Securities Law

SEC To Seek Authority for Muni Disclosure Standards; Require More Price Reporting

WASHINGTON — The Securities and Exchange Commission is expected to propose Congress give it authority to set primary and secondary market disclosure standards for municipal issuers, sources said.

The commission also will propose requiring “alternative trading systems” to report the offers and bids they receive on muni bonds. This trade information, which would much more expansive than the data currently disclosed to investors, would be aggregated and made available to retail and other investors on a delayed basis, such as the day after trades are executed, the sources said. ATS’ are online systems that match trade orders from broker-dealers and institutional investors. The SEC regulates them.

These recommendations are expected to be made in a long-awaited report on the municipal securities market that the SEC is preparing to release Friday or early next week.

The report, the culmination of about two years of work spearheaded by SEC Commissioner Elisse Walter, is to be approved by all five SEC commissioners, and will recommend legislative and regulatory changes, as well as market practices, to improve disclosure and price transparency in the municipal market.

SEC officials believe that they can set disclosure standards for issuers without running afoul of the Tower Amendment or the exemptions in the federal securities laws because the SEC would not be requiring issuers register offerings with it or file muni disclosures with it, sources said. The SEC also would not be reviewing any muni disclosures, they said.

The Tower Amendment, which was added in 1975 to the Securities Exchange Act of 1934, prohibits the SEC and MSRB from requiring issuers to file documents with them before issuing securities. It also bars the MSRB from requiring issuers to file documents with it after they sell munis. The Securities Act of 1933 exempts muni issuers from registration. The Securities Exchange Act of 1934 exempts them from filing requirements, periodic reporting requirements as well as from accounting standards set by the SEC.

Institutional investors and analysts have long complained that some muni issuers disclose financial information so long after the end of their fiscal years, it is stale by the time it is disclosed.  A State Budget Crisis Task Force led by former Federal Reserve Board Chairman Paul Volcker and former Lieut. Gov. Richard Ravitch issued a report on Tuesday that said, “The public needs transparent, accountable state government finances.” The report also said, “State Comprehensive Annual Financial Reports should be supplemented with easily accessible summaries of financial information.”

As for muni pricing information, the MSRB provides near-real time trade information, including trade prices, over its EMMA system. But it does not collect bids and offers for munis.

ATS’ for munis generally offer live trading, supply bids and offers for munis, and make this information available to broker-dealer and institutional investor clients, which have discretion about whether to disclose the information to retail investors. 

The MSRB in February released a long-range plan to improve transparency in the muni market that, among other things, envisioned providing complete real-time initial offering price information, including pricing for pre-award conditional trading commitments, as well as bids and offers for secondary market trades.

But MSRB officials said at the time that it was an ideal plan that would be depend on the costs and benefits, a series of policy decisions, and approvals from the board and SEC. They also said it could take five to seven years to put some elements of the plan in place, if the decisions were made to move forward it.

The four biggest ATS’ in the muni market are: TMC, formerly known as TheMuniCenter LLC, BondDesk Trading LLC, Knight BondPoint, TradeWeb LLC.



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