The Municipal Securities Rulemaking Board (MSRB) - FOX21- Entertaining Delmarva One Click at a Time

The Municipal Securities Rulemaking Board (MSRB)

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Here's everything you need to know about MSRB.

The Municipal Securities Rulemaking Board (MSRB) exists because cities can’t always be trusted with their municipal bonds. Investing in bonds already involves a degree of risk. The MSRB exists to prevent municipal bonds, notes, and other securities from becoming overly risky for investors. If a city wants to float bonds to fund a public project, the MSRB will be there to oversee the sale, trade and underwriting of those bonds.

The History of The Municipal Securities Rulemaking Board

The MSRB is a self-regulatory agency that oversees the municipal debt market. It creates rules and policies intended to prevent fraud within the securities industry and promote fair, free, and open trading.

The MSRB was created in 1975 by the Securities and Exchange Commission (SEC). That year, New York City almost went into default after it couldn’t cover its obligation to bond investors.

Congress created the organization as a means of preventing bad investments and fraud in the municipal bond markets. By doing so, it protected investors and the general public.

The MSRB developed standards and guidelines for fair and transparent investing among municipal securities dealers. It also helped the nation transition from traditional paper bonds to electronic versions in the 1980s. Even with these practices in place, though, there were still issues where cities and municipalities were in financial trouble.

In 1983, the Washington Public Power Supply System defaulted on more than $2 billion in municipal bonds. Subsequently, in 1994, Orange County, Calif., declared bankruptcy. As a result, the MSRB crafted SEC Rule 15c2-12, which requires issuers of municipal securities to provide annual financial reports and notices of delinquencies and defaults. The MSRB also demanded that issuers notify investors when a city taps debt reserves or does anything else that would affects the tax-exempt status of municipal securities.

The group also launched the Electronic Municipal Market Access (EMMA) website launched in 2009. It provides free access to municipal bond trading data and disclosure documents.

What Does the MSRB Do?

Here's everything you need to know about MSRB.

The MSRB organization protects investors, state and local governments and the public as a whole by promoting a fair municipal securities market. They do this through the following steps:

  • Regulation: Above all else, the MSRB creates rules designed to keep markets fair and clear of fraud. Those rules are backed by the federal government. If you break MSRB rules, you’re breaking federal law.
  • Transparency: The MSRB allows for free access to municipal bond information. Investors, financial professionals, and the general public all have equal access to that information through EMMA.
  • Education: The organization considers the information it provides the public objective and independent. It positions itself as a nonpartisan resource for the municipal bond market.
MSRB Improvements

The MSRB has an ongoing mission that uses a number of benchmarks to measure its success. MSRB’s current benchmarks include the following:

  • Cloud computing: The organization is attempting to update its information technology and use “big data” to refine its market analysis. It also hopes to give more people to access to its information through the cloud. 
  • Efficiency: The MSRB is consistently updating its rules and regulations with the most current market-based information. Consequently, it’s hoping to minimize outdated rules, clarify them, and measure potential outcomes and economic impact.
  • Feedback: MSRB is listening to both the public and the financial industry and asking for feedback. Its created an advisory group to help handle that feedback and continues to take submitted comments.
  • Improving EMMA: The site has been up for a decade and could use some updates. The MSRB is trying tosimplify the submission process and improve the indexing of data featured on the site.
  • Fiscal improvements: The group is attempting to whittle down reserves by operating at a deficit and keeping spending flat. reduce reserves with a deficit budget and no increase in spending. It’s also looking for funding beyond fees to make sure it remains financially sustainable for the foreseeable future.
Conflicts of Interest

The MSRB works towards transparency within the municipal bonds market as well as within their organization. It even has a page dedicated to submitting complaints against MSRB itself

Because of this, it has instated a conflict of interest policy for MSRB board members and their families. There are several potential conflicts of interest for MSRB board members, but the following are particularly sensitive:

  • Lobbying: No board member can serve on a committee or in any other leadership position of organizations that regularly engage in lobbying or advocacy. 
  • Employment status: If a board member’s job changes or even if they are actively taking interviews, they must notify the board chair. Even if the job change isn’t official yet, they need to disclose it..

Every year, board members are required to sign a conflicts disclosure form. They acknowledge they understand what constitutes a conflict of interest (or a potential one) and how to follow procedures that are currently in place.

MSRB At Work

Here's everything you need to know about MSRB.

As mentioned earlier, MSRB’s mission of a fair municipal bond market for investors is ongoing. Its approach to that mission often changes. The following are some of the group’s most recent actions:

  • Improving issuer protections: Feedback noted that disclosures could focus more on risks and conflicts for investors making a transaction.
  • Mark-up disclosure: It’s been a year since the rule requiring dealers to disclose their compensation for certain municipal bond transactions went into effect. The MSRB determined that there have been no unintended consequences for dealers.
  • In-person education: The organization recently hosted a municipal finance day in Washington, D.C. for recent high school graduates who participated in an Urban Leadership Fellows Program. The event was just part of the group’s education initiatives.
Bottom Line

The MSRB owes its existence to the instability and fallibility of the municipal securities market. While it hasn’t made municipal bonds or notes completely devoid of risk, it’s provided important protections for investors.

The group continues to engage and educate investors, students and the general public on the fair practices and impact of municipal bond markets. As updates to its EMMA online database continues, the MSRB continues to be an invaluable resource for anyone looking to understand municipal bonds.

Bond Tips
  • Wondering if municipal bonds are right for your portfolio? You might want to talk to a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • There are many different types of bonds out there. If municipal bonds don’t turn out to be a good fit for your portfolio, SmartAsset’s step-by-step guide to buying bonds may help you determine which bonds are right for you and how to find them.

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The post The Municipal Securities Rulemaking Board (MSRB) appeared first on SmartAsset Blog.

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