SEC Nominees Near Confirmation as Muni Market Watches

WASHINGTON — Two Securities and Exchange Commission nominees are moving toward confirmation, and their influence could be felt in both rulemaking and enforcement actions, observers said.

The Senate could confirm Michael Piwowar and Kara Stein as soon as mid-July after the pair testified before the Senate Banking Committee Thursday. Both expressed a commitment to upholding the SEC’s mandate to promote market fairness and transparency, and to supporting chairman Mary Jo White’s priorities as she sets them. Democrat Stein, a top aide to Sen. Jack Reed, D-R.I., would replace Elisse Walter. Piwowar, the Republican chief economist to the Banking Committee, would replace commissioner Troy Paredes.

Paul Maco, a partner at Bracewell & Giuliani and a former SEC muni chief, said a key issue raised by the nominations and confirmation process is that of economic analysis in rulemaking. The SEC has had its rulemaking successfully challenged on the basis of adequate analysis in the past, and a bill sponsored by Rep. Scott Garrett, R- N.J., would mandate extensive economic analysis of both new and existing SEC rules. While stopping short of openly opposing the bill, White has said she is concerned about it.

“That’s going to be an important theme,” Maco said. “You have a Republican economist joining the commission, very clearly acknowledging its importance.”

This could affect the municipal market, because the commission has the responsibility of approving rules offered by the Municipal Securities Rulemaking Board. In May 2012, Paredes and commissioner Daniel Gallagher issued a joint dissent stating that the commission should not have approved additional interpretive guidance to the MSRB’s fair dealing rule because the SEC’s analysis had not been thorough enough.

Maco added that both nominees seem receptive to White’s recently-announced intention to begin seeking admissions of individual guilt during enforcement actions, rather than allowing those charged to settle while neither admitting nor denying the allegations.

Stein told the Banking Committee Thursday that she would support “aggressive actions and sanctions when supported by the facts and the law.”

Maco said that recent enforcement actions, such as the one in Harrisburg, Pa., have served as warnings to issuer officials that a wider range of their actions could result in SEC enforcement activity.

Maco said there is some doubt that the message has been received.

“I’m not sure the issuer community has fully grasped this subtle but important shift,” he said.

Dealers have some familiarity with the nominees, and are watching their march toward confirmation, said Bond Dealers of America president and chief executive officer Mike Nicholas. Nicholas said the nominees look like good selections.

“BDA has worked closely with Kara and Mike on a number of issues relevant to the fixed-income marketplace, and specifically the interests of middle market and regional fixed income dealers,” he said.  “We believe that they are both excellent choices to join the SEC. Our contacts with Kara and Mike have established that although they may vary philosophically on occasion, each is smart, thoughtful, hard-working, and experienced. Interestingly, both have municipal securities experience  -- Kara in private practice and Mike from his prior work at the SEC. We are confident that each will each make positive, meaningful contributions to the SEC at a time when the agency is confronting a number of thorny issues of immediate interest to BDA member firms, among them being the municipal financial advisor rule, the Volcker rule, the fiduciary duty issue, and the recommendations of the municipal market report. We believe that they will be confirmed in an expeditious manner, and we look forward to continuing to work with them when they become SEC commissioners.”

The committee can report the nominees to the full Senate in as soon as one week, and the full body could confirm the two any time after that.

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