WASHINGTON -- Citing concerns that the Municipal Securities Rulemaking Board has failed to effectively lead the municipal industry through some of its roughest waters recently, a GFOA panel has asked the board to open some of its meetings to the public and change the process it uses to select members.
"Many market participants and other Observers have criticized the MSRB for its lack of leadership in the municipal bond arena," said Aurel M. Arndt, chairman of the Government Finance Officers Association's committee on governmental debt and fiscal policy, in a four-page letter yesterday to board chairman David C. Clapp.
Criticism has focused, in particular, on the "failure to lead the industry ... to cooperatively resolve disclosure issues and concerns about political contributions," said Arndt, whose panel voted June 4 to send a letter to the MSRB expressing deep concerns about what it views as the board's overly secretive procedures.
"We are suggesting that more openness and better disclosure in the operation of the MSRB are both necessary and desirable," said Arndt, who is general manager of Lehigh County Authority in Allentown, Pa. The board should modifying rules to allow for more open rulemaking, Arndt said. It should also improve the process it uses to nominate its 15 members so that there is greater "accountability to issuers, investors and broker/dealers," he said.
But the GFOA said it does not back a move sought by two regional treasurers groups. The Southern State Treasurers Association and the Midwest State Treasurers Association recently passed resolutions charging that issuers indirectly bear the costs of running the MSRB, and, therefore, should have broader membership on the board. Such a move could require federal legislation, which the GFOA warns could lead to unwanted new mandates for the market.
The board is required by law to have five members representing securities rims, five representing bank dealers, and five representing the public, including at least one representative each for issuers and investors. Currently, there are three issuers on the board, the highest level ever.
Arndt said that while the finance officers association does not back new legislation, the treasurers' resolutions mirror frustrations that many have felt with the MSRB. He cited in particular "the lack of adequate outreach and meaningful consultation with public officials on important issues" such as political contributions and the operation of the board's electronic library for official statements and secondary market disclosure.
"I've received the letter. I'm not going to comment on it now," Clapp said in a telephone interview yesterday. "But I will seek to set up a meeting with the GFOA and talk about it. We've started that process."
Arndt said that unlike Securities and Exchange Commission meetings, MSRB meetings are closed to the public. He said there should be an "appropriate balance" between those that are private and public.
"Minutes, transcripts or tapes of MSRB meetings are not available," Arndt said. The MSRB's quarterly report to dealers, MSRB Reports, is informative, but it does not discuss the deliberations and positions of participants, he said. "We believe that all market participants have a right to know the nature of discussions that lead to the enactment of rules and regulations."
MSRB agendas are confidential, Arndt said. "We believe the agendas should be published in advance and members of the MSRB should be able to actively solicit input on issues before the board."
Unlike the SEC, the rulemaking. board has refused to allow access to public comments submitted on proposed rules until after the board has reviewed the documents, Arndt said. "This is an unreasonable restriction on public disclosure and a free interchange of ideas that needs to be changed."
The process that the MSRB uses to nominate its members is seen as a "closed and self-perpetuating process," Arndt said. "Public members are subject to SEC approval, but dealer and banker members are not. We support a more open nominating process."
Arndt said the MSRB focuses on the technical background and on-thejob experiences of issuer candidates. But members with political savvy would also be a good idea, he said. The board should put more emphasis on "the networking capabilities of MSRB issuer representatives" and their ability to serve as effective liaisons to other issuers, he said.
Board supporters say that the board's procedures are no different than those of other so-called self-regulatory organizations, such as the National Association of Securities Dealers and the New York Stock Exchange. The NASD, for instance, keeps a fight rein on minutes of its board meetings
But John Gunyou, the Minnesota finance commissioner who chairs the GFOA panel's subcommittee on disclosure, said at GFOA's meeting earlier this month that the MSRB should be held to a higher level of accountability because it has a different relationship with the firms that it regulates. For instance, the firms that the NASD regulates are also members, whereas municipal broker-dealers are not members of the MSRB. Also, unlike other self-regulatory groups, the MSRB was directly created by federal law.
