WASHINGTON - The regulatory climate may be changing in 1993 as agencies and Congress ponder whether to increase protection for municipal bond investors.

The House Energy and Commerce Committee's subcommittee on telecommunications and finance plans to hold oversight hearings in the summer or fall to decide if federal rules governing the sale of municipal bonds to investors need to be toughened.

The panel, chaired by Rep. Edward Markey, D-Mass., will examine whether brokers are recommending suitable bonds to investors, whether primary and secondary market disclosure is adequate, and whether price information is available enough in the market, among other things.

In addition, the Municipal Securities Rulemaking Board will review industry comments due this month on whether changes are needed in its major customer protection rules. In one set of comments filed recently, the National Association of Bond Lawyers recommended several possible amendments to MSRB rules, but stressed that the most effective move would be to step up enforcement of existing standards.

To that end, Richard Roberts, a member of the Securities and Exchange Commission who has been pushing the board to review its suitability standards, said in an interview last week that he will continue to push the board to close what he considers a loophole in the board's Rule G-19.

The rule requires brokers to believe the securities they recommend to customers are suitable. The provision that concerns Roberts allows a firm to sell bonds without relevant information about as it has "no reasonable grounds" to believe the recommendation is unsuitable.

The SEC in the coming year is also likely to propose, rules that would amend the agency's money market Rule 2a-7 to improve the quality and diversity of bonds held by tax-exempt money market funds. The agency enacted similar rules for taxable securities earlier this year, but further action was delayed in part by President Bush's moratorium on new rules.

Meanwhile, the MSRB is about to launch its 18-month secondary market Continuing Disclosure Information Pilot System. Several banks are already lining up branches to test the system, which will be expanded after six months to include issuers.

The system, although voluntary, could increase pressure on issuers to keep the market abreast of events and ongoing financial information concerning their bonds.

Asked about the plan by the House securities panel to hold oversight hearings on municipal securities, one knowledgeable source said, "It's definite. We're having hearings later in 1993. It's been a long time since Congress has taken a look at the municipal bond market."

Sen. Christopher Dodd, D-Conn., chairman of the securities subcommittee of the Senate Banking Committee, conducted oversight hearings in March 1991 on the municipal bond market. But those hearings, entitled "State and Local Governments Under Stress: the Role of the Capital Markets," focused heavily on how to better tap the municipal market for solution?, to the nation's urban and infrastructure problems.

On the House side, Markey is expected to move quickly in 1993 to introduce tough legislation aimed at curbing abuses by investment advisers such as California's Steven Wymer, who pleaded guilty in September to nine felony counts of racketeering, securities fraud, bank fraud, mall fraud, and obstruction of justice. Wymer has agreed to pay municipalities and other clients roughly $209 million in a settlement with federal prosecutors.

House and Senate legislators were unable to reconcile differences in the final hours of the 102d Congress in October on vastly different bills affecting financial advisers. he Senate bill would have authorized the SEC to raise to as much as $3,000 the fees paid by financial advisers. The proceeds would go toward a vast expansion of the limited commission staff that keeps tabs on the growing adviser industry.

The House bill would have included a provision requiring advisers to determine whether the securities they recommend to investors are suitable for their income and investment strategies.

Bitter House aides warned recently that the securities industry's heavy opposition to the bill could come back to haunt firms next year. Since a Clinton administration is much less likely to oppose such a measure, they say, the bill likely to be dropped in the hopper could include even stronger provisions.

The MSRB's continuing disclosure system, meanwhile, will enable trustees and issuers to rapidly file three-page notices of important events that affect the bonds they oversee, such as calls and draws on escrow funds. They will be able to file the notices electronically, by facsimile machine or through the mail.

SEC Commissioner Roberts noted that some issuers want the option of filing more than three pages electronically, and that the SEC may be open to the idea if proposed by the board in 1993.

"There's no reason after a period of time that we shouldn't give some consideration to amending the rule" to allow unlimited filing, he said.

On a related issue, Roberts said that now that the MSRB has made major progress in getting its primary and secondary market disclosure systems off the ground, the SEC will focus more on pushing for improvements in price dissemination in the municipal market, often referred to as "transparency."

"It was important to allow the MSRB some time to get going with their" disclosure library, he said. "Until that gets going, it's useless to push for anything." As for the SEC, Roberts predicted the agency would step up pressure for better transparency in the second half of 1993.

Roberts also believes that in the first half of the year the SEC will propose amendments to its money market Rule 2a-7 in an effort to improve the quality and diversity of bonds held by tax-exempt money market funds.

He said he will continue to press for a provision in the new rules that would bar portfolio managers from buying variable-rate demand notes from issuers who do not pledge to provide ongoing disclosure to buyers.

"I'm definitely continuing to support it," Roberts said. "I'm sure the language can be tinkered with to minimize the opposition," which Roberts called "misguided." He predicted that opposition will become "muted" once opponents, including the Investment Company Institute, "give it some thought."

At the same time, 1993 will be a pivotal year for securities clearance and settlement. An international task force headed by John Bachmann, chairman of St. Louis-based Edward D. Jones & Co., recently recommended that stock and bond trades, including municipals, should he settled in three days instead stead of the current five and should provide for same-day funds settlement.

Regulators have been eyeing a mid-1994 implementation date for this so-called T-plus 3 concept. SEC Chairman Richard Breeden signaled recently that the agency may issue a rule mandating T-plus-3, but the SEC will not mandate a mid-1994 compliance date.

In a recent speech before a Securities Industry Association conference in Boca Raton, Fla., Breeden said it is becoming increasingly clear that voluntary industry efforts to streamline clearance and settlement may not be moving quickly enough. Thus, the SEC may need to set timetables for shortening the settlement time frame and implementing other reforms, "even if those timetables are relatively lengthy," he said.

"The U.S. clearance and settlement system remains largely where it was, and we have expended much talk but made little progress in actually implementing real improvements," Breeden said.

And in another key issue, the Financial Accounting Standards Board will conclude its public hearings Jan. 7-8 on a controversial draft plan to require banks to value their investment securities, including some municipal bonds, at their current market value rather than their original market price. if adopted, the so-called mark-to-market proposal, which is strongly opposed by some municipal industry leaders, would take effect in 1994.

Industry officials, meanwhile, are bracing for the busy year to come on the regulatory front. "We see the whole area as being active and we will be participating in the comment process and talking to regulators," said George Brakatselos, vice president of the Public Securities Association.

"There is a lot going on in the market," a Capitol Hill aide said. "There is a lot of change."

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