NASD, MSRB Issue Joint Statement Pledging Cooperation to Harmonize Mutual Fund, 529 Plan Sales Rules
Washington, D.C. — Citing benefits to investors and a desire to foster regulatory consistency, NASD and the Municipal Securities Rulemaking Board (MSRB) today formally pledged continued cooperation to assure that their respective rules governing mutual fund sales and 529 College Savings Plan sales are harmonized.
Noting that 529 Plan interests have many of the same characteristics of mutual funds and that 529 Plan sales raise the same general types of sales practice issues as mutual fund sales, a joint statement issued by the two self-regulatory organizations today says the "harmonization of MSRB rules and NASD rules would further protect the investing public."
"Investors have a right to expect that products that look the same are regulated the same way - and mutual funds and 529 Plans look as much alike as oranges and tangerines," said NASD Chairman and CEO Robert R. Glauber. "The cooperation between the MSRB and NASD to make their rules consistent is a model for how regulators with interrelated responsibilities can serve investors."
Amelia A.J. Bond, MSRB Chairman and Senior Vice President and Director of the Public Finance Department at A.G. Edwards & Sons, Inc., stated, "This joint statement reinforces our long-standing commitment to putting in place effective customer protection rules for the benefit of individual investors in the 529 Plan market." Christopher A. Taylor, MSRB Executive Director, added, "We believe that the joint statement will facilitate our two organizations' efforts to ensure that future challenges facing investors in both marketplaces can be addressed in a unified manner."
As the primary private-sector regulator of the securities industry, NASD writes and enforces rules governing sales of securities, including mutual funds. It regulates the activities of more than 5,100 broker-dealers and 650,000 brokers. The MSRB develops rules governing broker-dealers and dealer banks that underwrite, trade and sell municipal securities, including interests in 529 Plans. Most municipal securities dealers subject to MSRB regulation are also licensed broker-dealers regulated by NASD. NASD enforces the MSRB's rules with respect to non-bank broker-dealers.
"Harmonization of MSRB rules and interpretations applicable to sales practices for 529 Plans and NASD rules and interpretations applicable to sales practices for mutual funds has the dual benefits of protecting investors in both markets under similar standards, and subjecting municipal securities dealers to similar regulations irrespective of whether the product being sold is a 529 Plan interest or shares in a mutual fund," the joint statement says.
The MSRB and NASD believe the two organizations have been successful in implementing substantially comparable safeguards with respect to sales practices in both the mutual fund and 529 Plan marketplaces. In their joint statement issued today, they further pledged that:
- The MSRB will adopt rules and interpretations concerning 529 Plans that are equivalent to NASD rules and interpretations concerning mutual fund sales practices adopted in the future. In the event that the MSRB finds an NASD mutual fund rule to be prohibited by law or inappropriate as a result of fundamental differences between mutual funds and 529 Plans, the MSRB will adopt any permissible and appropriate portions of that rule and adopt, when possible, alternative rules and interpretations providing substantially equivalent investor protections.
- The MSRB will work with state issuers of 529 Plans to encourage and facilitate any action by them necessary to assure regulatory consistency.
- The MSRB and NASD will each provide the other with an opportunity to comment on relevant proposed regulations and interpretations concerning 529 Plans and mutual funds before they are published or filed with the Securities and Exchange Commission (SEC).
- The MSRB and NASD will cooperate and coordinate any response to a request for information on rulemaking by the SEC concerning 529 Plans.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.
The MSRB was established in 1975 by Congress as a "functional" or "product-line" self-regulatory organization to develop rules regulating broker-dealers and banks involved in underwriting, trading, and selling municipal securities. Municipal securities include bonds and notes issued by states, cities, and counties or their agencies to help finance public projects, as well as interests in 529 Plans and other municipal fund securities. The MSRB does not have rulemaking authority with respect to the activities of issuers of municipal securities. MSRB rules are enforced by NASD in the case of broker-dealers and by the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Comptroller of the Currency in the case of banks. Information about MSRB regulation of the activities of broker-dealers and banks in connection with 529 Plans is available at www.msrb.org/msrb1/mfs.