SEC Commissioner Aguilar Discusses Municipal Markets (with Lofchie Comment)
SEC Commissioner Luis Aguilar made a wide-ranging statement in which he discussed the current state of the municipal securities market and various ways to make it more transparent, liquid and fair.
Commissioner Aguilar explained that municipal securities are subject to far less regulation and transparency than other segments of capital markets and, therefore, are "excessively opaque, illiquid, and decentralized." Commissioner Aguilar suggested that the SEC remove various exemptions for municipal securities from certain registration requirements that necessitate reporting components in order to make municipal markets less "opaque." He also said that the SEC should revise Exchange Act Rule 15c2-12 and its corresponding interpretive guidance to improve municipal disclosures "immediately" and significantly.
Additionally, Commissioner Aguilar called for Congress to repeal the Tower Amendment, which prohibits the SEC and the MSRB from requiring municipal securities issuers to submit information to them prior to the sale of securities. He recommended that SEC staff review the National Federation of Municipal Analysts' recommendations for improving disclosures for municipal securities markets.
According to Commissioner Aguilar, trading on a decentralized, over-the-counter dealer market rather than on an exchange "greatly inhibits" transparency in the municipal securities markets. He encouraged SEC staff and the MSRB to seek public comment on the recommendations from the SEC's 2012 Report on the Municipal Securities Market, which outlines "concrete and achievable" steps that the SEC could take to improve the municipal securities markets. He commended the MSRB's "leverage" of its EMMA system to improve post-trade price transparency, stating that the system has "reduced price disparity, and has enhanced individual investors' ability to negotiate with dealers for a good price."
Lofchie Comment: Here are a few questions necessary for an objective analysis: do municipal issuers benefit from, or are they disadvantaged by, being subject to weaker disclosure standards? If they are disadvantaged, should we see more municipal issuers voluntarily raise their disclosure standards? If they benefit, do the weaker issuers benefit more? Would better disclosure requirements also serve to improve governance, since municipal issuers would have to be more forthcoming about their financial constraints?
See: Commissioner Aguilar's Statement on Municipal Securities Markets.Related news: MSRB Calls for Enhanced Municipal Market Transparency of Undisclosed Debt (Notice 2015-03) (with Lofchie Comment) (January 29, 2015); MSRB Urges SEC to Revisit Municipal Securities Market Disclosure Rule (January 20, 2015); MSRB Announces EMMA Will Collect Asset-Backed Securities Disclosures (Notice 2015-02) (January 6, 2015).