WASHINGTON -- The Securities and Exchange Commission staff will hold the first in a series of in-depth meetings with municipal industry groups starting next Wednesday that are designed to develop a plan for improving secondary market disclosure.
The date for the first meeting was announced by Elisse Walter, the SEC's deputy director for corporate finance, at a closed-door meeting held by regulators at the Pierre Hotel that ended late Wednesday afternoon, according to market participants who attended the session.
SEC Chairman Arthur Levitt told the roughly 40 representatives of issuers, analysts, dealers, and bond lawyers at the meeting that they have 90 days to agree on a plan to improve ongoing disclosure, attendees said.
The 90-day time frame that Levitt stipulated reflects the pledge he made before a House subcommittee last month. In testimony, Levitt told Rep. Edward Markey, D-Mass., that the SEC would give industry groups until January to develop a list of items that issuers should routinely disclose in the secondary market.
The SEC is under the gun from Markey, the chairman of the House Energy and Commerce Committee's subcommittee on telecommunications and finance, to devise a standard for improving disclosure quickly. Markey said at an oversight hearing on municipals Oct. 7 that he is "very, very seriously" considering introducing legislation in the area.
Industry representatives who attended Wednesday's session said Levitt and Walter offered no specifics on what standard the SEC wants developed. But attendees said it was clear that the officials are quite serious about getting one.
"I think they mean business," said R. Fenn Putman, managing director of Lehman Brothers, and vice chairman of the Public Securities Association, following the session. "The burden of proof is on industry" to come up with something that really works, said Putman, who is also a member of the MSRB. "We have a monstrous education process" ahead, he said.
SEC officials have said that they may issue a written interpretation stating that federal antifraud statutes require issuers to make certain minimum disclosures to the secondary market. They also may seek a so-called dealer conduct rule that would restrict dealers from recommending bonds to customers if the issuer has not pledged to provide ongoing disclosure.
The standards would be developed by two SEC divisions -- the corporate finance division, which already sets in-depth disclosure standards for corporate issuers, and the market regulation division, which regulates broker-dealers and the recommendations they make to investors.
"We want to tap everyone's ideas," Walter of the SEC said in an interview following the meeting. "We want analysis, information, and attitudes. We'll take it from there.
"I can't tell you exactly what the process" will be, Walter said. "It will be what it needs to be to get the job done. It all depends on what happens in the next 90 days. In 90 days we want to be in a position to say, ~This is how the community and industry wants to go forward and we endorse it.'"
Walter noted that the SEC staff is looking at "everything that's out there and trying to evaluate it." The National Federation of Municipal Analysts, for instance, is developing three-page disclosure formats for a variety of market sectors that can be filed in the Municipal Securities Rulemaking Board's continuing disclosure information pilot, CDI.
Christopher Taylor, executive director of the MSRB, which helped organize Wednesday's meeting, also said groups could dust off a plan that was proposed by the American Bankers Association in June 1990 but later scrapped following heavy objections from bond attorneys.
The June 1990 proposal listed 16 pieces of information that should routinely be disclosed by issuers. A revised version issued in final form in 1991 listed fewer items and called for a more detailed procedure for releasing the information.
"There were no specifics whatsoever," said Heather Ruth, president of the Public Securities Association, following the New York meeting. But SEC Chairman Levitt made clear that this is "not just a flash in the pan" effort, Ruth said. "This will not lose the attention" of Washington, she said.
"It's all soft," said one issuer representative, who asked not to be identified, after the session. But they want something "comprehensive enough for ... the SEC to endorse."
