The municipal bond market admittedly is a complex place, but sometimes its complexity becomes overbearing. It could stand a dose of Simplicity.
Consider the move to require bond issuers to provide more ongoing financial information as long as their bonds are outstanding. The direct way to get that information is to have the Securities and Exchange Commission order it, but the Tower Amendment prevents that.
Ongoing disclosure of financial information, everyone agrees, is a foundation stone of the capital markets, and the SEC has pressed forWard to circumvent Tower. In 1989 the commission adopted. Rule 15c1-12, which indirectly requires municipal bond issuers to publish financial information when they first bring bond issues to market. In March the SEC proposed amendments to 15c2-12-that would indirectly make issuers publish ongoing financial information.
Not everyone agrees with this approach, and !asl week, Drew Kintzinger, new president of the National Association of Bond Lawyers, urged his legal peers to "embrace the practicality of market change" and encourage bond issuers to disclose ongoing innformation to investors voluntarily. Kintzinger is a believer in disclosure, but he thinks the SEC "paints with too broad a brush."
Under the SEC's proposed 15c2-12 amendments, muni bond dealers would be barred from buying or selling bonds unless issuers pledged in writing to provide the ongoing information and also to report "material events" such as adverse rating changes or defaults whenever they occurred.
Instead of forbidding dealers to underwrite bonds of uncommunicative issuers, Kintzinger would prefer an SEC rule requiring underwriters to disclose whether issuers had agreed to provide ongoing financial information and also to describe the consequences of any decision not to disclose.
Kintzinger wants his association to be a progressive market participant that recognizes the benefits of ongoing disclosure, and he also wants it to speak up when it thinks SEC disclosure proposals too burdensome. That'S what he was doing last week.
By the time we're done trying to weigh the merits of these arguments, we wantto chuck the whole thing. Why not repeal Tower? Require municipal bond issuers
to register with the SEC. Require issuers to file annual financial statements and to report material events. No backdoor supervision, No question about doing it voluntarily. "This path may be politically impossible right now, but it would put municipal bonds foursquare into the modern capital market.
