WASHINGTON - The Municipal Securities Rulemaking Board has never quite lived up to its promise.

Created by Congress in 1975 in reaction to the "Bond Daddy" boiler room scandals of the early 1970s, the MSRB technically has succeeded in carrying out its mission of writing rules to prevent fraudulent and manipulative acts by dealers and to protect investors and the public interest.

But, really, the MSRB has failed because of the way it has done its job.

Rather than lead on issues, the MSRB has almost always followed.

After the bustle of its first four years when the initial rules were put into place, much of the MSRB's work in the ensuing 14 years has consisted merely of fine-tuning the rules in what appears to be a rear-guard action devoted primarily to maintaining the status quo.

Almost without exception, the board has reacted to developments in the marketplace. It has almost never anticipated them.

And that's pretty much the way the dealer community and the dealer-dominated MSRB wants it. The board generally does only what it has to and rarely takes the lead on any issue.

Two prime examples are the issues of disclosure and political contributions.

In both cases, it has taken disasters, scandals, or pressure from the Securities and Exchange Commission and Congress to get the board to move.

It took the biggest default in municipal history, the $2.25 billion Washington Public Power Supply system default 10 years ago, plus heat from the SEC and the House securities panel, before the MSRB was goaded into developing its electronic primary disclosure system and its secondary market disclosure pilot project.

It took the recent influence-peddling scandals in New Jersey and Louisiana plus the hot breath of Congress to get the board to finally propose a two-pronged rule designed to control political gifts made by dealers to issuers.

And SEC commissioner Richard Roberts has spent nearly three years almost single-handedly prodding the MSRB into beefing up its customer protection rules, setting up a price dissemination pilot project, and trying to improve secondary market disclosure.

If the MSRB is to be a leader, it's high time for Congress to change the board from a dealer-dominated club and make it truly representative of the market. By law, the 15-member board now contains 10 representatives of underwriters and five members of the public, including one representative each of investors and issuers.

But Congress should consider changing that to a system of equal representation for issuers, investors, and underwriters - the three major participants in the market.

The injection of new blood from the people who issue municipals and the people who buy them might make the MSRB a leader rather than a follower. It might bring the board closer to fulfilling its mission.

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