Supporters of municipal market reforms are worried that the Securities and Exchange Commission appears to be backtracking from earlier calls for widespread legislative and regulatory changes to disclosure and accounting standards, instead favoring a much more modest set of draft regulatory reforms which it will consider at a meeting tomorrow.
But SEC officials insist that the commission is not backing down and say that the meeting to consider reforms is merely a first step in a longer process.
SEC chairman Mary Schapiro is
Though the SEC has not provided many details on the recommended changes, which would apply to its Rule 15c2-12 on disclosure, Schapiro suggested in her testimony that they will include eliminating the rule's exemption for short-term variable-rate debt, additional material events that must be disclosed, and a limit on the amount of time an issuer will have to file its annual financial and operating information.
But the suggested changes seem modest compared to remarks from staff earlier this year, in which they said the SEC is considering asking Congress for legislative changes to the way the market is regulated.
Mary Simpkins, senior special counsel in the SEC's office of municipal securities, told industry officials in May that the commission may seek legislation to gain greater control of municipal accounting standards, regulate market intermediaries, and possibly change the composition of the Municipal Securities Rulemaking Board to make it a more "independent" self-regulator.
In addition, Simpkins said the SEC would likely seek explicit authority from Congress to regulate the muni market, including the removal of muni security exemptions from registration in the Securities Act of 1933 "because just repealing Tower would not be enough."
In her written testimony, Schapiro says the draft muni proposals will be a "first step" and that the SEC looks "forward to working with Congress to more effectively protect investors in the important municipal securities market by developing methods to more fundamentally address municipals securities disclosure." But she does not ask the lawmakers for any muni legislative authority for the SEC.
An SEC official stressed that the commission is working with Congress on additional improvements and that there is no significant difference between staff members' earlier remarks and Schapiro's testimony.
But several market participants disagreed, arguing that the SEC has scaled back its ambitions for muni market changes because it is not worth fighting issuers, who are opposed to them, and it would not be politically feasible to obtain them from Congress.
Other market participants said the SEC is bogged down with other more important issues, including ongoing efforts by the Obama administration to bring about sweeping regulatory reforms to the financial sector, none of which directly touch on munis.
"Politically ... this is not the big fish to fry right now," said one market participant who asked not to be identified.
Still, others note that Schapiro's approach appears to be much more limited than the list of initiatives for muni market reforms unveiled two years ago by her predecessor, Christopher Cox, just before the financial crisis began. In a speech to unveil the initiatives, Cox said "the time has come to rethink and revamp" muni regulation because the SEC is already "using every ounce of authority we have to try to deal with these concerns."
