MSRB today urged expansion of the exemption for governmental obligations in the proposed Volcker Rule that pertains to proprietary trading in banks, out of concern that a significant class of municipal securities would be excluded from the exemption.  The MSRB believes that oversight would result in a “bifurcation” of the municipal securities market without benefiting the soundness of the banking system. The MSRB expressed its views in a letter on Tuesday that was sent to the Comptroller of the Currency, the Federal Reserve, the FDIC, and the SEC.  As proposed, the Volcker Rule contains certain prohibitions and restrictions on the ability of banks and their affiliates to engage in proprietary trading. The MSRB would like to see the Rule's “governmental obligations” exemption to be broaden so as to include all “municipal securities.”  The MSRB points out that, nowhere in the Dodd-Frank Act, is there the mandate to apply “the narrowness of the ‘government obligations’ exemption. "In fact, banking and securities law definitions of ‘political subdivision’ that pre-dated the [Dodd-Frank Act],  and that gave expansive meaning to the words ‘political subdivision’ to effectively parallel the definition of ‘municipal securities’ under the Exchange Act, might well have been considered by Congress in drafting this provision of the Dodd-Frank Act.” This change is essential because the other exemptions from the proprietary trading prohibition - for underwriting activities, trading on behalf of customers, and market making activities - are structured in such a way that they are not useful in the municipal securities market.   The MSRB is respectfully of the view that, without modification, the Volcker Proposal will serve as an impediment to a free and open market in municipal securities to the detriment of investors and issuers of municipal securities.” For further details, go to:   [MSRB News Release, 1/31/12].