The Securities Act Amendments of 1975 created the Municipal Securities Rulemaking Board (MSRB), a self-regulatory organization (SRO) that writes rules governing broker dealers engaged in municipal securities transactions. The MSRB is required to write rules governing broker dealers to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, and processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest.
MSRB rules are approved by the Securities and Exchange Commission (SEC) and the MSRB has only limited enforcement authority. MSRB rules are enforced primarily by the Financial Industry Regulatory Authority (FINRA).
Dealers, banks, investment advisors, municipal financial advisors, mutual funds and rating agencies are regulated directly by the SEC, and dealers and banks and municipal financial advisers involved in the municipal bond market are subject to MSRB rules.
Municipal bond issuers are not directly regulated at the federal level with the exception of anti-fraud laws because of the Tower Amendment, which was included in the 1975 Amendments and excludes issuers from regulation.
Because municipal issuers are exempt from direct regulation by the SEC and MSRB, some issuer behavior is regulated indirectly through dealers. MSRB and SEC rules are written to require dealers to direct issuers to disclose or pledge to disclose material information to investors.
SEC Rule 15c2-12 imposes requirements on municipal bond dealers regarding issuer disclosure practices in the primary and secondary markets. Recently, the SEC approved amendments to Rule 15c2-12, effective December 1, 2010.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the Government Accountability Office (GAO) conduct a study of issuer disclosure practices, including a recommendation on whether to maintain, amend or repeal the Tower Amendment, and a study of a variety of municipal market-related issues such as transparency, liquidity, market innovations and the use of derivatives.
The SEC is also conducting a series of field hearings to examine the municipal securities markets, the first of which was held in San Francisco on September 21, 2010. Topics include disclosure and transparency, credit ratings, and internal controls.
SIFMA supports reasonable
efforts to improve the disclosure practices of municipal bond issuers. In regards to proposed amendments to Rule 15c2-12, SIFMA supports improvements in continuing
disclosure to investors and expressed its general agreement with the SEC that
the amendments would achieve that goal.