MINNEAPOLIS -- A Government Finance Officers Association panel has voted to send a letter to the MSRB expressing grave concerns about what it views as the board's overly secretive procedures.
But at a meeting on Saturday, the GFOA's government debt and fiscal policy committee stopped short of agreeing to join a growing number of state treasurers who are pushing the Municipal Securities Rulemaking Board to include more state and local issuers on the board.
The GFOA is not pushing for more representation because the MSRB probably would have to seek legislation to get it, John Gunyou, who chairs the disclosure subcommittee of the GFOA's debt panel, told finance officers who are holding their annual convention here this week.
That would be dangerous for issuers because Congress could use the opportunity to pile on unwanted requirements, said Gunyou, who is Minnesota commissioner of finance.
Nevertheless, steps need to be taken to make the 15-member board more accountable for its actions, Gunyou said during a meeting of the debt panel.
"The MSRB's agendas are confidential. Detailed minutes are secret. There is no public record that's generally available about the discussion that goes on. It's a very laundered agenda," said Gunyou, who is a former MSRB vice chairman.
Gunyou's remarks come two months after the Southern State Treasurers Association passed a resolution charging that issuers indirectly bear the costs of running the MSRB, and, therefore, should have broader membership on the board. The group asked the MSRB to meet with state treasurers "at the earliest possible opportunity and on a continuing basis" to discuss the board's policies and finances.
The Midwest State Treasurers Association passed a similar resolution three weeks ago.
The MSRB is required by law to have five members, each representing securities firms, bank dealers, or the public, including at least one representative each for issuers and investors.
But critics of the current makeup said that board rules have an impact on many market sectors; therefore, the panel should have greater representation among issuers, buyers, and other sectors. Moreover, the board's makeup is outdated given the shrinkage in the bank dealer sector, critics said.
Currently, the board has three issuer representatives, but generally the number has been less.
Gunyou said Saturday that the MSRB should be held to a higher level of accountability than other selfregulatory organizations because it has a different relationship with the firms that it regulates.
For instance, the firms that the National Association of Securities Dealers oversees are also members, whereas municipal broker-dealers are not members of the MSRB, he said. The NASD, like the MSRB, keeps a tight rein on minutes of board meetings.
"The MSRB should operate more like a governmental agency than a trade association," Gunyou said. The Securities and Exchange Commission, for instance, makes comment letters on its proposals available to the public immediately, he said. "The MSRB was established by Congress, and it enacts rules that have the same legal force as the rules of the SEC," he said.
"The irony here is that we have the issuers on one end and the investors on the other end and the people in the middle are writing all the rules. There's something wrong with that picture," Gunyou said.
As another example of the board's lack of openness, Gunyou cited delays by the MSRB in reporting on its progress in setting up the Municipal Securities Information Library, or MSIL. When the SEC voted to establish the library, it called on the board to supply a report on the facility's progress within a year. "It's been two years now, and that has still not taken place," Gunyou said.
In other comments, Gunyou said the disclosure subcommittee opted to make no changes, for now, in the position the GFOA adopted in February on conduit bonds. The board said private-activity bonds should, at a minimum, be covered by the tighter disclosure standards outlined in a joint statement developed by 12 industry groups in December. But it did not go so far as to call for federal legislation to require registration of some conduits bonds.
The SEC staff is drafting legislation calling for the registration of some conduit bonds. Asked when the SEC's proposal is likely to reach Congress for consideration, Robert Colby, deputy director of market regulation at the SEC said Friday, "I can't answer that." He said it is difficult to draft a definition of conduit bonds given all the "vagaries."
Colby made the statement during a panel discussion on disclosure in Chicago sponsored by Prentice Hall Law & Business.
"The concern," Gunyou said, "is that to go beyond that at this point and to have any type of registration could be the proverbial [camel's] nose under the tent." Moreover, the SEC "has not done much to precisely define what a conduit bond is," he said. "The long and short of it is that the committee should remain ever vigilant as the debate continues on this."