SEC Commissioner Elisse Walter wants new authority for the SEC to require cities, states and other municipal-debt issuers to improve financial disclosures, according to a recent Wall Street Journal article entitled “SEC May Seek More Authority Over Muni Issuers,” by Meena Thiruvengadam and Jessica Holzer. Corporate bond issuers must meet registration and disclosure requirements under federal securities laws, and so should muni issuers, Walter believes. “If you don’t believe you need it here, why do you need it in the corporate arena?” Ms. Walter was quoted as saying.
The Securities and Exchange Commission is conducting a series of field hearings across the country to examine the $2.8 trillion municipal securities market, including disclosure and transparency, financial reporting and accounting, and investor protection and education. SEC Chairman Mary Shapiro appointed Walter to lead those hearings.
The SEC currently lacks authority to require issuers to disclose financial information before issuing debt, and is restricted to trying to enforce anti-fraud provisions against broker-dealers that sell municipal securities.
Under the new Dodd-Frank financial reform legislation, private firms that advise states and municipalities on their debt issuance and use of derivatives must register with the SEC, but cities and states need not register and are exempt from filing periodic reports, according to the article.
“Each of these entities has financial information. They can’t run the city, the town, the county without financial information,” she said.
Corporate debt investors are able to access relatively timely financial information, while municipal-debt investors cannot. “You’re holding an investment, [but] you don’t know if there’s been a decided change for the worse or better,” Ms. Walter said.
Municipal issuers may not want to deal with additional disclosure requirements, but “We’re not here to protect issuers,” said Walter.
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