Presidential hopeful Elizabeth Warren cosponsors MSRB reform bill

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A presidential candidate has signed on as the second cosponsor of a bipartisan bill aimed at reducing industry influence at the Municipal Securities Rulemaking Board.

Sen. Elizabeth Warren, D- Mass., co-sponsored the bill about two weeks after Sen. Doug Jones, D- Ala. signed on. The bill, the Municipal Securities Rulemaking Board Reform Act, was introduced at the end of April by Sen. John Kennedy, R- La.

“The Municipal Securities Review Board will only keep investors and the market safe if it is strong and independent," Warren said in a statement. "I cosponsored the MSRB Reform Act because it increases oversight by the SEC and slams the revolving door between the MSRB and the entities it regulates.”

Market participants said that Warren's decision to sign her name to the bill raises its profile because of her political prominence. Warren has long been a proponent of financial industry reform, criticizing big banks and positioning herself as a staunch consumer advocate. She won election to the Senate in 2012 and is a member of the Senate Committee on Banking, Housing and Urban Affairs along with Kennedy and Jones.

“Senator Warren has been a leader in financial reform and it would appear that she sees this as fitting into that arena,” a market participant who asked not to be named said. “It obviously is of more than usual interest because she is not just another senator.”

Warren is seeking her party's nomination for the presidency, and is currently running third at 14% of the vote, according to the real Clear Politics average of polls conducted between July 25 and Aug. 4. She trails former Vice President Joe Biden and Sen. Bernie Sanders, D-Vt., and has performed well so far in two debates. Warren qualified for the September debates in both polling and fundraising, according to CNN.

There is no markup or hearing scheduled yet to discuss the bill, a Hill staffer said. There is the possibility and hope of an equivalent bill in the House, but there is no definite lead at this time, they said.

Warren’s cosponsorship adds more prominence to the bill, but it won’t have much of an impact on it moving forward. However, if a Republican senator signs on, then it would be a “whole different deal,” the market participant said.

“It would be a lot more interesting in the Senate if there was another Republican cosponsor at some point,” the market participant said. “Maybe there will be.”

This isn’t the first time Warren has been vocal about the municipal market. In 2016, she co-signed a letter with five other senators including fellow presidential candidate Sanders, calling on the Securities and Exchange Commission to investigate potential fraud and illegal conduct which may have contributed to Puerto Rico’s debt crisis.

And this also isn’t the first time Kennedy and Warren have worked together on a bill.

In 2018, Kennedy cosponsored Warren’s bill, the Compensation for Cheated Investors Act, which directed the Financial Industry Regulatory Authority to use its authority to compensate investors for unpaid arbitration awards against FINRA members. The bill did not become law.

Kennedy’s MSRB bill would whittle down to 15 the 21-member board and require a five-year cooling- off period for public members who have previously worked as bankers, brokers or municipal advisors. The board’s current 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.

The bill would also cap board members’ compensation and grant control of board membership to the SEC, rather than the current internal process where the MSRB selects its own members.

Federal law requires that the board be made up of a majority of public board members, but Kennedy and many market participants have pointed out that public board seats are sometimes filled by retired investment bankers. While those members have always met the board membership requirements for public members, there have been calls to increase the length of time members must be away from the industry before they can qualify as public representatives.

When Kennedy was searching for cosponsors for his bill, MSRB Chair Gary Hall said in a statement that the board continually re-examines its governance process against industry best practices, and that it may ramp up those efforts in the near future.

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Bond legislation MSRB rules SEC regulations Elizabeth Warren MSRB SEC Washington DC