Alert September 28, 2011

Chilly Reception for Disclosure Bill

U.S. Representative Mike Quigley (D-IL) has drafted a bill designed to expand the authority of the Securities and Exchange Commission to regulate disclosure for municipal bonds. The bill, called the “Municipal Securities Transparency Act of 2011,” is currently being circulated to market participants and regulators for review and comment.

Under current disclosure law, municipal bond underwriters are generally required to ensure that adequate disclosure is available to investors. If adopted in its current form, Quigley’s bill would amend the Securities and Exchange Act of 1934 (the “1934 Act”) to give the SEC the authority to directly require bond issuers to provide official statements and other disclosure documents, including financial statements, to investors. The bill would also authorize the SEC to establish the frequency with which such documents must be provided.

Many market participants, including several bond issuers, have voiced their disapproval of the bill. The draft bill does not require issuers to file documents directly with the SEC.  The bill does, however, authorize the SEC to require issuers to provide disclosure to investors. Opponents of the bill argue that such a provision violates the intent of the Tower Amendment, a 1975 amendment to the 1934 Act that prohibits the SEC from directly or indirectly requiring municipal bond issuers to file disclosure documents with the SEC or the Municipal Securities Rulemaking Board prior to the sale of municipal securities.