” Hall said of MSRB board members. “At the same time, I want to be sensitive to the fact that there might be something I’m missing.”

Hall said he also wants to hear from SEC Chair Jay Clayton on next moves, adding that Clayton has said he wants to improve governance across all self-regulatory organizations.

Hall said he has asked his board to increase discussions on their governance procedures for the next fiscal year, adding that the MSRB would direct staff resources to researching the issue.

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