WASHINGTON -- The Securities and Exchange Commission has been monitoring the municipal bond industry from "the sidelines" since the agency's inception 50 years ago, but that is all changing in the 1990s, a key SEC aide warned last week.
"I think the role of the commission in the 1990s has to be defined," said Edward Pittman, counsel to Commissioner Richard Roberts. "Whether it's by legislation or by commission rule making, I think there are going to be changes by the year 2000," said Mr. Pittman, who was speaking at a Municipal Forum of New York luncheon last Thursday.
He said the SEC is upgrading its enforcement in the market and will be examining the need for additional regulation to improve dissemination of prices and secondary-market information.
Mr. Pittman said clearing house already gather a tremendous amount of price information that could be used by regulators and market participants to improve their surveillance of the municipal market and to broaden the availability of transaction prices.
He said that in the corporate arena, the SEC has flatly told the National Association of Securities Dealers and New York Stock Exchange change that it expects them to begin developing surveillance systems to better monitor corporate debt transactions.
"We haven't focused on the municipal side yet, but I think it should be inescapable that once we have systems up and running in corporate debt, we will begin to ask why we can't apply the same technology or surveillance methods to at least some segments of the municipal markets. I don't think there is any excuse now for not doing some kind of screen based trading system at some point in the future" in municipals, he said.
"Already you are seeing in the government securities markets that there is movement away from broker's brokers toward direct trading," he said. "Ultimately we may decide it is appropriate to have the same kind of scheme for municipals. The scheme available now on the municipal side is excellent, but I think there is room for improvement."
Turning to secondary-market disclosure, Mr. Pittman said the SEC always has the option of asking Congress for authority to directly regulate ongoing disclosure. "I don't know if that's going to happen" but there are a number of the things the SEC could do short of that to encourage improved disclosure.
He said one way to "heighten sensitivity" of market participants is for the SEC to upgrade its enforcement program.
"For over 50 years we have turned a blind eye to the municipal markets" in terms of enforcement, Mr. Pittman said. "Few attorneys on the staff really have an understanding of the municipal markets and we've had very limited surveillance of transactions."
But that is changing, he said. "Already within the commission I sense that attorneys are becoming more actively involved in enforcement" in the municipal area, he said. "I suspect there are more municipal enforcement cases in the works right now than we have seen in the past. In fact, in the last week, I have had three calls from various [SEC] regional offices looking at cases involving municipal securities."
On a related subject, Mr. Pittman said the rules set out by the agency for calculating a firm's total net capital are less stringent for some municipal bonds than they are for corporate bonds. "At some point we may have to revisit this type of regulation," he said. Distinctions could be made in terms of the adequacy and timeliness of information available to the market, he said.
