SEC Commissioners Address Municipal Securities Disclosure Practices
Commentary by Steven Lofchie
At the 2020 Municipal Securities Disclosure Conference, Chair Jay Clayton, Commissioners Hester Peirce and Elad Roisman and Office of Municipal Securities Director Rebecca Olsen solicited feedback on ways to improve municipal securities disclosure practices.
Mr. Clayton expressed concern over the lack of clarity regarding whether an issuer is in compliance with ongoing disclosure obligations. He requested feedback on a Fixed Income Market Structure Advisory Committee recommendation that the Commission consider the need for the creation of a disclosure framework, including timeframe obligations.
Mr. Roisman emphasized that municipal issuers would benefit from greater clarity on both the content and timing of the information. He noted that efforts to improve transparency within the municipal market are "daunting" as a result of the diversity of issuers. However, he stated, it is ultimately necessary to ensure regulations are evolving with markets "fairly and favorably for all investors."
Ms. Peirce cautioned against utilizing "one-size-fits-all directives" for municipal issuers. Ms. Peirce raised a number of questions regarding the role of the Commission in shaping those practices, among them:
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whether corporate issuer disclosure standards should be applied to municipal issuers;
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how to balance investor protection concerns and the "political implications of fact-checking government officials' public statements"; and
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how the Commission can provide assurance to issuers that are hesitant to make disclosures due to potential legal liability.
Ms. Olsen described a recent Staff Legal Bulletin as to trading in municipal securities in the secondary market. She also called attention to recent statements on the importance of disclosures in light of COVID-19 (see previous coverage).
Commentary
There may not be a more difficult policy issue in securities law right now than the regulation of disclosures and capital raising by municipal issuers. It is evident that the pandemic will hit municipal issuers hard, both on the revenue side and on the expense side. While one is sympathetic to the needs of municipal governments to fund themselves, the SEC's statutory priority is to protect investors, not to help municipal entities borrow money.
Commissioner Peirce's remarks are well worth reading as she clarifies the conflicting tensions under which the SEC must operate.