Outlook 2025: A busy year for the MSRB

Municipal market participants can expect an active regulatory environment in 2025, as the Municipal Securities Rulemaking Board moves forward with several initiatives and the Securities and Exchange Commission continues work on its proposed framework to implement the requirements that muni disclosures be available in machine-readable format.

The coming year will also be marked by a certain level of unpredictability, sources told The Bond Buyer, largely centered around how a new administration known in the past for its willingness to buck conventions might impact the regulatory outlook. 

“Trying to provide an outlook for 2025 I think there’s only one word that anyone can use, and that’s uncertainty,” said Mark Kim, CEO of the MSRB.

Kim noted the transition of leadership is bringing uncertainty to all parts of the muni market, perhaps best exemplified by the wide range of projections for 2025 market volume: anywhere between $250 billion and $750 billion, by many estimates. Kim said market participants can expect a full slate of regulatory work from the MSRB in the coming year, with a focus on modernizing its rulebook.

One of the key areas of that initiative will be an effort to improve pre-trade transparency.

“That’s an area of focus for the MSRB,” Kim said “We’ve been looking at this for over a decade.”

In fact, the effort dates back at least to the Securities and Exchange Commission’s 2012 Report on the Municipal Securities Market, a lengthy and comprehensive look at the state of the muni market that included a variety of recommendations on how to improve its function. The report has been a major driver of nearly every municipal marker regulatory step taken by both the SEC and MSRB since.

The MSRB previously sought market participant commentary on the dissemination of pre-trade pricing data as well as other information through a central transparency platform, but dealers met the proposal with concerns that pre-trade data could be confusing to investors and potentially negatively impact trading strategies. Kim said the MSRB concluded at the time it didn’t make sense to move ahead with pre-trade initiatives, but a decade later the rise of alternative trading systems and other changes in the market have made the time right to go back to the market with a new proposal.

Kim said the MSRB is looking at the dissemination of live quotes and bid-wanted requests. “What we’re looking for is price signals from the market,” Kim said, adding that pre-trade transparency of that nature is already quite strong in the equities market.

“That’s a big initiative we are planning to roll out early in the new year,” Kim said. “Expecting to publish it early in January.” The MSRB chief also said market participants should expect 2025 to see the completion of a new and improved EMMA, with a much more powerful search engine, more ability for customization, and the ability to search obligor data in addition to issuer data.

Dealers are also eying the MSRB agenda with a focus on urging the board to modernize its rules in ways that reduce regulatory burdens on broker-dealer firms without compromising protections for investors, Securities Industry and Financial Markets Association head of municipals Leslie Norwood said.

Dealers are also looking forward to commenting on the MSRB’s fee structure, on which the MSRB sought feedback in October and for which the comment period closes Jan. 28. The relatively new “rate card” structure led to problems a year ago when commenters raised objections to the rates and the SEC suspended the card and reverted rates to the previous year’s.

The MSRB is now looking to collect comments on how it sets those fees, which it charges regulated dealers and municipal advisors.

“We will be focusing on ensuring that transparency is appropriate and reducing burdens on the broker-dealer community where appropriate,” Norwood said.

Norwood also said SIFMA is looking forward to an opportunity to revisit regulations governing supervision, with an eye to modernizing them for a post-pandemic world in which many broker-dealer employees work remotely at least part-time.

“The COVID pandemic changed fundamentally the way people do business in this country,” she said. “It is time to take a fresh look at supervision and see if the regime can be changed to fit the way people work today.”

And while the SEC still has some two years to develop specific rules, everyone in the municipal space is looking ahead to a year of work on the Financial Data Transparency Act. Signed into law in December 2022, the FDTA requires issuers to make their disclosures available in a machine-readable format.

The requirement was one sought by many analysts and academic researchers, but looked on more skeptically by many issuers, who view it as a burdensome unfunded mandate.

Whatever the SEC does, the MSRB will have to respond with rules of its own to codify the SEC rulemaking.

“It’s going to depend a lot on SEC rulemaking,” Kim said. “We don’t know what the work is that’s going to be required.”

Kim said it was a surprise to many in the market that an initial proposal from the SEC and other agencies working on the rule would replace the standard nine-digit alphanumeric CUSIP identifier with Bloomberg’s Financial Instrument Global Identifier, or FIGI. Some industry groups went so far as to suggest they are willing to go to court over the issue.

“If the first round of rulemaking is any indication, there is potential for some surprises,” he said.

Norwood said SIFMA is also invested in how things progress on the FDTA front, although disclosures on EMMA are ultimately the responsibility of municipal issuers.

“When there are challenges for the issuer community, they become challenges for the broker-dealer community,” Norwood said.