August 14, 2013
August 14, 2013
Ms. Elizabeth M. Murphy
Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
RE: Release No. 34-70004 File No. SR-MSRB-2013-06
Dear Ms. Ms. Murphy:
The Government Finance Officers Associations (GFOA) appreciates the opportunity to respond to proposed changes to Municipal Securities Rulemaking Board (MSRB) Rule A-3, related to the Standard of Independence for Public Board Members. The GFOA represents over 17,000 members across the United States, many of whom issue municipal securities, and therefore are very interested in the rulemaking that is done in this sector. Members of the GFOAs Governmental Debt Management Committee assisted with the development of this comment letter.
As drafted, we must oppose the proposed changes to MSRB Rule A-3. While we respect the need to ensure that certain qualified individuals can be considered for the Board, we call on the MSRB to find a better way to address the problem. The current proposal would dilute the criteria for public board membership, and provide the MSRB alone with the subjective ability to determine when an individual meets the public membership criteria. This proposal compromises the public aspects of public board membership.
The proposed rule changes the public board membership criteria from being associated with a municipal securities broker, municipal securities dealer or municipal advisor, to not being an officer, a director (other than an independent director), an employee, or a controlling person of any municipal securities broker, municipal securities dealer, or municipal advisor.
The Dodd Frank Act was specific in its intent that the Board be composed of a majority of members who are independent of regulated parties. Watering down the criteria and definition, could lead to public members being chosen who truly do not represent the best interests of issuers, investors, or the general marketplace and public.
The qualifications for public board membership are already quite lenient by allowing individuals who have been away from regulated parties for two years, to be able to be considered for public board membership. While there are hundreds of marketplace individuals who could contribute well to the Board, this allows – as we have seen in the MSRB board member selection process – those who have spent their entire career as a regulated individual, to become public members if they are retired or working outside of the private sector for only two years. However, the balance of their career may have 20-30 years associated with the broker/dealer or municipal advisor community. Additionally, we have seen some public members chosen whose profession would, on paper, be considered for public membership, however a vast majority of their work is spent interacting and doing business directly with regulated parties – a material business relationship within the meaning of Rule A-3(g)(ii), thus compromising their independence. We have commented on this concern in the past, and believe that this ongoing problem will only be exacerbated by the proposed changes to Rule A-3. Furthermore, we would reiterate that those Board members representing the issuer community should have spent the vast majority of their career as an issuer, not just two years, as is currently required. The MSRB receives many applicants from issuers who meet this criteria, and as with all types of professionals represented, we believe that the full spectrum of their career should be taken into consideration as a Board member. Someone who as recently as two years ago worked for a regulated party should not qualify as an issuer representative.
We are also concerned that this change could lead to a bias at the Nominating Committee, as those who may be predisposed to a regulated party point of view, may have a majority vote on the Committee. We would also call for greater transparency with the nominating board proceedings. Each year, dozens and dozens of qualified candidates submit applications– a large pool for the MSRB to chose from. However, we are aware of many individuals both in the public and private sectors that are continually denied a chance to move through the process. With such a wealth of applicants, it is unclear how the MSRB can argue that they do not have enough candidates to choose from for public membership. Therefore, again, we do not see the need to change Rule A-3.
The MSRB could solve the specific problem that it cites, without changing Rule A-3, and without causing greater erosion of the independence of the public board members. The MSRB could allow those individuals who work in companies that have a division of professionals regulated by the MSRB to have one of the non-public board seats, and/or if there is a specific segment of the market that the MSRB does not believe is well represented on the Board, it could undertake additional outreach efforts to encourage those marketplace participants to apply. We would note regarding the example offered in the proposal regarding institutional investors – the Board already has two institutional investors, and therefore candidates bringing that point of view to the Board, may already be adequate.
We appreciate the opportunity to comment on this important issue, and would welcome the opportunity to discuss our comments with appropriate staff.
Sincerely,
Dustin McDonald
Director, Federal Liaison Center