MSRB Dissent On Muni Data Proposal May Not Matter

The Municipal Securities Rulemaking Board (MSRB) has registered its unhappiness over a series of Securities and Exchange Commission proposals to increase the financial information which municipal bond dealers must make available to their customers -- but the SEC may go ahead with its plans anyway.

The SEC's proposals -- announced back in March -- would bar broker-dealers from recommending a muni bond unless they have reviewed the most recent information about that bond; such data may end up being sent to more than 50 separate repositories which dealers would have to search before investing (IMD, March 14). The proposals may well have the effect of creating a new market for vendors and would-be vendors of muni data.

According to MSRB chairman Chris Taylor, while the MSRB supports the idea of offering increased information to bond buyers, it disagrees with the fact that broker-dealers will not be allowed to sell a bond unless they can guarantee that they have reviewed certain data. Taylor notes that the proposals don't address specifically how muni dealers will get the required information; he says they simply assert that state and local governments would be forced to issue a financial statement on a bond each year following its issuance.

The MSRB -- the agency established by municipal bond dealers to regulate the industry -- is responsible for enforcing muni guidelines passed by the SEC. While the SEC has the power to pass rules without the aid of Congress, the commission opted not to enact the current muni proposal immediately, but instead opted to solicit outside opinions.

The MSRB voiced its objections in a letter to the SEC, received Aug. 4. Despite the MSRB's close statutory relationship with the SEC, an SEC spokesperson says that the Board's letter is just one of many -- and that the proposal may indeed pass regardless of the MSRB's objections. Agency watchers continue to debate what impact the MSRB's letter will have, but the leading theory is that the SEC's proposals will go through pretty much unchanged.

Should the proposals become law, the spokesperson says that the market may end up with "numerous repositories for municipal bond data -- rather than one repository, such as the MSRB." According to the spokesperson, though the proposal does not yet specify how the brokers will receive information from the numerous nationally recognized municipal securities information repositories (Nrmsirs), "chances are" it will be in an electronic format. All that will be determined after the end of the review period, the spokesperson says.

There are currently three nongovernment-affiliated Nrmsirs: Bloomberg, McGraw-Hill Inc.'s J.J. Kenny Co. and Thomson Financial Services Inc.'s Bond Buyer.

The MSRB spokesperson denies that the Board's letter to the SEC was part of an effort to position itself as the sole repository of the muni data required in the SEC proposals. At press time, it continued to remain likely that the SEC's vision of numerous Nrmsirs would ultimately become a reality.

In a March interview with IMD, Kate McGuire, chief counsel of the SEC's division of market regulation, said that the SEC's rule contemplates such a multiplicity of repositories -- not only the three existing repositories, but also single-state repositories based in each state in the U.S.

"The way the rule deals with the concern about having multiple places [is that] the MSRB would have an index to tell which repository a specific issuer had decided to use," McGuire said at the time. She didn't rule out the possibility of the three current non-government Nrmsirs running alongside 50 government repositories, and also one run by the MSRB. "The MSRB might -- and could -- be one," she said.