WASHINGTON -- Securities and Exchange Commission member Richard Roberts is recommending delaying a provision of the SEC's proposed disclosure rule that is drawing heated objections from bond dealers.
The provision, contained in the second part of the rule, would bar dealers from recommending bonds to customers unless they have reviewed an issuer's financial statements.
Public Securities Association officials have said repeatedly since the SEC unveiled the proposed rule in May that the provision will severely hamper liquidity for bonds of issuers that do not provide secondary market disclosure.
Roberts said in a telephone conversation Friday that he has suggested that the agency adopt the first part of the rule, which the PSA backs. That provision would bar dealers from underwriting bonds unless the issuer has pledged in writing to provide ongoing disclosure to a nationally recognized repository.
In place of the second part of the rule, the agency could adopt a less restrictive proposal that was unsuccessfully recommended by the Municipal Securities Rulemaking Board last year, Roberts said. Then the agency could consider phasing in the more restrictive SEC provision at a later date, he said.
The MSRB rule would have required a dealer to tell a customer in writing whether the issuer of the bonds has committed to provide ongoing disclosure for the issue. Dealers also would have to explain the effect that the lack of continuing disclosure may have on the customer's ability to get accurate price information on the bonds in the future and to find a ready market if they are sold before maturity.
Board members will debate next week whether to send a letter to the SEC recommending that it dust off the proposal when they meet in Napa Valley, Calif., for their quarterly meeting July 20 through July 22. The recommendation would be among the board's comments on the SEC's proposed rules, which are aimed at improving primary and secondary market disclosure. The rules appeared in the March 17 Federal Register.
"I've suggested that we move forward with the underwriting prohibition first," Roberts said. "Maybe we could have the MSRB's approach implemented [at the same time] and then come back later with the broker-dealer recommendation."