SEC recommends municipal security reform amid bankruptcies

Seal of the U.S. Securities and Exchange Commi...

Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

The Securities and Exchange Commission called for structural improvements of the $3.7 trillion municipal securities market amid a recent uptick in bankruptcies, according to a report released today.

“The municipal securities market is the bedrock for funding of local government projects throughout our country.  It is essential that the market work well and that investors have confidence in it,” Mary L. Schapiro, chairman of the SEC, said in a statement.  “While we have put in place measures to help investors make more knowledgeable decisions about municipal securities, we could do more for investors with statutory authority to improve disclosure and muni market practices.”

The recommendations spurred from concerns raised by investors and others in public field hearings and meetings.

Despite it being a $3.7 trillion market, the municipal bond sector has been generally unregulated because of exemptions under federal securities laws, according to a statement from the SEC.

The report recommends better disclosures to investors, allowing the IRS to share information with the SEC and providing enforcement for continuing disclosure agreements and other obligations.

Recommendations from the SEC come as many cities in California default on debts.

California cities like Stockton, San Bernardino and Mammoth Lakes have all filed for bankruptcy this year.

Some experts are concerned that the increase in bankruptcy is a sign that insolvency for municipalities is losing it’s stigma.

“Do I expect more? Yeah, but I don’t expect a tidal wave,” Dick Larkin, director of credit analysis for Herbert J. Sims & Co. in Iselin, N.J., told Bloomberg. “I am starting to wonder whether or not the stigma of bankruptcy in California is going to be taken more lightly now.”

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