WASHINGTON — The Municipal Securities Rulemaking Board will have to significantly increase its resources — both funding and staff — to implement provisions in the financial regulatory reform law that require the most expansive changes to its mission in its 35 years of existence.
But board officials, speaking to reporters Monday in a teleconference call about their meeting last week in Massachusetts, declined to specify the kinds of increases needed. They said they are in the process of discussing them with the Securities and Exchange Commission and plan to file proposals on resource needs with the SEC in August or September.
Meanwhile, the MSRB plans to move forward with its original proposed rule changes for priority of orders, with some minor revisions, such as the clarification that the proposals apply to sole underwriters as well as managing underwriters. The changes are designed to ensure dealers give priority to customer orders over their accounts or the accounts of their affiliates.
The board had pulled back from the original proposal it filed last August after industry officials complained it was unnecessary and confusing. But SEC officials insisted the proposal move forward.
The MSRB also plans to take action on its Rule G-23 during the next week or two, said chairman Peter Clarke. But he declined to specify what that action will be.
The SEC has asked the board to essentially scrap the rule, which currently allows broker-dealers serving as financial advisers in transactions to switch roles and become underwriters in the same deals. SEC chairman Mary Schapiro said recently that the rule clearly creates conflicts of interest — a claim nondealer financial advisers have made in recent years.
The MSRB also plans within the next month or two to issue interpretive guidance for brokers’ brokers, firms that match dealer buyers and sellers of bonds. Several such firms have been subject to enforcement action from the Financial Industry Regulatory Authority in recent months, but Clarke said the guidance is part of the MSRB’s efforts to review all of its “G” rules.
The board’s current Rule G-18 on execution of transactions is two sentences long and merely states that a broker’s broker “shall be under the same obligation with respect to the execution of a transaction in municipal securities” as a dealer.
Meanwhile, executive director Lynnette Hotchkiss said the MSRB is moving toward posting rating agency information on its EMMA website, despite Standard & Poor’s refusal to participate in the process.
The board also plans to move forward and be able to require nondealer FAs to register with it on Oct. 1, as required by the new financial regulatory reform law. It will then spend months drafting, proposing, seeking comment on, and filing with the SEC proposals that would subject dealer FAs to MSRB rules, such as those on fair dealing, pay-to-play practices, gifts, and conflicts of interest. Those rules will be fully vetted by the public and many of them probably will be prospectively effective, Hotchkiss said.
