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Speech by SEC Commissioner: Remarks on News Conference Call About the SEC’s Report on the Municipal Securities Market

Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

Washington D.C.

July 31, 2012

As many of you know, the municipal securities market is an incredibly important component of our capital markets and provides critical support for our country’s infrastructure. The funds that are raised through this market help finance schools, roads, hospitals, and so much more.

But without investor trust and the willingness of Americans to invest their hard earned money in municipal securities, vital projects could go unfunded.

In short, it is a market that matters to us all.

That is why Chairman Schapiro asked me to lead a review of the municipal securities market – to find ways to better serve investors and enhance our understanding of this slice of the financial world.

At her request, we held a series of field hearings and meetings with municipal securities participants representing a broad spectrum of perspectives. This included issuers, analysts, broker-dealers, and many others – but most important to us, individual, or retail, investors.

Today, we are releasing a comprehensive report by the Commission stemming from our review – a report that offers a comprehensive overview of municipal securities and makes recommendations for Congress as well as the MSRB, the industry and the Commission itself to consider further strengthening this market.

I would like to offer the Commission’s heartfelt thanks to the staff who worked on the report. This was an agency-wide, collaborative endeavor especially by our Division of Trading and Markets including the Office of Municipal Securities, the Division of Corporation Finance, the Division of Risk, Strategy and Financial Innovation, and the Division of Enforcement. Their tireless efforts were undertaken in addition to their regular, heavy workload and in addition to their responsibilities under Dodd-Frank.

Ours was a complex undertaking in part due to the sheer size of this market. At the beginning of this year, there were more than one million municipal bond issues outstanding, totaling $3.7 trillion – of which 75 percent was held by retail investors either directly or indirectly through mutual, money market, closed-end, and exchange-traded funds, with close to 44,000 state and local issuers.

We heard the concerns voiced by many of our field hearing participants that investors in the municipal securities market do not have all the protections and access to information that they need. And we continue to recognize that the level of oversight that exists in certain sectors of the U.S. capital markets is not a one-size fits all approach.

Today, the Commission is recommending consideration of several potential changes to the laws, regulations and business practices surrounding the municipal securities market.

The Commission report recommends that Congress consider allowing the SEC to set baseline disclosure standards and require municipal issuers to have audited financial statements as appropriate.

We also recommend consideration of:

  • Aligning conduit borrowers that are not municipal entities with non-governmental borrowers in terms of registration and disclosure standards since they are private entities financing non-governmental private projects.
  • Providing a safe harbor from private liability for forward-looking statements of repeat municipal issuers that satisfy certain conditions to encourage the provision of forward-looking information while preserving application of the antifraud provisions.
  • Permitting the IRS to share with us information that it obtains related to municipal securities offerings, particularly where securities fraud is suspected.
  • Ways to enforce compliance with continuing disclosure agreements and other obligations of municipal issuers to protect municipal securities bondholders.

Other recommendations relate to pre- and post-trade transparency in the municipal securities market including consideration of:

  • Disseminating best bids and offers and responses to “bids wanted” auctions.
  • Enhancing EMMA to provide retail investors with better access to pricing and other municipal securities information.
  • Requiring best execution by municipal bond dealers for customer orders.

In addition to legislative recommendations, our report also identifies potential areas for future rulemaking by the Commission and the MSRB as well as enhancements to industry best practices within the municipal securities market.

My hope is that this report stimulates the discussion and feedback that will lead us closer to implementation of much needed reforms.

Thank you and I am pleased to take your questions.

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