Reuters: Regulatory News: Municipal issuer disclosure in SEC crosshairs

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Municipal issuer disclosure in SEC crosshairs Oct 25th 2012, 23:35 Thu Oct 25, 2012 7:35pm EDT * SEC seeks some direct authority over issuers * More uniformity could aid the muni market - Cross CHICAGO Oct 25 (Reuters) - Issuers in the U.S. municipal bond market could be required to provide more information about their finances and other matters as institutional investors demand increased transparency for the $3.7 trillion market, speakers at a bond lawyers conference said on Thursday. The U.S. Securities and Exchange Commission is eyeing legislation that would allow it to set baseline disclosure standards for states, cities, schools and other debt issuers. The regulator also wants to require issuers to have audited financial statements. "The disclosure area is aimed not at super-detailed corporate style...filing, but some baseline standards," said John Cross, head of the SEC's Office of Municipal Securities, at the National Association of Bond Lawyer's annual workshop. He added that the SEC is also seeking some direct authority over issuers instead of the current "awkward framework" where the regulator uses its power over broker dealers in the market to spur disclosure among issuers. Under a SEC rule, underwriters are prohibited from purchasing or selling a municipal security unless they have determined the issuer has agreed to the initial and continuing disclosure of certain information. The financial struggles of states and cities that resulted from the weak economy over the last several years have created a desire for better disclosure and record-keeping. In addition, high-profile defaults along with bankruptcy filings by Alabama's Jefferson County and some California cities have heightened concerns. As for financial statements, Cross said more uniformity could theoretically aid the muni market "because it would help investors to achieve comparability" among issuers. "Should this market face the circumstance of desiring more institutional investors, more institutional investors will desire more comparability in financial statements," Cross said. The SEC appears to be readying the market for a potential influx of new institutional investors. Cross, after the panel, pointed to the example of Build America Bonds, the federally subsidized debt issuers sold between 2009 and 2010. The fact that BABs were taxable opened the door to more institutional investors in the muni market, which has traditionally been dominated by retail buyers wanting investment income free from federal taxation. Cross said institutions that bought BABs had higher disclosure expectations than those individual buyers. He disagreed with suggestions that the SEC's efforts toward disclosure standard would drive certain issuers out of the market. "Indeed it's the opposite," he said during a panel discussion on municipal securities law. On Wednesday, Cross, who worked in the U.S. Treasury's Office of Tax Policy before he was tapped for the SEC post in August, said his office would be using a SEC report released in July as a roadmap. The report endorsed by SEC commissioners called for a deeper regulatory reach into the market. Link this Share this Digg this Email Reprints

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