WASHINGTON -- Securities and Exchange Commission member Richard Roberts yesterday outlined the game plan regulators and Congress are likely to, follow in the months ahead to develop new rules governing secondary market disclosure, price dissemination, political contributions, and conduit bonds.
Roberts indicated that Rep. Edward Markey, D-Mass., chairman of the House Energy and Commerce Committee's telecommunications and finance subcommittee, is eyeing legislation that would require registration of conduit bonds and mandate improvements in the dissemination of municipal bond prices.
But Roberts indicated further that it would be left up to the SEC and the Municipal Securities Rulemaking Board to write rules to improve secondary market disclosure in general and control political contributions by dealers.
"My understanding is that Markey has been concentrating on whether there should be a registration requirement for conduit bonds and a rule on price transparency," Roberts said.
But, he said, "Chairman Markey may be of the view that the MSRB and the municipal industry will take care of political contributions and the SEC will take care of the secondary market disclosure controversy. Only the future will tell."
Roberts' remarks came in a telephone interview following a luncheon speech by Consuela Washington, counsel to Rep. John Dingell, D-Mich., chairman of the Energy and Commerce panel.
Washington, who was a top contender for the SEC chairmanship before Arthur Levitt got the job, said the panel will not write legislation governing secondary market disclosure and political contributions if the SEC and the MSRB come up with rules that work.
"We will step in only if those efforts aren't successful," Washington said in a brief address to Women in Housing and Finance. "This is not an issue you want to make members of Congress vote on."
She said, however, that the committee would have to step in with legislation if rules put in place by the SEC and the MSRB are deemed ineffective, or if their rules work but need to be somehow reconciled with existing securities law.
SEC Chairman Arthur Levitt met on Oct. 14 with roughly 40 market participants in New York, where he announced that the agency will set standards on secondary market disclosure and that groups have until January to agree on a plan for improvements in the area.
Roberts, meanwhile, told a Council of Development Finance Agencies meeting in Pittsburgh Tuesday that an MSRB pilot program for improving information on prices. is inadequate and should be replaced with a system similar to one for junk bonds recently adopted by the National Association of Securities Dealers, called the Fixed Income Pricing System.
"I believe that is the path that the SEC staff is headed down," Roberts said in a telephone interview Tuesday. "My guess is something would be proposed in the first quarter of next year."
Markey indicated his interest in regulating unrated and conduit bonds at the hearing he held on municipal bonds on Oct. 7. He asked an industry panel a series of questions aimed at determining whether the greatest disclosure problems and the highest risks of defaults have involved unrated bonds, particularly those used to finance hospital, housing, special district, and industrial development projects.
Meanwhile. the Public Securities Association announced that it will name a task force shortly to draft model policies and procedures that regional firms can use to implement the MSRB's proposed political contributions rule, the chairman of the PSA's regional advisory committee said yesterday.
James Frein. vice chairman of Hutchinson. Shockey, Erley & Co. in Chicago, said in a telephone interview that the task force was discussed at a closed meeting Wednesday of senior managers at regional firms that was sponsored by the PSA.
The PSA held the meeting after Levitt asked the trade group and 10 other interest groups in a letter to "provide a process" to help their members establish voluntary internal bans on political contributions to issuer clients. The letter went to groups representing dealers, bond lawyers, financial advisers, and issuers following an announcement by 17 Wall Street firms that they were adopting individual bans on contributions.
Levitt said such bans could work "hand in glove" with a tough new rule approved by the MSRB on Nov. 11 that would bar municipal bond dealers who make political contributions from doing business for two years with the cities and states that the politicians serve. The MSRB is expected to send its proposed rule to the SEC next month for review, and the SEC could approve it as early as January.
"We're trying to figure out how to keep in compliance with the new rule," Frein said. "The task force will be set up to try to draw up a model company policy." He said the task force is not being set up to help firms draw up individual voluntary bans, and it is unclear how many firms may do so.
Frein noted that a number of firms already have temporary bans in place in response to a recent letter from the PSA urging them to cut off contributions until a clear MSRB rule is in effect.
PSA president Heather Ruth said yesterday that 51 regional municipal underwriting dealers and dealer banks attended Wednesday's meeting, 40 of which are ranked among the industry's top 100 managers.
"Since the meeting was solely informational, no actions were taken nor were any announcements made by participating firms," Ruth said.
"Each dealer or dealer bank will have the opportunity to determine its own course of action regarding any voluntary initiatives," she said, noting that firms that want to report that they have adopted voluntary bans can use the PSA as a "clearinghouse for that information."
Roberts said, "I was encouraged" by Wednesday's meeting. "It was my understanding that many firms were strongly considering implementing something along the lines of the Group of 17 initiative."
Frein said that MSRB executive director Christopher Taylor warned dealers that the SEC's enforcement division will be looking for violations of G-37 and that there is going to be a heavy emphasis in the division on this.
Nevertheless, some dealers expressed resentment over the board's "all encompassing" rule, Frein said. "There were people there who feel it is an infringement on their Democratic rights. And there also was a lot of skepticism among people there that it can be enforced properly."
"It was a good, tough, emotional meeting," said Nelson D. Civello, executive vice president and director of the fixed income group at Dane Bosworth Inc. in Minneapolis. "We are being given a choice. Remain in the municipal securities business or be a part of the political process. Most of us" will choose the former, Civello said. "We will obey the rules like it or not. I personally think the debate is over. It is really time to get on with the job of developing policies and procedures that will help us comply with the new rule."
But Civello said, "There are many people who are feeling disenfranchised. We will not even be allowed to work on campaigns in a voluntary capacity or assist in letter writing. We will not be able to do anything of value for the public sector.
"But we can hold the debate on these issues in our constitutional law classes. I'm concerned about doing business in 1994 and I want to get on with it. We will compete very effectively in the new environment."
Moreover, regulators at yesterday's meeting said it is "absolutely too late for this," Civello said, referring to the complaints. "The rules will be imposed, they will be tough, and they will be enforced," he said, describing the tone of the meeting.
"There definitely will be problems for major firms," Frein said. "It's easier for regionals. At a [strictly] municipal firm you know you have municipal professionals."
