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Opening Remarks At 2018 Municipal Securities Disclosure Conference, Rebecca Olsen, Director, SEC Office Of Municipal Securities, Dec. 6, 2018

Date 07/12/2018

Introduction

Good morning. Welcome. I truly appreciate the willingness of such a diverse group of municipal securities market participants to join us here today so we can discuss disclosure in the municipal securities market.

Before I continue, I must give the standard SEC disclaimer that the views that I express today are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any of my colleagues on the staff of the Commission.[1]

Our goals today are to: (1) assess the current state of disclosure in the municipal securities market; (2) discuss what, if any, changes in disclosure practices are needed to meet the needs of investors in a changing market landscape; and (3) consider whether there are any opportunities for regulatory improvements to facilitate such changes in disclosure practices.

Before we start, a few brief thoughts to guide our discussion:

Federal Regulatory Structure of the Municipal Securities Market is Different

As you all know, unlike corporate securities, which are generally subject to registration and reporting requirements under the federal securities laws, municipal securities are exempt from such registration and reporting requirements.[2]

In the absence of these requirements, the Commission’s investor protection efforts in the municipal securities market have been accomplished primarily through:

  • regulation of broker-dealers and municipal securities dealers, including through Exchange Act Rule 15c2-12,
  • Commission interpretations,
  • enforcement of the antifraud provisions of the federal securities laws, and
  • Commission oversight of the MSRB.

Though I hope that today’s discussions will yield creative and outside-the-box ideas for ensuring that municipal securities disclosure continues to evolve as needed to reflect a changing market landscape, I encourage today’s panelists and all of you to keep the Commission’s traditional investor protection tools in mind.

Timely Access to Current Material Information

Retail investors play a significant role in the municipal securities market – holding directly or indirectly over 2/3 of the market.[3] Therefore, I believe that it is important that we consider whether such Main Street investors (or their advisers) have timely access to current material information needed to make informed investment decisions. I would like to spend a moment on this topic.

While the Commission’s authority with respect to the municipal securities market is more limited than in other sectors of the capital markets, the Office of Municipal Securities recognizes that investors in municipal securities – like investors in other sectors of the capital markets – rely on timely access to current material information to make informed investment decisions.

As I stated earlier, one of the goals of today’s discussions is to identify whether there are any opportunities for regulatory improvements to aid evolving disclosure practices. I believe that this work is essential because, at the end of the day, the true measure of the success of our disclosure regime is whether investors have timely access to material information necessary to make informed investment decisions. Given the dynamic nature of our markets, the types of information material to an investor’s decision about whether to purchase or sell a municipal security might change over time. As a result, I believe it is essential that disclosure practices evolve.

An example of the Commission’s commitment to this goal is the recent amendments to Exchange Act Rule 15c2-12.

Recognizing the increased use by municipal issuers of direct placements and bank loans as financing alternatives to public offerings of municipal securities, the Commission recently approved amendments to Rule 15c2-12 that are designed facilitate timely access to important information regarding material financial obligations whose terms could impact an issuer’s liquidity and overall creditworthiness and create risks for investors.[4]

The amendments add two new events notices to the list of notices that a broker, dealer, or municipal securities dealer acting as an underwriter in a primary offering of municipal securities subject to Rule 15c2-12 must reasonably determine that an issuer has undertaken in their continuing disclosure agreement to provide to the MSRB within ten business days of the event’s occurrence.

OMS staff has attended many conferences this fall to discuss the new amendments and answer questions raised by market participants. We are sure many of you still have questions all of which may not be addressed today, and we will continue to engage in outreach and respond to questions raised by market participants.

Looking to today’s panel discussions, I encourage full and frank dialogue about the current state of disclosure in the municipal securities market, what lies ahead, and how we can ensure that disclosure practices continue to meet the needs of investors. I am eager to hear your thoughts on questions such as:

  • Do investors have timely access to important information when a municipality is experiencing distress?
  • What are the opportunities and challenges presented by developments in technology that could improve the availability and accessibility of disclosures in the market?
  • How are market participants grappling with issues such as cybersecurity and climate risk?

Closing

I very much look forward to our panels today and our discussions of municipal securities disclosure.

 


[1] The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.

[2] Section 15B(d) of the Securities and Exchange Act of 1934, commonly referred to as the “Tower Amendment,” states: “(1) Neither the Commission nor the Board is authorized under this title, by rule or regulation, to require any issuer of municipal securities, directly or indirectly through a purchaser or prospective purchaser of securities from the issuer, to file with the Commission or the Board prior to the sale of such securities by the issuer any application, report, or document in connection with the issuance, sale, or distribution of such securities. (2) The Board is not authorized under this title to require any issuer of municipal securities, directly or indirectly through a municipal securities broker, municipal securities dealer, municipal advisor, or otherwise, to furnish to the Board or to a purchaser or a prospective purchaser of such securities any application, report, document, or information with respect to such issuer: Provided, however, That the Board may require municipal securities brokers and municipal securities dealers or municipal advisors to furnish to the Board or purchasers or prospective purchasers of municipal securities applications, reports, documents, and information with respect to the issuer thereof which is generally available from a source other than such issuer. Nothing in this paragraph shall be construed to impair or limit the power of the Commission under any provision of this title.”

[3] See Federal Reserve Board, Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts (Second Quarter 2018) (Sept. 20, 2018), available at https://www.federalreserve.gov/releases/z1/20180920/z1.pdf.

[4] See Exchange Act Release No 34-83885 (Aug. 20, 2018), 83 FR 44700 (Aug. 31, 2018), available at https://www.gpo.gov/fdsys/pkg/FR-2018-08-31/pdf/2018-18279.pdf.