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SEC Chairman Cox Calls for Improved Investor Protections in the Market for Municipal Securities


Washington, D.C., July 26, 2007 - Securities and Exchange Commission Chairman Christopher Cox today delivered an SEC staff "white paper" to Congress that calls for improvements in accounting and disclosure in the municipal securities market.

The white paper underscores the Chairman's belief that investors in municipal securities deserve the level of timely, high-quality disclosure and protection enjoyed by investors in other areas of the U.S. capital markets.

"I hope this staff analysis will contribute to the Congress's ongoing examination of the needs of the municipal securities market and investors in those markets," said Chairman Cox.

The white paper discusses the size and importance of the municipal securities market, the significant ways in which it has changed over time, recent enforcement actions, and areas of possible legislative reform. Chairman Cox delivered the white paper to the leaders of the SEC's authorizing committees, Senators Christopher Dodd and Richard Shelby (Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs) and Representatives Barney Frank and Spencer Bachus (Chairman and Ranking Member of the House Committee on Financial Services).

There now are more than $2.4 trillion of municipal securities outstanding, and annual trading now tops $6 trillion. Individual investors own as much as two-thirds of these securities directly or indirectly through money market funds, mutual funds, and closed end funds.

A number of recent Commission enforcement actions have raised concerns about the need for disclosure and accounting practices to be substantially improved in this sizable market affecting millions of individual investors.

The white paper states that the model of full registration, Commission review, and other regulation applicable to non-municipal issuers is not necessary or appropriate for state and local governments. Instead, the white paper proposes a limited regulatory regime designed expressly for the needs of the municipal securities market. Possible steps include:

  • Requiring that offering documents and periodic reports provided to investors contain information similar to what is required for all other securities offerings;
  • Making information on municipal securities available on a more timely basis, for example, by tapping the power of the Internet to provide an easily accessible, free source for the display of that information, similar to the SEC's interactive data systems for corporations and mutual funds;
  • Mandating municipal issuer use of generally accepted governmental accounting standards;
  • Providing for an independent funding mechanism and SEC oversight of the independent accounting standards board in this area, the Government Accounting Standards Board, just as the Sarbanes-Oxley Act provided for the Financial Accounting Standards Board;
  • Ensuring that private companies who access the municipal market indirectly by using municipal issuers as conduits meet the same requirements that corporate issuers must meet;
  • Requiring large, complex, and frequent issuers of municipal securities to have policies and procedures for disclosure; and
  • Clarifying the legal responsibilities of issuer officials, underwriters, bond counsels and other participants.

Chairman Cox's delivery of the white paper to Congress followed shortly after his speech, "Integrity in the Municipal Market," given on July 18, 2007, and accessible at http://www.sec.gov/news/speech/2007/spch071807cc.htm.

  Additional materials: White Paper to Congress



Modified: 07/26/2007