No Action On Cox's Initiatives

WASHINGTON - More than a year after Securities and Exchange Commission chairman Christopher Cox proposed a series of initiatives to boost municipal disclosure and accounting standards, no one in Congress or the municipal market appears to be interested in championing them.

One initiative that does not require congressional involvement is moving forward - a central repository called Electronic Municipal Market Access. But a study released last week by DPC Data Inc. showed that many municipal issuers are not adhering to their secondary market disclosure requirements and suggested that moving to EMMA would not improve compliance because there are no meaningful consequences for the failure to comply.

Enthusiasm for Cox's initiatives - which include making municipal disclosure more like corporate disclosure and requiring issuers to use generally accepted accounting principles issued by the Governmental Accounting Standards Board - has been tepid largely because they are opposed by issuers who feel they would be unduly burdensome.

To be sure, the House Financial Services Committee will hold hearings on the initiatives on Sept. 23, primarily at the behest of Republican members of the committee. Cox is set to testify on a panel that will also include Frank Chin, the chairman of the Municipal Securities Rulemaking Board who is also managing director and manager of public finance at Citi.

The hearing, which was originally scheduled for Sept. 11, also will include a second panel of issuer officials and at least one buy-side representative, according to congressional sources. On Sept. 18, the committee will hold a hearing on the collapse of the auction-rate securities market.

But despite the congressional attention on the municipal market, House Financial Services Committee chairman Barney Frank, D-Mass., remains unsupportive of any legislation that would place new and onerous disclosure requirements on states and localities, according to sources.

Moreover, those sources said the committee is primarily holding the disclosure hearing at the request of Alabama Rep. Spencer Bachus, the panel's ranking Republican, whose district includes Jefferson County, which is on the brink of bankruptcy.

At a July markup, Frank suggested that the disclosure hearing would look into Jefferson County and other issuers' relationships with broker-dealers selling derivative products.

Referring specifically to long-standing problems in Jefferson County with its interest-rate swap agreements, Frank said: "I would just say that [a hearing] would be a very good thing for us to do because there really is a question about suitability and this isn't just in the area that [Rep. Bachus] represents."

But Frank does not see the Jefferson County problems as related to disclosure, and believes that if investors in municipal securities are receiving insufficient disclosures, they ought to stop purchasing the bonds, congressional sources said this week. Because Frank sees governmental debt as safe as Treasury bonds, unless there is a large increase in the very low level of municipal defaults, there is no reason for Congress to impose on the market additional disclosure regulations, the source added.

Still, the Sept. 23 disclosure hearing is to be held as some market groups have recently called for the SEC to increase the secondary market disclosure requirements for the municipal market. In a July comment letter to the SEC, the Investment Company Institute argued that municipal disclosure is often stale and asked the commission to modify the list of 11 types of material events under its Rule 15c2-12 "to more fully reflect the types of events that are material to today's investors."

The ICI tied the disclosure problems in the muni market to the 1975 Tower Amendment, which restricts the SEC and the MSRB from directly or indirectly requiring muni issuers to file documents with them before the securities are sold. The ICI said that the Tower amendment should be repealed by Congress and that, barring such a repeal, the SEC should work to modify 15c2-12 to improve a disclosure regime that is "woefully inadequate."

It is not clear if the ICI plans to take any additional steps to push for greater disclosure standards, but a congressional source said it was unlikely the group would risk alienating Frank by pushing for legislation that he clearly opposes. An ICI spokeswoman declined to comment.

When Cox introduced his initiatives last summer, only New York Republican Vito Fossella publicly backed the initiatives, and he has since become embroiled in personal problems and is not seeking reelection. No other congressman has said he would seek to introduce legislation and no market groups are publicly pushing for it.

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