The past year has been an exciting and active one for the Board and staff of the MSRB. We have accomplished many things in several key areas we reviewed, but there is much left to do. Future Boards will continue these efforts with a focus on achieving the goals and mission of the MSRB.

Simply put, our mission is to protect investors and the integrity of this market. One of the keys to accomplishing this mission is the area of disclosure. Disclosure is and will be an ongoing theme for this and future Boards. The requirements will include more complete and timely information in the primary and secondary markets, as well as more disclosure of information between the parties to a municipal transaction. Added information flow can avoid misunderstandings and conflicts of interest. Improved disclosure is involved in each of the major initiatives the Board pursued in the past year:

Review of Underwriting Practices

Ongoing Review of Rules G-37 and G-38

Transaction Reporting

REVIEW OF UNDERWRITING PRACTICES

The review of underwriting practices stems from an industry-wide survey undertaken in 1996-97. We examined the comments and suggestions from the survey and have made several modifications intended to improve industry practices. The modifications were a combination of defining more clearly the duties and responsibilities of the various parties and identifying Best Practices to be utilized in conducting municipal transactions. The modifications will result in added information flow between all the parties to a transaction.

REVIEW OF RULE G-37

Rule G-37 has been and will undoubtedly continue to be reviewed by this and succeeding Boards. Count on the Board to stay the course on the prohibition of doing business after making political contributions. However, the Board will continue to examine rule G-37 as to fairness in its application. This rule, like all rules, will evolve based on industry practices and external factors which may arise, such as the impact of mergers in the financial services industry.

The Board recently issued Q&A's in order to clarify our position regarding the application of the provision of the rule that permits regulatory agencies to exempt conditionally or unconditionally dealers from the two year ban. The use of discretion is encouraged to insure that the application of this rule includes fairness based on the facts and circumstances.

REVIEW OF RULE G-38

We completed the rulemaking process for amendments to rule G-38 dealing with the use of consultants. The Board feels strongly that added disclosure is important in this area. Prior to the modification, the rule required the disclosure to the issuer of who they are, whom they work for, and the terms of the financial arrangement. The amendment will require added disclosure by the consultants of their political contributions to state and local officials and political parties in jurisdictions where the consultant is pursuing municipal business on behalf of the dealer. This amendment reflects the Board's continuing efforts to separate the awarding of business from the influence of political contributions.

TRANSACTION REPORTING

Later this summer, we will begin operation of the next phase of transaction reporting. The goal is to have available information about all trading in the municipal securities market. Upon implementation, price transparency in the municipal market will be vastly improved. For the first time, all market participants will have an overview of the pricing of frequently traded issues whether they are dealer-to-dealer, retail or institutional transactions. I do not believe that any other fixed income securities market will have this level of price transparency.

CONCLUSION

I list these accomplishments with pride in the hard work of the Board, its staff and the industry as a whole. These accomplishments were the result of several years of effort and dedication by successive Boards, the widespread support of the industry, and a steadfast desire by all market participants that the integrity and efficiency of this market must be above reproach.

There will undoubtedly be stories about the municipal securities industry that reflect poorly on firms and individuals within our market. It is never pleasant when such stories occur, but I am convinced that the dealer community cares deeply about investors and the integrity of the market. The accomplishments of this Board over the years, in part, have been initiated by the dealer community we regulate. The improvements in underwriting practices, in disclosure of information under rule G-38, and the implementation of transaction reporting could not have been accomplished without the input and support of all market participants. This is self-regulation at its best; a story we can and should be telling; and a story of which we can all be justifiably proud.

Terry L. Atkinson
Chairman, 1997-1998