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Securities Law

GFOA Debt Panel Members Talk About Regulatory, Legislative Threats

WASHINGTON — Members of the Government Finance Officers Association committee on governmental debt management said this year could bring a slew of revolutionary new regulatory or legislative changes that could overhaul the structure and operation of the municipal market.

Some of the roughly 25 members who attended a morning meeting during the group’s annual winter conference in Washington, D.C.,  said they expect the Securities and Exchange Commission to move forward with items recommended in its July report on the municipal market.

“These are sea-change kind of events. They are talking about fundamental changes in the way our market is operated and has been regulated,” said Ben Watkins, the debt committee’s new chair and Florida’s director of bond finance.

Actions by the SEC could include issuing new guidance to the SEC’s Rule 15c2-12 on disclosure or potentially rewriting portions of the rule, as well as continued efforts to receive legislative authority to regulate the timing and content of issuers disclosures.

GFOA debt committee members also expect the SEC to release its long-awaited final definition of municipal adviser, though they are still unsure if it will include exemptions for appointed, non-elected members of government boards.

They speculated that the final definition, which SEC officials have said will be complete in the first quarter of this year, may include some ambiguity as to when a banker or other business partner would be considered to be providing “advice” under the rule.

“I want to [be able to] talk to my banker, but when does that cross over to advice?” said Susan Gaffney, a consultant to the debt committee and former director of GFOA’s federal liaison center. “I think it’s going to be very grey and not definitive.”

GFOA members aren’t just concerned about the definition; they also must pay close attention to muni advisor rules that will be written by the Municipal Securities Rulemaking Board, based on the SEC’s final definition.

“We will have a lot of activity this year in parsing that out,” Gaffney said.

The biggest item that arose last year, she said, was the SEC’s request in its July report on the municipal market  for expanded legislative authority over issuers’ disclosures.

Gaffney said the legislative recommendation “would rest on the backs of issuers.”

“We want robust disclosure,” she said. “But we struggle with the line where the MSRB and SEC interfere” with issuers’ right to manage disclosures as they see fit.

The SEC’s report also called for regulatory changes aimed at improving price transparency, and it recommended that industry groups work together to set disclosure standards.

GFOA members and advisors said they will continue to work with other organizations on joint efforts that could “head off at the pass SEC activity.”

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