As promised, the Securities & Exchange Commission is initiating a comprehensive analysis of the municipal bond market.
The SEC says it will conduct field hearings across the country, which will set the stage for statutory and regulatory changes designed to enhance investor protection. These goals were outlined in a speech delivered to the Investment Company Institute by Andrew Donohue, the SEC’s head of investment management. Donohue delivered the speech on behalf of SEC Chairman Mary Schapiro, who was occupied with the investigation of last week’s stock market meltdown.
Focus on disclosure
In her written remarks, Schapiro said that an important focus of the inquiry will be on improving disclosure by municipal bond issuers.
“Investors in municipal securities today do not always have access to the type of information they need to evaluate their municipal investments,” Schapiro said. “All ideas to improve municipal securities disclosure should be on the table.”
Schapiro also called on the Municipal Securities Rulemaking Board (MSRB) to eliminate Rule G-23, which allows broker/dealers to serve as both the financial advisor and underwriter for the same issue.
Despite the fact that G-23 requires disclosure of any relationships that might pose a potential conflict, Schapiro contends that serving in this dual rule is in itself a “classic” conflict of interest, and this practice should be forbidden.
Schapiro was appointed SEC chairman by President Obama in January 2009.
Her main priority at the SEC is to reinvigorate the financial regulatory system and restore the agency’s long-held reputation for protecting the investing public, which has been severely tarnished in recent years.
Under her predecessor, Christopher Cox, SEC credibility came under fire from many quarters, particularly Congress, the financial media and the investment community. The agency was faulted for, among other things, its inability to recognize the warning signs on investment bank balance sheets that led to the financial crisis, as well as failing to follow up on tips it received regarding Bernie Madoff’s massive Ponzi scheme. Unfortunately, last Thursday’s inexplicable 1,000 point stock market plunge did little to bolster retail investors’ confidence in the securities markets.
We support more information for investors
Although Wall Street is never optimistic about the government’s ability to efficiently manage anything, we echo Schapiro’s thoughts on shedding more light on some of the areas she has targeted in the municipal bond market.
As muni dealers we, along with our clients, would welcome improved standardization of offering documents and municipal filings, as well as more timely disclosure of information which could have a material effect on outstanding issues.
Prompt disclosure of tax collections on municipal entities, revenue coverage from public and private purpose projects, combined with uniform accounting standards would be worthy and greatly appreciated accomplishments.
We wish Mary Schapiro good luck in this endeavor. Not only is knowledge power, it can also administer a healthy dose of confidence to all market participants.