The muni market’s overseer, the Municipal Securities Rulemaking Board (MSRB), is taking aggressive action to survey muniland indices following the Libor scandal. The board is asking index providers to disclose more about how certain indices are developed. The MSRB has no direct authority to regulate indices because, as with Libor, they are maintained by private companies and are outside of the board’s legislative mandate to regulate dealers. Alan Polsky, the current chairman of the MSRB, said in a press call that the board did not believe that there was any wrongdoing in this corner of the market, but that increasing transparency would enhance investor confidence. Here’s what he stated in a press release:
Two big events happened on Tuesday in the municipal bond market: it was the annual conference of SIFMA, one of the industry trade associations; and it was also the one-year anniversary when Meredith Whitney began her campaign of predicting the collapse of the muni market. Whitney was of course way off-base with her prediction of hundreds of billions of dollars in bond defaults. In fact less than $1 billion of muni bonds have defaulted so far . But many believe that she did cause substantial damage to retail investors, mutual funds and insurance companies, all of whom were caught up in the downdraft of selling that followed her words of doom.
Disclosure is the beat
On Tuesday at the SIFMA Muni Bond Summit in New York, much of the discussion by bond market participants related to transparency and disclosure issues. A lot of this was in response to new requirements in Dodd-Frank, but there was also an acknowledgement that many problems in the crisis of 2007-2009 came from a lack of information and data in many parts of the market. For example small municipal issuers had more trouble accessing the bond market to issue new bonds if their public reporting was deficient or out of date.
How does $775 billion of bonds go missing?
There is a sleeper story in muniland about a big pile of just-discovered municipal bonds. The story has some odd twists and turns. John McDermott of FT Alphaville scooped the details yesterday: