From The Chairman ,

In prior years, the Chairperson of the MSRB has written her or his letter to the industry in time for the January issue of MSRB Reports. This year, I waited until after the Board completed its review of the municipal industry's underwriting process so that I could share with you some observations on how and why we reached our conclusions and on rulemaking in general. The Board finished its review at its May meeting; the Board's proposals for rule changes in the municipal securities underwriting process are in this issue of MSRB Reports awaiting your comments.

The overall approach of these proposals is additional disclosure. I expect that various members of our industry may differ on the specifics of the rule proposals, but one thing stands out to me as crystal-clear: all of us underwriters, issuers, counsel, and financial advisors have a responsibility to see that the underwriting of a new issue is efficient and above reproach. Cities, towns, counties, and states, large and small, must raise money to build roads, schools and other public facilities necessary for our daily life. The cost of those improvements will only be at its lowest when we provide investors with a marketplace where they get fair treatment and assurance that all relevant aspects of the transactions are known to the parties involved.

To put these proposals into context, it is important that you understand how the process of rulemaking works in a self-regulating industry like ours. Of the fifteen Board members, five come from dealer firms and five are dealer bank representatives. Of its five public members, the Board currently has two issuers, two investors and one bond lawyer. The Board has large and small firm representatives and members from geographically diverse parts of the United States. Since all of the Board members are involved in the municipal market every working day, they see or hear of situations or activities that may be of concern.

When concerns of the industry are identified, the Board and the staff review current practices. The Board prioritizes the concerns for further discussion and study; it then instructs the staff to prepare options memorandum. The Board and staff have thorough discussions of the options. The Board may take several meetings to reach a consensus. The process is slow and deliberative because, while the Board is committed absolutely to protecting the integrity and fairness of the marketplace, it recognizes that non-essential regulation is burdensome and inefficient.

Once the Board approves proposed rule changes, they are released for your comment. Please take your opportunity to comment on the proposed rule changes seriously; the Board reviews every comment letter and will modify its proposals where better suggestions are made. After the comment period and review, the proposals are filed with the Securities and Exchange Commission (SEC). The SEC puts the proposed rule out for a second comment period. After the SEC reviews these comments, generally the rule is approved. At this point the rule has the force and effect of federal law.

Self-regulation has been the municipal industry's responsibility and privilege since 1975. As long as we act responsibly to protect the integrity of our marketplace and investors, I believe we will continue to enjoy that privilege. Our industry owes each Board member a debt of gratitude for their willingness to spend the time to become knowledgeable about the issues facing our industry and for their insights and thoughtful discussions throughout the process of creating the proposals. Now it is your turn to spend the time and effort to study the proposals for their effect on our marketplace. The Board will read and consider each of your comments.

The municipal securities industry and the MSRB have demonstrated a willingness to deal with tough issues. We have effectively dealt, I believe, with the influence of political contributions. We can take pride in the fact that we are the only industry in this country to have done so. With your help, the Board will continue to address vigorously any concern in this marketplace, a marketplace essential for the growth and development of this nation. Thank you for doing your part.

Roger G. Hayes Chairman, 1996-1997

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