Speech by SEC Commissioner:
Statement at SEC Open Meeting
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
July 15, 2009
I, too, would like to thank the Division of Trading and Markets, the Division of Corporation Finance, the Office of General Counsel, and the Office of Economic Analysis for all your hard and excellent work in preparing for today's open meeting.
I am happy to support the staff's recommendation to propose amendments to municipal disclosure requirements.
Municipal securities represent an extremely important market with increasing retail investor participation. Over $5 trillion long and short-term municipal securities were traded in 2008 in nearly 11 million transactions with nearly 50,000 state and local issuers. And, the municipal securities market is of unique importance because of the governmental nature of the issuers and the public nature of the projects that are financed.
Yet, despite the great importance of this market and the broad retail participation, investors in municipal securities do not receive the same level or quality of information that is available to investors in public corporations. I strongly support Commission efforts to ensure that investors in municipal securities receive improved quality, quantity, and timeliness of information about those investments.
As we all know, Commission authority in this area is limited because Congress exempted offerings of municipal securities from the registration requirements and civil liability provisions of the Securities Act of 1933 and system of periodic reporting under the Securities Exchange Act of 1934. This restricts the Commission's ability to impose disclosure requirements on issuers of municipal securities. I believe that we absolutely must pursue legislation to get at the core of this problem. In the meantime, though, I believe that there are important steps that we can take to improve the transparency of the municipal securities market.
Of course, this is an area where the Commission has been hard at work for quite some time. In 1989, the Commission adopted Rule 15c2-12 and an accompanying interpretation of the legal obligations of underwriters of municipal securities. Rule 15c2-12 requires underwriters participating in primary offerings of municipal securities of $1,000,000 or more to obtain, review, and distribute to potential customers copies of the issuer's official statement, or the muni equivalent of a prospectus.
To improve the adequacy of disclosure in the secondary market, the Commission amended 15c2-12 in 1994. Specifically, the 1994 amendments prohibited participating underwriters from purchasing or selling municipal securities covered by the rule in a primary offering, unless the participating underwriter made a reasonable determination that the issuer or obligated person has contractually agreed to provide certain annual information and event notices to certain information repositories.
In 1994, the Commission also issued interpretive guidance concerning the disclosure obligations of municipal bond market participants. In particular, this guidance explained how the antifraud provisions of the federal securities laws apply to the various municipal bond market participants. Although Congress exempted municipal securities offerings from the 1933 Securities Act registration requirements and the 1934 Act reporting requirements, it did not exempt transactions from the coverage of the antifraud provisions which prohibit any person, including municipal bond issuers, from making false or misleading statements of material fact or omitting any material facts necessary to make statements made by that person not misleading. It goes without saying that that remains true today.
Finally, in December of last year, to promote more efficient, effective, and wider availability of municipal securities information to investors and market participants, the Commission adopted further amendments to Rule 15c2-12 to provide for a single centralized repository, the MSRB, for the electronic collection and availability of information about outstanding municipal securities in the secondary market. The system is known as EMMA, which stands for Electronic Municipal Market Access.
I believe that having a single centralized repository will help provide ready and prompt access to continuing disclosure documents to investors and other municipal market participants and will help fulfill the regulatory and information needs of municipal market participants, including dealers, participating underwriters, mutual funds, and others. The MSRB deserves high praise for working so hard to get EMMA up and running. I look forward to seeing improvements to this system in the future.
I support the amendments being recommended today, which would, among other things, require underwriters to reasonably determine that the issuer or obligated person has agreed to provide notice of specified events in a timely manner not in excess of ten business days after the event's occurrence, amend the list of events for which a notice must be provided under a continuing disclosure agreement, and modify the events that are subject to a materiality determination.
I do want to reiterate, however, that, while we are making progress in this arena, there is much more that needs to be done.