[ by Howard Haykin ]

Talk about identity crisis.  Just last month, Executive Director Lynnette Kelly of the Municipal Securities Rulemaking Board ('MSRB') delivered remarks to journalists of the National Press Club that largely resembled a primer on muni bonds and the the MSRB's role in this $3.7 trillion market.

One might be inclined to give members of the press a pass on their lack of familiarity, except for the fact that the municipal market accounts for about 10% of all outstanding debt in the U.S. capital markets.  [ C-I Note:  Can anyone spell "Treasury Bill" or "Note?" ]

Admittedly, the numbers sort of jumble up things.  First off, there are about 1.2 million municipal securities in the market, compared to the corporate bond market where there are only 50,000.  And these muni securities are primarily owned by individually - 75% - either directly or through mutual funds.  Investments held by individuals, rather than institutions usually don't get a lot of publicity.  Nor do we hear about insider trading in municipal bond, which wipes out most, if not all, of the "bling" factor.

Issuers and Conduits.   Typically, issuers of municipal securities include states, counties, cities, and special tax districts, along with special agencies of state and local governments. 

• But states and local governments also can act as conduit issuer - by selling and managing bonds whose proceeds will be used by local governments, nonprofits or other projects with a public benefit.

e.g. - Washington, D.C., may act as a conduit issuer and issue bonds on behalf of Children’s Hospital.

The MSRB Role.   While the MSRB does not regulate state and local governments, the MSRB has seen its mission expand under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Act authorized the MSRB to protect these state and local government issuers, in addition to investors.  The MSRB does so in the following ways:

By regulating investment banks and municipal advisors that act as intermediaries in bond deals.

• Investment banks are responsible for purchasing the newly issued securities from an issuer and selling them to investors.
• Securities firms also sell bonds to investors in the secondary market.
• Municipal advisors provide financial advice to state and local governments on bond issuance and other matters.
• Until now, these advisors operated without any regulation at all.
• The Dodd-Frank Act brought municipal advisors under regulation for the first time and gave the MSRB the authority to writing rules of conduct advisors.

The MSRB currently us waiting for the SEC to finalize its definition of a Municipal Advisor so that the Board can begin to put comprehensive regulation in place for advisors.

Other ways of protecting investors and issuers.

• Making sure that they have information they need to make sound decisions.
• That involves the MSRB's EMMA website.
• MSRB currently is engaged in a long-term project to help investors and issuers better understand the value of municipal securities.
• MSRB plans to expand EMMA to include price discovery tools that will supplement the existing post-trade prices and other information currently on the website.
• MSRB is establishing educational efforts,

>  Enable investors and issuers to make better decisions when they better understand the market.

>  Create extensive online toolkits for investors and issuers aimed at helping them be as informed as possible.

>  Develop educational materials that are independent and unbiased, that can serve as a starting point for any investor or issuer in the municipal market.

Justin Pica, is MSRB’s Director of Product Management, who will talk about the EMMA website.

For the full text of the speech, go to:   [ MSRB Speech, 5/8/13 ].