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Remarks at The Road Ahead: Municipal Securities Disclosure in an Evolving Market Conference

Dec. 6, 2018

I want to thank the Office of Municipal Securities[i] and the Chairman for planning this thoughtful conference.[ii] Thank you as well to our panelists for taking the time out of your busy schedules to join us today. I would also like to thank the Municipal Securities Rulemaking Board—the MSRB—for their continued efforts to protect municipal securities investors, municipal entities, and the public interest.

As we deliberate and debate the ins and outs of securities laws, disclosure requirements, and market structure, I believe it is important to keep in mind the reason we are all here. Investment in municipal (“muni”) securities allows our nation’s communities to raise money for better schools, sewers, roads, fire and police protection, and countless other important needs. At the same time, it allows investors to invest in something tangible and worthwhile that often makes a difference in their own communities.

As is the case in our capital markets in general, these mutual benefits can only fully accrue where there is trust in the marketplace. One of the foundations of this trust is transparency. Is there sufficient disclosure for investors to trust that their money is being invested according to their expectations? Because when disclosure works well, and trust is maintained, the municipal securities market functions in a way that benefits both investors and communities across the United States.

With an estimated 50,000 municipal issuers in the United States representing $3.85 trillion in outstanding principal, muni bonds are a key component of our overall securities markets.[iii] And critically, direct retail ownership accounts for approximately 42% of that amount.[iv] Although household ownership has been falling,[v] municipal bonds are one of the oldest forms of investing and have traditionally had a significant level of participation from the retail investor community.

As we consider the purpose, size, scope, and history of the municipal bond market, it is also important to reflect on key changes that have taken place in the last decade or so. Three major categories of changes worth calling attention to are:

(1) Changes related to the Dodd Frank Wall Street Reform and Consumer Protection Act, including a municipal adviser registration paradigm and the establishment of the Commission’s Office of Municipal Securities;

(2) Disclosure changes, including updates to obligations for dealers to have continuing disclosure agreements with municipal issuers, post-trade mark-up/mark-down transparency, and the SEC’s report on and disclosure recommendations for the municipal securities market[vi]; and

(3) Technology changes, such as electronic trading, service provider solutions to make it easier to invest in municipal securities, and the creation of EMMA—the primary data and disclosure resource for municipal securities similar to SEC’s EDGAR system.

Each of these changes has a key ingredient in common—they all are meant to reinforce the integrity of, and trust in, our municipal securities markets.

At the same time, municipal market participants—including investors—have had to balance all of these changes as the marketplace continues to evolve and face new challenges and issues. For instance, there’s no shortage of concerns regarding underfunded public pensions,[vii] short- and long-term impacts of the Tax Cuts and Jobs Act,[viii] record-breaking defaults and bankruptcies,[ix] and, of course, how rate changes will affect the muni market.[x] As some commenters have said, “it’s not your grandfather’s muni market anymore.”

There have also been lots of exciting innovations in the muni markets. For example, investors have shown interest in green muni bonds, which reflect a way to invest in municipal securities while maintaining sustainable investment goals.[xi] The proliferation of passive municipal bond exchange-traded funds has further democratized access to the muni bond market.[xii] In addition, spreads on smaller trades have been decreasing over the last two decades, likely as a result of increased price transparency and electronic trading.[xiii]

But we are gathered here today because a successful regulatory regime, particularly for a market in which there have been so many changes, also needs to be able to evolve and change. In particular, how do we continue to provide full, fair, and effective disclosure that evolves with the changes in the marketplace? Our regulatory regime must also keep pace with, and encourage, technological changes as well, which is the subject of an afternoon panel.

With respect to disclosure and technology, we have come a long way in the last decade, but more work needs to be done. For example, the Commission’s Investor Advisory Committee recently held a discussion on pre-trade data transparency, which may be able to improve price discovery.[xiv] Can such disclosure improve our market structure to allow for more efficient trading at better, more competitive prices for all market participants? Additionally, we should encourage technology solutions that improve participation while safeguarding investor protection at the same time. What type of technology solutions help strike this balance well? How can structured data help improve disclosure in the municipal securities market? How does the use of social media impact municipal bond offerings? What effects have the growth of alternative trading systems had on the muni market?

I appreciate all of the commentary so far and look forward to hearing additional thoughts on these and other important topics affecting the municipal securities markets after lunch.

Thank you and enjoy the rest of the conference.

[i] In particular, I would like to thank Ahmed Abonamah, Hillary Phelps, Adam Wendell, and Rebecca Olsen from the Office of Municipal Securities.

[ii] The views I express today are my own and do not necessarily reflect those of my fellow Commissioners or the SEC staff.

[iii] See Securities Industry and Financial Markets Association (SIFMA), “2018 Fact Book,” Sept. 6, 2018, available at

[iv] See Federal Reserve Board, Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts (Second Quarter 2018), at Table L.101 (Sept. 20, 2018), available at (showing that households, nonprofit organizations, domestic hedge funds, private equity funds, and personal trusts directly own $1.625 trillion in municipal securities; this figure does not indirect ownership through mutual funds).

[v] See Municipal Securities Rulemaking Board, Trends in Municipal Bond Ownership (2018), available at (noting that “Federal Reserve data show that direct retail holdings by households have declined over the 10‐year period, to $1.57 trillion in 2017 from $1.78 trillion in 2007”); see also Sage Belz & Louise Sheiner, Key Changes in the Municipal Bond Market Since 2007, The Brookings Institution (July 14, 2017), available at (hereinafter “Brookings – Key Changes”).

[vi] See U.S. Securities and Exchange Commission, Report on the Municipal Securities Market (July 31, 2012), available at

[vii] See The Wharton School, University of Pennsylvania, The Time Bomb Inside Public Pension Plans (Aug. 23, 2018), available at

[viii] See PNC Capital Advisors Municipal Fixed Income Team, Tax Cuts and Jobs Act: What Does it Mean for the Municipal Bond Market? (Mar. 2018), available at

[ix] See e.g., Nick Brown, Puerto Rico Files for Biggest Ever U.S. Local Government Bankruptcy (May 3, 2017), available at

[x] See Municipal Securities Rulemaking Board, Evaluating a Municipal Bond’s Interest Rate Risk (2013), available at

[xi] See Finn Schuele & David Wessel, Municipalities Could Benefit from Issuing More Green Bonds, The Brookings Institution (Jul. 16, 2018), available at (“[A] subset of investors are willing to give up returns in order to hold green bonds, and that municipalities could save money by issuing green rather than ordinary bonds.”).

[xii] See Gary A. Lasman, Jedediah Koenigsberg & Michael L. Dawson, Structural Changes in the Municipal Bond Market: The Case for Active Management, MFS Investment Management (May 9, 2018), available at

[xiii] See Brookings – Key Changes, supra note v.

[xiv] See Simon Z. Wu, John Bagley & Marcelo Vieira, Municipal Securities Rulemaking Board, Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems (Oct. 2018), available at

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