For the municipal securities marketplace, Washington has always been a distant place that has meddled little with the market's daily affairs except in matters of tax law.
That is about to change.
The House Energy and Commerce Committee's subcommittee on telecommunications and finance, chaired by Rep. Edward Markey, D-Mass., has scheduled hearings beginning Sept. 9 to determine whether tougher regulations are needed for the tax-exempt market. The full committee is chaired by Rep. John Dingell, D.-Mich.
The two panel's will receive reports this Friday from the Securities and Exchange Commission, the Municipal Securities Rulemaking Board, and the National Association of Securities Dealers on whether reforms are needed to deal with political influence peddling, lagging secondary market disclosure, and other issues.
This will be the first time in years that the Energy and Commerce Committee complex, which has steered a formidable array of securities bills through Congress, has conducted oversight hearings on municipal securities. And it will be the first time ever that Markey, who has headed the finance subcommittee since 1987, has focused on the issue.
Markey's panel has successfully launched major bills to crack down on massive insider trading and penny stock fraud and to put circuit breakers in place to defuse stock market crashes like those in 1987 and 1989. A 1990 civil penalties bill gave the SEC authority for the first time to levy hefty civil fines against securities violators. And an international enforcement measure opened the way for regulators worldwide to swap information in an effort to nab violators.
The Dingell-Markey team also killed some key securities bills, including 1988 and 1990 measures pushed by the Reagan and Bush administrations to repeal the Glass-Steagall Act, which deals with banks' separation of powers. Also, in 1990, the panel derailed a provision that would have allowed major commercial businesses like Sears, Roebuck and Co. to own banks.
Currently on the committee's plate and moving fast are bills to crack down on the activities of government securities dealers, financial advisers, and financial accountants and a bill to reform rollup transactions.
Now this powerhouse of a committee has locked its sights on municipals. And it is no coincidence that the committee has taken aim just as the market is reeling under influence-peddling scandals in New Jersey, Louisiana, and Massachusetts.
The panel's style has always been to wait until the national spotlight has focused on an issue, conduct oversight hearings, then move in with a legislative proposal.
Rarely has the panel conducted oversight hearings that have not led to legislation. In one of the few such cases, the committee punted on the mergers and acquisition craze of the 1980s because the fad fizzled before the panel got around to drafting a bill.
The mere rumblings of the committee's intent to conduct oversight hearings has already triggered a flurry of regulatory activity at the MSRB and the SEC.
The MSRB will probably tell Congress about initiatives it has in place aimed at curbing political contributions and improving secondary market disclosure and price dissemination.
And the SEC may outline plans to propose a rule and a legal interpretation aimed at shoring up secondary market disclosure, among other proposals. The SEC also may call for amending the Securities Exchange Act of 1934 to crystalize its authority over municipal securities issues.
Regulators also will offer their thoughts on whether Congress should partially repeal the hallowed Tower amendment to open the door to increased regulation of securities such as conduit, special assessment district, local housing, and health-care bonds.
So far, only regulators have been invited to testify on Sept. 9. But interest groups also could soon get invitations to speak their minds on Capitol Hill. And speak their minds is exactly what the committee wants the groups to do, since it is the first to admit that Congress is no expert on the municipal market.
"We expect frank testimony," said an aide. "Give us the facts that will temper the boosterism" about this issue, he said, adding that the committee intends to be "tough but fair."
Change is in the wind. This committee means business. Market participants who think that this round of Capitol Hill hearings will not produce more rules, and even legislation, are in for a rude awakening.
