The Securities and Exchange Commission recently issued a comprehensive report with recommendations to help improve the structure of the $3.7 trillion municipal securities market and enhance the disclosures provided to investors.
This is welcome news with the increasing frequency of municipal bankruptcies and the slow realization by investors that municipal bond market is not the risk-free bastion that it once was.
The report is the culmination of an extensive review of the municipal securities market that was initiated by SEC Chairman Mary L. Schapiro in mid-2010 and led by SEC Commissioner Elisse B. Walter. The recommendations address concerns raised by market participants and others in public field hearings and meetings
State and local governments issue municipal securities to finance a wide variety of projects that are critical to building and maintaining the nation’s infrastructure.
At the start of 2012, there were more than one million different municipal bonds outstanding totaling $3.7 trillion, with 75 percent held by individual “retail” investors.
Despite its size and importance, the municipal securities market has not been subject to the same level of regulation as other sectors of the U.S. capital markets due to broad exemptions under federal securities laws for municipal securities.
Potential legislative changes recommended in the report to help improve disclosures and practices in the municipal securities market include:
- Eliminating the availability of Securities Act and Exchange Act exemptions for conduit borrowers who are not municipal entities.
- Authorizing the Commission to establish the form and content of financial statements for municipal issuers who issue municipal securities, and to recognize a designated private-sector body as the standard setter for generally accepted for federal securities law purposes.
- Providing a safe harbor from private liability for forward-looking statements of repeat municipal issuers that satisfy certain conditions.
- Permitting the Internal Revenue Service to share information with the SEC that it obtains from returns, audits, and examinations related to municipal securities offerings, particularly in instances of suspected securities fraud.
- Providing a mechanism, through trustees or other entities, to enforce compliance with continuing disclosure agreements and other obligations of municipal issuers to protect municipal securities bondholders.
The SEC already has taken steps to improve municipal securities disclosure within its limited regulatory authority. In May 2010, the Commission adopted amendments to Exchange Act Rule 15c2-12 that were aimed at improving the quality and timeliness of municipal securities disclosure. The changes were intended to help provide investors with enhanced information by further regulating those who underwrite or sell municipal securities. The measures strengthened existing requirements for the scope of securities covered, the nature of the events that issuers must disclose, and the time period in which disclosure must be made. (Press Rel. 2012-147)
The foregoing information, which is publicly available on the SEC’s website, is being provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. The White Law Group primarily represents investors in FINRA arbitration claims against their brokerage firm.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.