WASHINGTON - Rep. John Dingell. D-Mich., and Rep. Edward Markey, D-Mass., have given securities regulators up to an extra month and a half to report back to them on whether regulation of the municipal market should be tightened, a Washington source said yesterday.
The Securities and Exchange Commission, the Municipal Securities Rulemaking Board, and the National Association of Securities Dealers originally were given a July 23 deadline to respond to questions posed by the chairman of the House Energy and Commerce Committee and the chairman of that panel's subcommittee on telecommunications and finance.
But the source said Dingell and Markey have given the agencies until "the end of August or early September" to respond to the request they made in May, which asked the regulators whether new rules are needed regarding political contributions. secondary market disclosure, and other issues.
The delay gives the MSRB additional time to adopt its own proposals for tightening the regulation of municipal dealers and to head off some possible action by Congress.
The board's next quarterly meeting is July 28-30 in Colorado Springs, where the 15-member panel may consider adopting a proposed rule that would require broker-dealers to disclose some of the political contributions they make to state and local government officials.
If adopted, such a rule would mark the latest in a series of moves by the board designed to respond to pressure from Capitol Hill and regulators to crack down on the market. In June, the board proposed tightening its rules requiring the sale of only suitable securities to customers. It also announced a pilot program to collect and publish price information on municipal bonds.
Dingell and Markey sent a three-page letter to the three regulatory organizations in May announcing they were launching an investigation of the municipal bond market to determine if federal regulation should be "enhanced" and if the so-called Tower amendment should be repealed.
The Tower amendment bars the SEC and the board from requiring issuers to file disclosure documents with either entity in an effort to register the sale of securities. And it prohibits the board from requiring disclosure documents to be sent to it or to investors.
The two chairmen said they are taking a comprehensive look at the present scheme of regulation in light of current "scandals involving alleged illegal payoffs, influence peddling, conflicts of interest, and questionable sales practices," along with concerns over the adequacy of secondary market disclosure. They were referring to ongoing investigations of bond deals in New Jersey and New York City.
"The time is ripe for some changes in regard to Tower," said one prominent bond analyst, who asked not to be identified. "I think that whenever securities are sold across state lines, it seems to suggest that the federal government does have the potential right... to make sure the market protects investors."
"I would agree that it is not necessary that [political contribution information] be in the official statement. But it should be collected and made available to the public," the analyst said.
One prominent bond lawyer said, "I think the light of day would do a lot to stop a lot of practices. I'm just wondering if the light of day in the official statement is the place to do that. Will an investor a year from now care?"