The Securities and Exchange Commission Tuesday issued recommendations to help improve the structure of the $3.7 trillion municipal securities market and enhance the disclosures provided to investors.
The report is a review of the municipal securities market requested by SEC Chairman Mary L. Schapiro in 2010 and overseen by SEC Commissioner Elisse B. Walter. It address concerns raised by market participants and others in public field hearings and meetings with Walter and SEC staff during the agency's review of the municipal securities market.
"The municipal securities market is the bedrock for funding of local government projects throughout our country," said Schapiro in a prepared statement. "It is essential that the market work well and that investors have confidence in it. 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."
State and local governments issue municipal bonds to finance a wide variety of projects to build and maintain the nation's infrastructure. Beginning this year there were more than one million different retail municipal bonds outstanding totaling $3.7 trillion, with 75 percent held by individual retail investors.
The municipal securities market isn't 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. Without a statutory regime for municipal securities regulation, the SEC's investor protection efforts in the municipal securities market have been limited.
The SEC's report also proposes legislative changes to improve disclosures to investors, including recommending that Congress consider authorizing the SEC to set baseline disclosure standards and require municipal issuers to have audited financial statements.
Other legislative changes recommended in the report include:
* Eliminating the availability of SEC exemptions for conduit borrowers who are not municipal entities.
* Authorizing the SEC to establish the form and content of financial statements for municipal issuers who issue municipal securities and recognize a designated private-sector body as the standard setter for federal securities law purposes.
* Provide a safe harbor from private liability for forward-looking statements of repeat municipal issuers that satisfy certain conditions.
* Permit the IRS 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.
* 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.