MSRB updates strategic plan for the post-COVID era

BY SourceMedia | MUNICIPAL | 09/20/21 11:01 AM EDT By Connor Hussey

The Municipal Securities Rulemaking Board's new strategic plan for the years 2022-2025 outlines the agency?s updated focus on market regulation and transparency, its handling of data and its role in upholding the public trust as a new chair prepares to assume his role Oct. 1.

Following the election of Patrick Brett to the role of fiscal year 2022 chair in July, the MSRB announced plans to release an updated strategic multi-year plan to help tackle and adapt to the changes markets have experienced, especially in the last year and a half. These updated goals are the agency?s first formal update since 2017.

?My main priorities for the year would be in the areas of technology and updating our rulebook,? said Brett, a managing director and head of municipal debt capital markets at Citi in New York who will become chair when the MSRB begins its new fiscal year Oct. 1. ?We're in the process of a very large systems modernization project which is really meant to enable us to be even better stewards of the market?s data.?

Brett is a 19-year Citigroup (C) veteran. He grew up in Northern Virginia, where, he says, public policy was in the air, predisposing him to public work from a young age. He has advanced degrees in both finance and South American archaeology, a personal passion of his.

The MSRB has always collected large swaths of data and made it freely available on EMMA, but Brett said the MSRB will be more focused on taking ownership of the quality of data it provides, highlighted in the launch of EMMALabs, happening later this year.

?You'll see a couple of the first things that will come out [with EMMALabs] will be the ability to do a full text search through the database, we'll be able to give people the primary market disclosure database as well as picking up the secondary market systems and visualizations of trading patterns,? Brett said. ?But that will just be scratching the surface.?

The MSRB first discussed EMMALabs last year, describing it as a way to let stakeholders test drive new EMMA features under development.

Further plans for the agency?s management of data will be to expand search options on EMMA, something municipal analysts have had on their wishlists for many years.

The MSRB also plans to update its rulebook, including the voluminous interpretive guidance that accompanies some rules. The goal is to identify where rules could be amended to better reflect the industry today, and potentially even eliminate outdated requirements.

The board will also continue to respond to the COVID-19 pandemic, having recently granted a two-week extension on Series 54 testing as part of that effort.

The fourth pillar of the strategic plan focuses on the regulator's commitment to public trust.

?Underpinning everything that we do is upholding the public interest and making sure the market has integrity,? said Meredith Hathorn, a managing partner at the law firm of Foley & Judell in Baton Rouge, Louisiana. Hathorn will assume the role of MSRB vice chair Oct. 1.

?And so in that area, some of the public trust issues that are coming up are obviously ESG and diversity, equity and inclusion.?

Hathorn said she feels the MSRB has a role to play in promoting racial justice in the market, referencing a revelation from a 2016 study that showed that historically Black colleges and universities pay an average of 20% more to access the market.

?I work with every HBCU in the state and I do see some of the disparities in the pricing,? Hathorn said. ?The HBCUs usually end up going to the Department of Education for loans, rather than accessing the market.

?When we talk about the roles of all the entities in public finance, we want to be sure that our rules are not affecting MWBE's (minority and women-owned businesses) in a disproportionate manner,? she added. ?So really needing to understand how our rules either affect them, or what are their opportunities and challenges that they have in the marketplace.?

The MSRB recently underwent a governance review and shrunk its 21-member board down to 15 members, and well as instituting term limits.

On the ESG front, the MSRB will be focused on truth in advertising, as well as climate risk disclosures for the coming years. But there?s still much for them to learn on this emerging market segment.

?Clearly, from an investor protection perspective and market transparency perspective, there's just been an incredible growth and focus on this topic,? Brett said. ?We are going out with a request for comment to gather information from market participants around this.?

The request for comment will be focused on addressing both truth in advertising around ESG marketing as well as recommendations around climate risk disclosures, due out in November or December of this year.

Following SEC chairman Gary Gensler?s testimony last week about the need to address efficiencies and transparencies in fixed income markets, the MSRB has been in talks with the Commission to help bring these markets into the future. The SEC serves as the MSRB's federal government oversight, and must approve changes to MSRB rules.

?We certainly see eye to eye on those goals,? Brett said.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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