MSRB seeks federal regulation for 'unregulated' participants in municipal market

By Jennifer Chiou

New York, Jan. 9 - The Municipal Securities Rulemaking Board said that due to the continuing allegations and federal investigations of the behavior of some participants in the municipal marketplace across the nation as well as the widespread confusion over how this market is regulated, it believes that unregulated participants - such as guaranteed investment contracts brokers and the various financial advisers - should be brought under federal regulation.

The board said that this move is necessary "in order that all segments, and not only broker dealers, meet the high standards a fair municipal market that protects investors requires."

MSRB added that it does not know if any of the investigations will show wrongdoing or any violations of law and what the ultimate outcomes will be. Nevertheless, it noted its concern that the appearance of improper activity, specifically related to political contributions, has the danger of tainting the reputation of the municipal marketplace.

The board said it has sought to ensure the highest levels of investor protection and a marketplace that operates both fairly and efficiently through its regulation of municipal brokers and dealers, adding that it instituted in the 1990s a rule (G-37) that severely limits the ability of municipal banking and underwriting professionals to make state and local political contributions, which has virtually eliminated the previous atmosphere known as "pay to play."

MSRB also noted that it has, however, been limited to regulating the conduct of only the broker dealer community.

The MSRB was established in 1975 by Congress to develop rules regulating securities firms and banks involved in underwriting, trading and selling municipal securities.

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