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MSRB announces review of municipal market indices

Alan Polsky

The Municipal Securities Rule-making Board, which is responsible for designing regulations to govern bond-issuing banks, said on Monday that it plans to examine the indexes used in the municipal bond market.

While the MSRB said it did not have any indications that the indexes had been manipulated, the board said that the review, which will be conducted amid concerns regarding Libor, simply serves to educate investors about yield calculations on municipal bonds.

“Like other regulators, the MSRB is concerned about transparency surrounding the development of market indices,” Alan Polsky, the chairman of the MSRB, said, according to BusinessWeek. “We plan to review indices used by the municipal market—and develop educational materials about their use—to ensure that the market operates fairly and transparently.”

British and U.S. authorities are currently investigating claims and evidence that point to manipulation of the London interbank offered rate, commonly known as Libor. Libor is a key benchmark rate used in state and municipal derivatives contracts, as well as many other financial products and services. At least 12 banks around the world are currently under investigation, BusinessWeek reports.

The MSRB said that it would seek further disclosure by underwriters regarding any donations they may make to political campaigns that seek to pressure voters to approve bond issues, a tactic that can create the perception that elected officials are rewarding banks for their contributions.

“Some observers would like to see the board ban contributions, but it’s important to know that there are some important First Amendment rights that have to be considered, as well as the need for the MSRB to demonstrate a clear connection between contributions and the award to underwriting firms,” Polsky said, according to BusinessWeek.

Underwriters are required to report any contributions, aside from any connection to subsequent work. The additional disclosures may require the underwriter to list any payments received from bond issues approved by the American electorate.

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