[ by Howard Haykin ] MSRB Chair Alan Polsky testified before a Congressional hearing on the effect of municipal securities provisions of Dodd-Frank.  Friday's testimony before the Subcommittee on Capital Markets and Government Sponsored Enterprises of the House Financial Services Committee, emphasized the need to protect state and local governments in their municipal finance transactions.

“High profile examples like the Jefferson County, Alabama bankruptcy, municipal bid-rigging convictions, and unsuitable derivative transactions sold to local governments illustrate the price of gaps in regulation of the municipal securities market. The MSRB is concerned, above all, with protecting state and local governments in the context of their municipal finance transactions.” -- MSRB's Polsky.

Dodd-Frank Objectives. The Dodd-Frank Act expanded the mission of the MSRB to protect state and local governments and to regulate the professionals that provide them with financial advice. Many of these municipal advisors are subject to regulation for the first time. Mr. Polsky told the Subcommittee that municipal bond transactions often can involve complex structures and typically involve multiple professionals whose compensation is tied to the deal’s closing. “In the majority of cases, state and local government issuer officials are unfamiliar with the mechanics of these transactions,” he said. "Unqualified municipal advisors can compound the challenges faced by issuers in the municipal market and can have undisclosed ties to other market participants that threaten the integrity of the municipal market." The MSRB has developed draft rules to establish fair practice obligations, eliminate conflicts of interest and address pay-to-play issues by municipal advisors. “Our draft rules are designed to promote conduct that is consistent with a municipal advisor’s fiduciary duty to its state and local government clients,” Polsky said. For further details, go to:   [MSRB Press Release, 7/20/12] and    [Advance Text of  Testimony].