Tuesday, May 15, 2012
SEC Commissioners Gallagher and Paredes have issued a statement regarding the SEC's May 4, 2012 order approving a proposed rule change by the Municipal Securities Rulemaking Board consisting of an interpretive notice concerning the application of MSRB Rule G-17 to underwriters of municipal securities.
In our view, neither the MSRB’s nor the Commission’s analysis in this rulemaking is rigorous enough to pass muster.
Any rulemaking — whether by a self-regulatory organization, such as the MSRB, or by the Commission itself — should be the product of a careful and balanced assessment of the potential consequences that could arise. Such an assessment should entail a thorough analysis of both the intended benefits and the possible costs of a proposed rulemaking in order to ensure that any regulatory decision to proceed with the initiative reflects a well-reasoned conclusion that the benefits will come at an acceptable cost. This requires identifying the scope and nature of the problem to be addressed, determining the likelihood that the proposed rulemaking will mitigate or remedy the problem, evaluating how the rule change could impact affected parties for better and for worse, and justifying the recommended course of action as compared to the primary alternatives.
The decision-making process that led to the Commission’s approval of the MRSB’s proposed rule change falls far short of meeting this benchmark. Accordingly, we do not support the Commission order approving the MSRB’s proposed rule change regarding Rule G-17.