WASHINGTON -- Is the Municipal Securities Rulemaking Board a 90-pound weakling when it comes to the authority it has to regulate the municipal bond market?
Some might have thought so from the debate that dragged on for more than a year over whether the MSRB should be allowed to set up an electronic disclosure library for official statements.
Several market participants repeatedly questioned whether the MSRB had the authority to create the library. They argued that the 1975 federal law creating the board intended it to have a narrow function generally limited to writing rules.
But the Securities and Exchange Commission made it clear when it approved the electronic disclosure library plan in June that, except for directly regulating issuers, the MSRB has the authority to do just about anything it wants to make sure the municipal market works efficiently and with integrity.
While the news accounts of the SEC's action concentrated on the electronic library plan itself, the SEC's formal order of approval contains a strong restatement of the MSRB's purpose that should be highlighted.
Not only did the SEC say the library would carry out the important objective of promoting greater bond disclosure, but it reemphasized that Congress intended the MSRB to have broad primary authority over municipal securities dealers and transactions.
"Indeed, Congress emphasized the breadth of this wide grant of authority when it stated that it 'did not believe it would be desirable to restrict the board's authority by a specific enumeration of subject matters,'" the SEC order says.
Proceeding to further blow away arguments that Congress did not give the MSRB express authority to operate a disclosure library or take on other needed functions, the SEC said opponents of the library "misconstrued" legislative language that says the MSRB was to be a limited self-regulatory organization.
That language clarified that the MSRB was not to have authority over issuers, but "should not be read to limit the board's authority to propose and adopt rules, including those that would implement [the library], if those rules" carry out the purpose of the law to improve the municipal market and protect investors and the public.
The SEC then went one step further by saying that the MSRB not only has the authority to create the library, but, if needed, can set up a pricing system for municipals similar to the stock quotation system set up by the National Association of Securities Dealers or take other steps improve the municipal market.
If the municipal market is to remain strong, it must be overseen by a strong regulator. That is why it is important that the SEC took the time to spell out that the MSRB has the authority to do what it needs to do to make the municipal market work.
