SEC Report Makes Case for Muni Oversight, despite Opposition: The SEC Completed Its Review of the Municipal Securities Market and Released Its Report, Which Makes More Than a Dozen Recommendations for Legislative and Regulatory Changes

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The Securities and Exchange Commission (SEC) completed its review of the municipal securities market and released its report on July 31, 2012. The report, titled SEC: Report on the Municipal Securities Market, makes more than a dozen recommendations for legislative and regulatory changes. (1)

The SEC's report follows more than two years of work, three field hearings, and meetings with numerous market participants. GFOA Past President Ed Harrington testified at the San Francisco, California, hearing, and GFOA President-elect Tim Firestine testified at the Washington, D.C., hearing. Harrington and Firestine both explained the plethora of financial information already available to investors and the public about government finances and budgeting. GFOA staff and leadership also met frequently with SEC Commissioner Elise Walter, who led the review, as well as the SEC Chairman Mary Schapiro and SEC staff, explaining the vast amount of financial information public-sector entities already make available to the marketplace--much more than the corporate sector provides.

Despite these efforts, the report appears to maintain the SEC's position that the information available to municipal securities investors is too little and too late.

The GFOA remains strongly opposed to any efforts that would give the SEC oversight authority over issuers of municipal securities; allow the agency to develop the timing, content, and frequency of disclosure information; mandate generally accepted accounting principles for issuers of municipal debt; or, most striking in the report, set standards on the financial information developed and presented by governments. The GFOA's long-standing public policies state that the federal government should not mandate or otherwise influence these practices. Additionally, GFOA best practices, policies, and certificate and award programs guide issuers to robust financial reporting and disclosure policies and practices. This fall, the GFOA Executive Board and Committee on Governmental Debt Management will develop appropriate responses to the SEC and Congress.

Below is an overview of the SEC report's legislative and regulatory recommendations, followed by GFOA positions.


Except for specific anti-fraud provisions, current law prohibits the SEC from directly regulating state and local governments that issue debt. Over the past 20 years, the SEC has developed rules that effectively impose indirect standards on municipal bond issuers by requiring that underwriters cannot purchase bonds unless an official statement accompanies the new issuance and that the issuer has a contract stating that it will provide ongoing financial information for the lifetime of the bonds. The SEC believes the market would work better if it could directly regulate issuers of municipal securities and the required content of their disclosure. The following SEC proposals would require Congress to act.

1. The SEC should have the authority to directly regulate issuers of municipal securities, set timelines and content requirements, and have enforcement capabilities over issuers. The SEC would directly--rather than indirectly, as it does now--require municipal issuers to provide official statements and ongoing disclosures related to a bond issuance. Furthermore, the SEC would have authority to set specific timelines, frequency of information disclosure, and content of disclosures and financial statements and other financial and operating information. The SEC would also have the authority to create enforcement mechanisms over state and local governments.

The report notes that the SEC would not necessarily want to dictate detailed requirements for an issuer's disclosure and financial information, but instead would develop a platform using a "principles-based" approach. The report also says the SEC is not seeking to have municipal securities issuers register with the SEC, as issuers of corporate securities must do. …


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