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For a self-regulatory group that oversees a $4 trillion (that’s 12 zeroes) municipal-bond market that finances public projects across the United States, the Municipal Securities Rulemaking Board has all the trappings of an insular Wall Street eating club.
The MSRB director made $1.05 million last year. The chairman of the Securities and Exchange Commission only makes $165,300. Transparency at the MSRB is dubious with data downloads too costly for all but the Vanguards of the world.
Watch: Investors pour record amounts of money in to muni bonds[1]
Public seats on the board largely go to those with close former ties to broker-dealers and banks. The current MSRB chairman is an equity partner at a Wall Street investment bank. The vice chair is a managing director at Bank of America Merrill Lynch.
Break up the club
Some reforms have been made, but it’s clear that many more are needed. The recent flurry of resignations and retirements[2] among MSRB executives makes it an especially appropriate time to break up the Cosmos Club of bonds, and better protect investors as well as the public interest.
I filed the MSRB Reform Act[3], along with Sens. Elizabeth Warren and Doug Jones, because the board that oversees the muni-bond market is too secretive and too incestuous. Its membership shares the same DNA. That means the rulebook for municipal bonds is in the hands of a board that resembles a revolving door of longtime industry confederates.
The irony is that the MSRB exists because regulations were needed to tame a mammoth municipal-bond market that finances schools, bridges, roads and other public projects.
In theory, the MSRB is supposed to protect the public interest, investors, and state and local governments. In practice, the MSRB membership structure is more shaded toward protecting the financial professionals who broker the deals.
Public seats
The Dodd-Frank Act was supposed to level the playing field by ensuring that the majority of the board represents the public. That’s why there are “public seats” and “private seats” on the board. But a lot of those public seats still go to retired investment bankers and other Wall Street lifers who earned their livings profiting off the sale and issuance of municipal bonds.
Board members make $45,000 a year. Staff makes a lot more. A partial source for the largesse is the pricey annual subscription that the MSRB charges for data downloaded through the Electronic Municipal Market Access System, or EMMA. [4]
Those who do pay for a subscription to EMMA help provide the funding that’s needed to pay the MSRB’s executives and board members. Compensation at other agencies, such as the SEC, is capped. There’s no such restriction at the MSRB.
EMMA generated a lot of...