What is the Municipal Securities Rulemaking Board (MSRB)?

The Municipal Securities Rulemaking Board (MSRB) regulates municipal bond underwriters and dealers in an attempt to prevent fraud and manipulation in the issuance and trading of municipal bonds.

Congress created the MSRB when it passed the Securities Acts Amendments of 1975. Before its creation, financial institutions that engaged in municipal securities transactions did not have to register with any regulator or with the Securities and Exchange Commission (SEC).

How Does the Municipal Securities Rulemaking Board (MSRB) Work?

Despite its Congressional charter, the MSRB is a private entity funded and staffed by municipal bond underwriters, issuers and dealers. As a private entity, it regulates only its own members, although it delegates examination and enforcement of its rules to the National Association of Securities Dealers (NASD), the Federal Depository Insurance Corporation (FDIC), the Federal Reserve and the Comptroller of the Currency. The SEC also oversees the MSRB. All municipal bond dealers must register with the MSRB before he or she can engage in any municipal bond transactions. The MSRB does regulate issuers of or investors in municipal securities.

The MSRB has 15 directors on its board. Five of them represent bank dealers, five represent securities firms and five are members of the public who are not associated with any bank dealer or securities firm. One of these public members must represent a municipal bond issuer, and another must represent municipal bond investors. Directors serve staggered three-year terms.

When the MSRB wants to create a new rule, it publishes a proposed rule in its MSRB Reports newsletter. There is usually a 60-day comment period. The MSRB directors then adopt or drop the proposed rule, taking into account the feedback. If the MSRB adopts the rule, it passes it on to the SEC for review. If the SEC approves the rule, the MSRB publishes the rule in the Federal Register. Another comment period follows before the SEC can formally approve the rule.

Why Does the Municipal Securities Rulemaking Board (MSRB) Matter?

The MSRB is the primary regulatory authority in the municipal bond industry. Its job is to create rules and regulations that prevent fraud or manipulative practices and promote fair trade, efficient trading operations and an open market. The MSRB also dictates professional qualification standards, recordkeeping standards, transaction standards and quotation standards. Although it is a private entity that is funded and run by the industry, the layers of federal oversight provide some backstop to any self-serving industry regulatory actions.