What Is the Municipal Securities Rulemaking Board (MSRB)?
Let me explain to you what the Municipal Securities Rulemaking Board, or MSRB, actually is. It's a regulatory body that establishes rules and policies for investment firms and banks involved in issuing and selling municipal bonds, notes, and other municipal securities. You see, states, cities, and counties issue these securities for various reasons, often to fund public projects.
The MSRB regulates activities like underwriting, trading, and selling these municipal securities that finance those public initiatives.
Key Takeaways
- The Municipal Securities Rulemaking Board (MSRB) serves as the primary regulator of municipal securities issued in the United States.
- The MSRB establishes standards and best practices for issuers and dealers of municipal securities, while mandating transparency and disclosure for each issue.
- As a self-regulatory organization, the MSRB monitors its members and their activities, all under the oversight of the SEC.
Understanding the Municipal Securities Rulemaking Board
I want you to understand that the Municipal Securities Rulemaking Board (MSRB) operates as a self-regulating organization, managed by a Board of Directors and four committees that handle specific governance and operational aspects. Similar to the New York Stock Exchange (NYSE) or the National Association of Securities Dealers (NASD/FINRA), the MSRB sets its own rules and standards, but these are ultimately supervised by the Securities and Exchange Commission (SEC).
Congress created the MSRB in 1975 with the mission to develop rules and policies that prevent fraud and misleading practices in the securities industry. It also supports fair trading principles and maintains a system for free and open trade in the market. One of its early achievements was establishing uniform standards for fair practices that municipal securities dealers must follow. Additionally, the MSRB helped transition from paper bonds to electronic versions in the 1980s.
Types of Municipal Securities the MSRB Oversees
You should know that municipal bonds are categorized by the source of their interest payments and principal repayments, and they can be structured in ways that offer different benefits, risks, and tax treatments.
General obligation (GO) bonds are backed by the issuer's creditworthiness and taxing power, requiring voter approval for issuance; these are the safest, so their yields are typically lower. Revenue bonds are secured by specific revenue streams like tolls or user fees, making them riskier than GO bonds and thus offering higher yields for similar maturities. Short-term municipal bonds include items like Tax Anticipation Notes (TANs), Revenue Anticipation Notes (RANs), and Bond Anticipation Notes (BANs). Exotic or unique bonds are variations on these, such as Certificates of Participation and Private Activity Bonds, often part of state or local government issues.
Disclosure and the Regulatory Role of the MSRB
In the 1980s, the MSRB played a key role in helping the SEC develop Rule 15c2-12, which requires ongoing disclosure. This means issuers must provide the MSRB with regular information about their securities, including annual financial reports and notices of events like delinquencies, defaults, unscheduled draws on reserves, or anything affecting tax-exempt status.
This rule stemmed from the 1983 default by the Washington Public Power Supply System on over $2 billion in municipal bonds, one of the largest municipal bond failures in US history.
More recently, the MSRB has led the way in electronic records by launching the Electronic Municipal Market Access (EMMA) website in the late 2000s, giving you free public access to municipal bond trading information and disclosure documents.
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