SEC to require more US muni disclosure -chairman

July 15, 2009

USA/    WASHINGTON, July 14 (Reuters) – The Securities and Exchange Commission will consider ways to increase disclosure of information about U.S. municipal bonds at a meeting on Wednesday, its chairman told Congress on Tuesday.
   “It is time to take additional steps to improve the information, and its timeliness, for those who buy the municipal securities that are critical to state and local funding initiatives,” SEC Chairman Mary Schapiro said at a hearing on oversight of the agency.
   On Wednesday, the commission will hold a meeting to strengthen rules on what type of information broker-dealers provide to the public and when.
   Currently, they must post material event notices on issues such as bond calls and adverse tax rulings. The proposals the SEC is considering would add categories of information they must provide and would require broker-dealers to post more information about variable rate demand obligations, Schapiro said.
   The SEC has sought to toughen oversight of the $2.6 trillion municipal bond market, but federal law prohibits it from regulating issuers. It can only enforce rules for broker-dealers.
   At the same time, Schapiro said the SEC is looking at extending “pay-to-play” rules to investment advisers to public pension plans.
   “Investment advisers that seek to influence the award of public entities’ advisory contracts by, for example, making political contributions to officials able to influence the awards compromise their fiduciary obligations to the plans,” she said, adding the SEC has “multiple ongoing investigations of pay-to-play practices around the country.”
   While changes to pay-to-play rules may be in the distant future, those to disclosure requirements may happen soon.
   Also on Tuesday, the Municipal Securities Rulemaking Board filed a request with the SEC that variable rate demand obligation remarketing agents and those selling auction-rate securities be required to post documents to its central website,
   The MSRB, made up of industry participants, writes the rules that the SEC enforces and this would be the first step for Schapiro’s suggestions.
   Since the auction-rate market froze last year, the MSRB has pushed for details, such as the clearing rate for a bond, to be made public. Auction-rate bonds are long-term debt with interest rates periodically reset at auction.
   VRDOs, similarly, have long maturities but coupon rates that are reset periodically. Investors who cannot sell their debt put the securities to a bank or other third-party liquidity provider, which has a contract to purchase them at par.
   The MSRB would like to post documents from the liquidity providers.
   “Municipal securities have grown increasingly complex and dealers must be aware of their features prior to offering them for sale,” MSRB Executive Director Lynnette Kelly Hotchkiss said in a statement. (Reporting by Lisa Lambert; Editing by Leslie Adler)
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Tuesday, 14 July 2009 23:42:52RTRS [nN14303293] {C}ENDS

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