On Monday, the Municipal Securities Rulemaking Board sent a letter to regulators urging an expansion of the Volcker Rule's exemptions to include municipal bond brokers to prevent a split in the municipal securities market.
The letter to federal regulatory agencies, including the Office of the Comptroller of Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission, warned that the change is necessary to avoid “bifurcation” of the municipal securities market that will “achieve no meaningful additional benefit to the safety and soundness of the banking system."
Other comments in the letter point out that current statutes of the proposal are far too narrow and that consideration of such an exemption in the municipal securities market should have been considered in drafting the proposal.
The MSRB said that it is necessary to expand the exemption because other exemptions from proprietary trading in the rule “are structured in such a way that they are not useful in the municipal securities market,” adding that without modifications, the Volcker Rule will keep a free and open market from prevailing.
The Volcker Rule is a controversial provision of the Dodd-Frank Act that prohibits financial institutions from engaging in proprietary trading and market-making, practices that municipal securities brokers contend are crucial to the survival of the market.