What market participants want in a new MSRB president

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Market participants want the next Municipal Securities Rulemaking Board president to have knowledge of the industry and solid managerial skills in a time of pivotal change.

Individuals representing different sectors of the market described their hopes for a new MSRB chief Friday following the announcement earlier this month that current president and CEO Lynnette Kelly will leave the MSRB by Sept. 30. The MSRB said it will create a search committee and retain an outside firm to help select the next president.

The MSRB also noted that much of the direction will come from its new chair, Edward Sisk, who assumes that role when the MSRB's new fiscal year starts on Oct. 1.

Leslie Norwood, a managing director, associate general counsel, and head of municipals at the Securities Industry and Financial Markets Association, said the new president needs to be a good manager with deep knowledge of the municipal securities industry. Whoever is chosen should be able to balance the interests of the board and constituent groups as well as focus on issuer and investor protection, Norwood said.

“There are some unique characteristics about the muni industry, particularly about the history and regulation of the industry, so I believe is important that the new president and CEO does have a background in this area,” Norwood said.

Norwood added that the president will need to immediately address filling open positions as well as focus on data. Last week sources confirmed that Lanny Schwartz, the MSRB’s chief regulatory officer, was also departing.


“The focus on data is going to be an area of increasing importance to the industry and to the board,” Norwood said. Specifically, data issues include trade reporting, indices, data integrity, security and transparency through EMMA, Norwood added.

Market participants are also looking for the next president to have a deep knowledge of securities laws and ensure rules are understood to protect issuers.

“We’d very much like to see some issuer experience in a candidate, perhaps someone who has experienced and noted the issuer protections that the MSRB is capable of providing,” a market participant who preferred not to be named said.

Some think the position may change by the time the MSRB finds its new president since it has come under some scrutiny from the Securities and Exchange Commission and lawmakers.

“I think the SEC is going to have a role and I think the board is going to have a role in what they want this job to look like,” said Bill Oliver, spokesman for the National Federation of Municipal Analysts.

There might be some soul searching involved, Oliver added. The MSRB also probably needs someone from the municipal market, he said.

“It’s a pretty complex industry and if they didn’t really have the background in the muni market, I think it would be hard,” Oliver said.

The Government Finance Officers Association wants a candidate that has participated closely with issuers in the past.

“We’d like to ideally have a candidate who has been an issuer or participated closely with issuers and can easily understand how MSRB and SEC rules may inadvertently impact them,” said Emily Brock, director of GFOA’s federal liaison center.


Brock added it would be good for the new president to offer some issuer perspective. The new vice-chair of the MSRB board, Virginia State Treasurer Manju Ganeriwala, understands the MSRB rules’ impact on issuers, Brock said, which is a benefit to issuers.

The National Association of Municipal Advisors expects the MSRB to be transparent in its search for a new president and CEO.

“The next MSRB leader should be knowledgeable of the municipal market, especially as it pertains to the parties the MSRB regulates - municipal advisors and broker-dealers,” wrote Susan Gaffney, NAMA executive director. “The CEO should have the skillsets to manage a large staff, interact with a diverse board, and engage with a wide array of muni market participants.”

Through the change in leadership, the MSRB has the opportunity to reflect and observe what works or doesn’t work well, said Bond Dealers of America Mike Nicholas.

The next president and board should consider that with a good regulatory regime comes fewer fines and bad players, Nicholas added. Nicholas noted that there has not been a decrease in fines over the years.

The person should have a broad background, show leadership in past positions and have direct municipal market experience, Nicholas said.

“What is effective regulation?” Nicholas said. “Whoever takes that job, or there may be multiple people that assume a leadership role there, but they need to examine, what is effective regulation?”

At least one person has already applied to become the next MSRB president and CEO, though it's unclear if the MSRB is accepting applications.

That man is Michael Lissack, a former Smith Barney banker who helped the government win hundreds of millions of dollars as a whistleblower and reaped tens of millions for himself in the process. He filed whistleblower lawsuits against Wall Street and other firms in 1995 over charges they engaged in yield-burning.

His own alleged misdeeds led to him being barred from the industry in 1998. In the years since he has been an entrepreneur, academic, and real estate broker, losing a fortune in various ventures by his own admission.

Lissack is now Edelweiss Fund LLC’s expert consulting witness in its whistleblower suits against Wall Street and regional banks and broker-dealers accused of “widespread fraud and collusion” in connection with remarketing the variable-rate demand obligations.

In Lissack’s application letter, he references his understanding of the context that rules and rulemaking create in the municipal securities world. Lissack also writes that the muni market needs reform, especially in terms of disclosure and the way credit ratings are assigned.

His application argues that the board is well-positioned to make muni market disclosure more intelligible, and proposes that the MSRB adopt a ratings fee which assessed against all new issuances. The fee would pay for ratings to be obtained from two rating agencies selected at random.

Existing regulation has failed to eliminate the "explicit conflict" present in allowing issuers and their bankers to choose who rates their bonds, Lissack wrote.

“The reforms I am suggesting would go a long way to making the municipal securities marketplace transparent and fair,” Lissack wrote. “It often requires an outsider to implement reforms at this scale. I have the unique advantage of being both an insider and an outsider.”

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