SEC Proposes Investor Protection Measures for Municipal Securities Markets
In a recent SEC press release about the municipal securities market, the SEC said,
“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.”
In May 2010, the Commission took steps to improve municipal securities disclosures by strengthening 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. Unfortunately, the Commission’s efforts to change market practices were hindered by its limited regulatory authority.
Now, in another effort to correct the problems with the market and enhance investor protection, the SEC has issued a report in which the Commission proposes a variety of potential legislative changes that would improve disclosures to investors, as well as other market practices.
In particular, the report recommends that Congress:
- Authorize the SEC to set baseline disclosure standards;
- Authorize the SEC to require municipal issuers to have audited financial statements;
- Eliminate the availability of certain regulatory exemptions for conduit borrowers who are not municipal entities;
- Permit the IRS to share information related to municipal securities offerings with the SEC, particularly in instances of suspected securities fraud;
- Provide 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 municipal securities market is the bedrock for funding of local government projects throughout our country. It is essential that the market work well and that investors have confidence in it,” said Chairman Schapiro. “While we have put in place measures to help investors make more knowledgeable decisions about municipal securities, we could do more for investors with statutory authority to improve disclosure and muni market practices.”