The Municipal Securities Rulemaking Board is taking a broad look at one of its governance rules, considering whether it should allow dealer-affiliated municipal advisors to count towards the MA board seat requirement and whether to continue publishing the names of MSRB applicants.
Those questions were among a number of wide-ranging prompts published in a formal request for comment Tuesday. The RFC comes one day after
“The MSRB is uniquely positioned as a self-regulatory organization to bring together expertise from across the market to effectively and efficiently safeguard the integrity of the $4 trillion municipal securities market, which is responsible for the bulk of our nation’s infrastructure,” said MSRB Chair Ed Sisk.
To facilitate the possible transition to the new board size, the MSRB said Tuesday, it is not seeking applicants for new board members for fiscal year 2021.
The RFC, as is typical for the MSRB, includes a description of what the board is considering doing and poses questions that the board would like market participants to answer as part of the feedback portion of the rulemaking process. The two most prominent proposals are those to shrink the size of the board to 15 from 21 and to adopt a five-year “cooling-off” period for public board members leaving jobs at regulated firms.
Both aspects of Rule A-3 have drawn criticism over the years, perhaps most prominently from Sen. John Kennedy, R-La., who last year introduced
The RFC poses a number of questions about those aspects of the rule, including asking market participants to weigh in on the benefits and drawbacks to a stricter independence standard, and whether any representation is lost if the board returns to its pre-Dodd-Frank Act 15-member size.
But the RFC also shows that the board is taking a close look at the implications of those changes and at its membership procedures generally, which is consistent with the past statements of MSRB officers and board chairs who have supported taking a holistic approach during rule reviews.
A proposal related to the shrinking of the board would allow (but not require) a non-underwriter dealer-affiliated municipal advisor to fill one of what would be two seats reserved for muni advisors among the seven allotted to regulated members.
This proposed change follows from the board’s belief that the current rule requiring that “not less than 30%” of regulated representatives be associated with a non-dealer muni advisor would no longer be appropriate on a smaller board. The board is seeking feedback on whether to allow a non-underwriter dealer to fill one of those slots, and whether the rule should specify two muni advisor seats.
The board considered, but is not proposing, reducing the four-year terms for board members. The draft amendments would remove the current maximum of two consecutive terms, but provide that a board member could serve for a total of no more than six years. They could then not return to the board, even after a time away.
The RFC also reveals that the board is considering doing away with a requirement to publish the names of all applicants who agree to be considered for board seats.
“While the draft amendments retain a requirement that the board make available on its website the names of all applicants who agreed to be considered by the nominations committee, the board is reconsidering whether this provision should be included in a final rule,” the RFC states. “While this provision is intended to increase transparency, the board believes that it may also deter applications by qualified individuals who may be concerned that a failure to be selected will negatively affect their reputations.”
The request includes a March 30 comment deadline. Following the comment period, the MSRB could choose to request comment on a revised proposal, or could choose to request Securities and Exchange Commission approval.
