SAVANNAH — Federal officials outlined ongoing municipal bond regulatory efforts Thursday and defended a host of initiatives they said are critical to maintain market stability and protect municipal bond issuers and retail investors.
The officials, including Elisse Walter, a commissioner on the Securities and Exchange Commission, made their remarks to bond lawyers at the National Association of Bond Lawyers’ Tax and Securities Law Institute here.
Walter, who spoke via video conference during the meeting’s midday general assembly, said the SEC has made recent progress on numerous initiatives affecting the municipal bond market, including those mandated by the Dodd-Frank Act.
She said the SEC expects by the end of the year to have an independent Office of Municipal Securities that will report directly to the commission’s chairman.
She also said the agency is “currently finalizing” a staff report that will examine the state of the municipal securities market and recommend legislative and other initiatives to improve it.
The SEC’s staff report follows field hearing and conference calls with market participants, meetings that Walter said “greatly enhanced the agency’s understanding of the municipal securities market.”
Walter also said the commission is finalizing rules requiring municipal advisors to register with the SEC that will define the term municipal advisor. She said some 1,000 market participants, including about 300 broker-dealers, have registered since the commission adopted its temporary registration rules in 2010.
Walter suggested that other muni market regulations may be on the horizon.
“I believe these efforts represent a floor, and not a ceiling, for needed reforms in the market,” she said. “More needs to be done.”
Meanwhile, Lynnette Kelly, executive director of the Municipal Securities Rulemaking Board, talked to NABL members about the board’s recent initiatives, including its recently released long-range market transparency plan, which calls for major upgrades to the EMMA system, and efforts to ensure dealers follow issuers’ retail order period instructions.
The SEC has until May 4 to act on the MSRB’s proposed guidance about how underwriters should treat issuers under G-17 on fair-dealing, Kelly said. If the SEC fails to take action, the guidance will automatically taken affect.
Some lawyers at the NABL annual meeting said that municipal advisor regulations have already changed how they do business.
Josiah Lucas, partner with law firm Pope Zeigler, said many bond lawyers have traditionally offered issuers a minimal level of financial guidance.
But because of uncertainty about municipal advisor regulations, Lucas said he now avoids offering advice. He steers his clients to financial advisors, even though many of his clients have limited financial resources.
“Pending more guidance from the SEC and MSRB, we recommend to our clients that they hire financial advisors,” said Lucas. “And these are folks who can’t necessarily afford it.”