Municipal Securities Investors Need More Information About Bond Purchases, Says SEC

According to US Securities and Exchange Commissioner Elisse Walter, municipal securities market investors with securities fraud cases are entitled to clear information about the bonds they are purchasing. Walters spoke at an SEC-sponsored hearing last month. Other panelists also echoed the need for accuracy, transparency, and timeliness of disclosure for bond buyers so that they are given the proper information at the right time.

Walter said that about 51,000 local and state entities issue bonds for maintaining and constructing infrastructure projects. She also noted that even though retail investors hold 36% of outstanding municipal securities directly and another 34% own them indirectly through close-end funds, mutual funds, and retail-sized trade accounts for up to 81% of trading, volume, the municipal securities market is missing a number of the protections that exist in other sectors of the US capital markets. Walter said that municipal securities investors have the right to these same protections, as well as the right to information that doesn’t have material omissions or is materially misleading. She classified the treatment of municipal securities investors as “second class.”

Walter said that even though municipal securities are reputedly safe, they can and have been known to default. Between 1999 and 2009, out of $3.4 trillion dollars issued, issuers defaulted on more than $24 billion in municipal bonds. Last year alone, 194 municipal bonds that had an overall dollar amount of nearly $7 billion in bonds defaulted.

The hearing is the first of several that gives participants the forum to examine the $2.8 trillion municipal securities markets. Topics include financial reporting and accounting, investor protection and education, market liquidity and stability, municipalities as conduit borrowers, the Municipal Securities Rulemaking Board, professionals and market intermediaries, offering participants, 529 plans, and Build America Bonds. The commission is going to issue a staff report that will include recommendations for industry “best practices,” regulatory changes, and legislative changes.

Related Web Resources:
SEC’s Walter takes aim at ‘second-class treatment’ of muni investors, Investment News, September 21, 2010

Speech by SEC Commissioner: Statement at SEC Field Hearing on the State of the Municipal Securities Market, SEC, September 21, 2010

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