WASHINGTON – Several municipal market groups are telling the Securities and Exchange Commission they support Municipal Securities Rulemaking Board changes that would shift the board members' term limits to four years from three.
The MSRB initially released its proposed changes for its Rule A-3 on board membership on Oct. 25, arguing the change would improve continuity and the board's institutional knowledge from year to year while still maintaining regular turnover. Market participants have generally supported the idea in past comment letters to the MSRB.
Michael Decker, Securities Industry and Financial Markets Association managing director and co-head of municipal securities, told the SEC that SIFMA agrees with the MSRB changes that four-year terms would allow the MSRB to leverage the experience of board members who are two or three years into their service.
The MSRB board currently has 11 public and 10 regulated members who serve staggered three-year terms. Each MSRB fiscal year, which begins on Oct. 1, seven members leave the board and seven new ones join. The MSRB names each incoming group of seven the "class" of the year they are scheduled to leave the board and at any one time there are three "classes" serving on the board.
The new arrangement would have four classes instead of three and because of that change, the MSRB has also proposed eliminating a requirement that each class have at least one non-dealer municipal advisor. However, the MSRB would retain the requirement that the board in its current form must have at least three non-dealer advisors at any one time.
The shift to four-year terms would be especially helpful for public members who may have had limited exposure to the municipal market and the municipal securities dealer and municipal advisor industries, Decker said.
"By the time a new board member fully acclimates to their role, they may be near the end of their term. Extending board terms to four years would help address this issue," he said.
Decker added that another proposed change, to limit the number of consecutive terms a member could serve to two, is a "reasonable approach" to an industry concern that some board members may serve for longer than is appropriate.
Members would only be eligible for a second term if they are invited to do so because of a board-determined special circumstance or if they are filling a vacancy and are therefore only serving a partial term.
Mike Nicholas, chief executive officer of Bond Dealers of America, said in his letter that the changes "will promote continuity of knowledge amongst board members." BDA also recommended that the MSRB use the changes to reevaluate its training process for board members and make sure to continuously keep the process up to date to reflect any changes in market practices or new regulations.
"This would ensure that the board member understanding of the various regulatory and market issues in consideration before the MSRB is comprehensive," Nicholas said.
Both the National Federation of Municipal Analysts and the National Association of Municipal Advisors also said they support the changes.
"We feel that the board members will be better able to make considered judgments on issues that have been under discussion for multiple years," NFMA said in its letter. The group also said the two-term limit would encourage broader participation from industry and public representatives.
Under the proposal, three of the four classes serving at one time would have five members and one would have six. The new structure would maintain the majority-public nature of the 21-member board, the MSRB has said.
The transition to the new term limits would begin in the MSRB's fiscal year 2017 and make any previously elected board member whose term will expire on or after the end of MSRB fiscal year 2016 eligible for a one-year extension. The full board would then vote by ballot to determine who receives the extensions as the transition takes place over the next few years, according to the MSRB.
Starting in fiscal year 2017, one public representative from the class of 2016 will receive a one-year extension and six new members will join the board. Then, for fiscal year 2018, one public and two regulated representatives from the class of 2017 will receive one-year extensions and five new members will join the board. Finally, for fiscal year 2019, three public and two regulated representatives from the class of 2018 will receive a one-year extension and five new members will join the board.
