WASHINGTON - The Municipal Securities Rulemaking Board has shelved its controversial proposal to ease independence standards to obtain a public investor on its board and will instead establish an investor advisory group.
The board announced its decision in a notice released on Thursday.
Its proposal to amend its Rule A-3 on board membership, drew negative feedback from several groups and, most notably from Rick Fleming, the Securities and Exchange Commission's Investor Advocate, who called it "deeply flawed" and said it would "undermine the very purpose" of the Dodd-Frank Act.
Former board members, the Securities Industry and Financial Markets Corporation, and the National Federation of Municipal Analysts supported the proposal as a way of broadening the candidate pool, but the National Association of Municipal Advisors and Consumer Federation of America said the change would have promoted dealers and institutional investors at the expense of retail investors.
Under its current structure, which was created after Dodd-Frank mandated the board have a public majority, the MSRB board has 21 members, 11 public and 10 regulated. The public members must be independent from muni brokers, muni advisors, and banks, meaning they have "no material business" with any of those entities.
The MSRB defines no material business as meaning individuals who are not, and have not been, associated with a regulated entity for two years. They also cannot have a compensatory or other relationship with a regulated entity that would affect their independent decision-making.
At least one of the public members must represent institutional or retail investors, one must represent issuers and one must have knowledge of or experience in the muni industry.
The proposal would have changed the requirements to allow an employee or officer of an MA-affiliated or dealer-affiliated investment advisory firm to be considered for the independent public investor position.
The advisory group the board plans to create will "provide the board of directors with a formal mechanism for accessing the expertise of active municipal investors," said Kym Arnone, the MSRB board chair.
"We are satisfied that the creation of the advisory group will address our current concerns and provide an excellent way for us to access the knowledge of experienced municipal securities investors," she said.
The MSRB will announce the members of the new group at a later date.
