The Municipal Securities Rulemaking Board (MSRB) is a vital regulatory body that establishes rules and policies for investment firms and banks involved in issuing and selling municipal securities like bonds and notes. States, cities, and counties issue these municipal securities for various public projects.
Key Takeaways
- The Municipal Securities Rulemaking Board is the primary regulator of municipal securities issued in the United States.
- The MSRB sets standards and best practices for both issuers and dealers of municipal securities and mandates the transparency and disclosure of information.
- As a self-regulatory organization, the MSRB oversees its members’ activities, subject to the supervision of the Securities and Exchange Commission (SEC).
Understanding the Municipal Securities Rulemaking Board
The Municipal Securities Rulemaking Board (MSRB) is a self-regulating organization (SRO) overseen by a Board of Directors, with specific committees managing different aspects of the organization. The MSRB sets its own rules and standards, comparable to bodies like the New York Stock Exchange (NYSE) and is subject to oversight by the SEC.
History and Purpose
Established by Congress in 1975, the MSRB was tasked with creating rules and policies to prevent fraud and misleading activities within the securities market. The board was also given the responsibility of supporting fair trading principles and maintaining a system that enables free and open trade. One of the MSRB’s early accomplishments includes creating uniform standards for fair practices among municipal securities dealers.
Major Achievements
- Developed fair practice standards for dealers in municipal securities.
- Facilitated the transition from paper bonds to electronic bonds in the 1980s.
Types of Municipal Securities Overseen by the MSRB
Municipal bonds vary based on the source of their interest and principal repayments. Here’s a look at some of the main types overseen by the MSRB:
- General Obligation (GO) Bonds: Backed by the creditworthiness of the issuer, which has taxing authority. These bonds are typically voter-approved and are the safest, offering lower yields as a consequence.
- Revenue Bonds: Secured by specific revenue streams such as tolls or user fees. These bonds are riskier compared to GO bonds and offer higher yields for similar maturities.
- Short-term Municipal Bonds: Examples include Tax Anticipation Notes (TANs), Revenue Anticipation Notes (RANs), and Bond Anticipation Notes (BANs).
- Exotic or Unique Bonds: Variations including Certificates of Participation and Private Activity Bonds, generally part of a state or local government bond issue.
The MSRB’s Role in Disclosure and Regulation
The MSRB played a pivotal role in the 1980s in assisting the SEC in crafting SEC Rule 15c2-12, which focuses on continuing disclosure. This rule ensures issuers of municipal securities provide regular updates, including annual financial reports and notifications on events like delinquencies or defaults. This approach was spurred by a 1983 incident where the Washington Public Power Supply System defaulted on more than $2 billion in municipal bonds, one of the most significant municipal bond crises in U.S. history.
In addition, the MSRB pioneered the Electronic Municipal Market Access (EMMA) website in the late 2000s, offering free public access to vital information related to municipal securities trading and necessary disclosure documents.
Related Terms: investments, securities market, bond trading, financial stability.
References
- Municipal Securities Rulemaking Board. “Role and Jurisdiction of the MSRB”.
- Municipal Securities Rulemaking Board. “Creation of the MSRB”.
- Municipal Securities Rulemaking Board. “SEC Rule 15c2-12: Continuing Disclosure”.
- Municipal Securities Rulemaking Board. “About EMMA”.
