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PSA RECOMMENDS SEC ACTION ON POLITICAL CAMPAIGN CONTRIBUTIONS AND MUNICIPAL BOND MARKET INFORMATION

 NEW YORK, July 26 /PRNewswire/ -- The Public Securities Association today urged regulators to address fully the problem of political contributions in the municipal bond market, as well as the inadequacy of data currently available in the secondary market.
 Specifically, PSA recommended that the Securities and Exchange Commission promulgate regulations requiring public officials who issue municipal bonds to disclose political campaign contributions which they have received.
 PSA said that while it would support regulations by the Municipal Securities Rulemaking Board requiring dealers to disclose political contribution information in their possession, this would constitute only a partial solution because other public finance professionals would not be covered by MSRB rules.
 Included in the policy statement on the regulatory structure of the municipal securities market, PSA said that the SEC also should pass regulations requiring issuers to submit secondary market information to the MSRB's Continuing Disclosure Information System.
 "These two issues -- the appearance of political influence in the selection of underwriters and other public finance professionals, and the need for better disclosure of credit information in the secondary market -- are separable, but they have common characteristics," PSA President Heather L. Ruth said.
 "First, they both affect public and investor confidence in the integrity of the municipal market. Second, committees of the House of Representatives, as well as the MSRB, have indicated an intent to study both. Third, in both cases, the issuer of municipal bonds -- including elected officials who may influence the issuer -- is ultimately the best and only complete source of all relevant information," she added.
 Regarding disclosure requirements applying to contributors -- in contrast to disclosure requirements applying to recipients, which PSA prefers -- Ms. Ruth said that PSA stands by its statement of May 19, 1993, urging that required disclosure "should be as comprehensive as possible, covering contributions by firms (including partnerships), employee political action committees and relevant professional employees insofar as information regarding the last can reasonably be obtained by employers. Authorities should also consider requiring disclosure of expenditures to seek municipal finance business through political consultants and lobbyists, and disclosure of other business relationships that may influence the selection of underwriters (or other public finance professionals, such as financial advisors)."
 PSA said that the regulations requiring issuers to disclose political campaign contributions should cover contributions made by all underwriters and other participants, such as financial advisors, attorneys, engineers and accountants, competing in the selection process for roles in municipal securities offerings to any public official having influence in the process.
 To insure ready access and minimize additional costs on any market participants, including issuers, these disclosures should be filed with a centralized repository capable of disseminating the information in a useful format to the public, PSA added.
 Regarding secondary market disclosure, the newly issued policy statement said that although PSA has long encouraged voluntary efforts by issuers to improve such disclosure, it has now reluctantly concluded that appeals to voluntary efforts by issuers regarding credit information will not be sufficient to insure public confidence in the market and protect the interests of individual investors.
 All issuers should be required to submit basic information such as that suggested under the American Bankers Association Guidelines, PSA said. In addition, issuers that borrow $1 million or more per year should be required to submit information regarding any material fact that should be known to the market. PSA said it stands ready to work with issuers, the SEC and others in determining definitions of materiality.
 The statement also said that if Congressional action is deemed necessary to enable the SEC to promulgate these regulations, PSA would support such action.
 Ms. Ruth declined to speculate on what action the MSRB would take at its upcoming meeting scheduled for later this month.
 "We leave to the MSRB its judgment in this matter. As the advocacy group for municipal bond dealers, PSA seeks to articulate what we believe is the right and comprehensive solution and to signal to the MSRB, the SEC and Congress that the dealer community is fully prepared to do its share. The solution which ensures the full disclosure of all political contributions must place the burden on the recipients of contributions, which only the SEC can do," she said.
 "Once more, PSA is interested in removing a source of concern that could undermine public confidence in the market. There is broad support among dealers for action which would shine the light of day effectively on this whole area, as well as to moderate solicitations of political contributions from dealers by state and local officials with the authority to select underwriters. Anything the MSRB can do to promote these objectives is likely to be most welcome, even if it is only a partial solution. Whatever the MSRB does, however, we will retain our interest in pressing for a more comprehensive solution that covers all professionals in the public finance business and, we believe, that will require timely, complete and readily accessible disclosure by recipients," Ms. Ruth added.
 A copy of the PSA policy statement is attached.
 PSA is the international trade association of banks and brokerage firms which deal in municipal securities, U.S. government securities, mortgage and other asset-backed securities, and money market instruments.
 PSA Policy Statement Concerning the Regulatory
 Structure of the Municipal Securities Market
 Recent allegations of political influence in connection with municipal securities offerings, including publicity regarding political campaign contributions to public officials who may influence the selection of underwriters for municipal issues, may undermine public confidence in the municipal securities market. Coupled with dealers' and investors' long-standing concern about the difficulties market participants encounter in obtaining credit-relevant information about issuers in the secondary market, as well as concerns expressed about the suitability of investments in non-rated municipal securities, the current public debate about political contributions argues for a new approach to disclosure by issuers of municipal bonds.
 The Public Securities Association (PSA), representing municipal securities dealers, has long encouraged voluntary efforts by issuers to improve secondary market disclosure, as opposed to mandatory requirements, in deference to the unique status of state and local governments. PSA has even supported SEC initiatives to impose greater burdens upon dealers to insure a high level of disclosure in the primary market for municipal securities(A). However, we have also long believed that the public -- including voters, taxpayers and investors -- can properly scrutinize municipal issuers and all other participants in the marketplace, as well as make informed investment decisions, only through readily accessible disclosure of all relevant information. We have now reluctantly concluded that appeals to voluntary efforts by issuers regarding credit information, combined with state laws regarding political contributions and conflict of interest, will not be sufficient to insure public confidence in the market and protect the interests of individual investors.
 Therefore, at a minimum, the Public Securities Association recommends the following:
 1. The Securities and Exchange Commission should promulgate regulations requiring issuers to disclose political campaign contributions. Recipients of political contributions are best suited to make these disclosures because only they can be assured of possessing all the relevant information. These disclosures would cover contributions made by all underwriters and other participants (i.e., financial advisors, attorneys, engineers, accountants, etc.) competing in the selection process for roles in municipal securities offerings to any public official having influence in that process. In addition to contributions from corporate entities and partnerships, contributions from employee PACs and from officers, partners and employees of the organization competing for a role in a municipal securities offerings should be included(B). In addition, issuers should be required to disclose potential conflicts of interest. To insure ready access and minimize additional costs on any market participants including issuers, these disclosures should be filed with a centralized repository capable of disseminating the information in a useful format to the public(C).
 2. The Securities and Exchange Commission should promulgate regulations requiring issuers to submit secondary market information to the Continuing Disclosure Information System of the Municipal Securities Rulemaking Board. All issuers should be required to submit basic information such as that suggested under the American Bankers Association Guidelines(D). Issuers that borrow $1 million or more per year should be required to submit information regarding any material fact that should be known to the market. PSA stands ready to work with issuers, the SEC and others in determining definitions of materiality(E).
 If Congressional action is deemed necessary to enable the Securities and Exchange Commission to promulgate such regulations, the Public Securities Association would support such action. PSA leaves to others, specifically to the SEC, the determination of whether our recommendations can be implemented within the authority granted under current law. We believe most features of the extensive regulatory system governing dealers in municipal securities work well and have proven themselves over many years. Regulation of dealers by a Congressionally authorized SRO(F) under the supervision of the SEC and enforced through examination by the NASD and appropriate bank regulations is effective and is entirely consistent with how all other securities markets in the United States are regulated. Under the American concept of self-regulation in the securities industry, a dealer SRO should promulgate rules governing dealer behavior. It is perfectly reasonable, for example, for the MSRB to require dealers to disclose information in their possession, including political contributions. Since the MSRB's authority only extends to dealers, such an outcome would not be totally effective because the requirement would not apply to other participants competing in the selection process for roles in transactions. On the other hand, the MSRB should not be used by the national government to dictate requirements to state and local issuers; nor should state and local issuers dictate rules with respect to regulation of the securities markets governing dealers or other market participants.
 Nor do we believe that the problems identified argue for imposing full corporate-style registration upon municipal issuers. The costs to municipal issuers and therefore to the American taxpayer, could be enormous. In our view, such onerous requirements are not necessary. Moreover, imposition of registration requirements on all of the 50,000- some governmental entities below the national level that issue bonds from time to time could significantly interfere with a state or local government's ability to finance its operations. Therefore, we see only such marginal changes as are specifically targeted to addressing the problems that have been identified.
 Promulgation of the regulations recommended here may in itself serve to moderate excesses in political campaign contributions and would provide for a more efficient marketplace. It is in the interest of both issuers and all members of the municipal finance community to preserve public confidence in the municipal securities market. The Public Securities Association believes that promulgation of these regulations will accomplish this goal.
 (A) -- PSA supported promulgation of SEC Rule 15c2-12 which requires underwriters participating in primary offerings of municipal securities of $1 million or more to obtain, review and distribute to investors copies of issuers' disclosure documents.
 (B) -- It is understood that in many states this will require elected officials to obtain more information about the employer, business sector and professional responsibilities of campaign contributors than is currently required by state law. While all states and the District of Columbia already require that recipients of election campaign contributions for state office report these contributions through filings with designated stated officials, less than a third require that occupation and business of the contributor be included in the filing. Federal Election Commission, Campaign Finance 92, current through 12/91.
 (C) -- We do not believe such information should be included in primary market disclosure documents -- official statements -- because the disclosure PSA seeks should encompass market recipients who are now participating in any specific municipal issuance of securities (those who competed but did not secure positions related to the underwriting, for example). In any case, this information is principally of interest to the taxpayer and the public at large and not merely to investors. PSA, however, would not object to a requirement that reference be made in official statements to where information regarding political contributions can be obtained: e.g., at a specified central repository.
 (D) -- Municipal bond issuers can comply with the ABA's recommendations at minimum cost by instructing their trustees by contract to make these disclosures and indicate that contractual obligation in their official statements. PSA is less concerned about where the filings are made than that they be made in a timely fashion and are in a readily accessible form and location which serves both the public and investors. In any case, we urge the SEC to consult directly with issuers and issuer groups in making the trade-off between the needs of investors, particularly individual investors, and the burdens to be placed upon municipal issuers.
 (E) -- It is understood that various groups, for example, the National Federation of Municipal Analysts, have developed standards for desirable secondary market disclosures by municipal issuers. Such standards may be too onerous as minimum mandatory requirements. In general, we feel that an appropriate standard of materiality for secondary market disclosure in the municipal market would be very similar to the standard for secondary market disclosure in the corporate market.
 (F) -- i.e. the Municipal Securities Rulemaking Board, one third of whose members are not dealers by rather represent the public.
 -0- 7/26/93
 /CONTACT: Joseph Sims or Janet Falk of the Public Securities Association, 212-809-7000/


CO: Public Securities Association ST: New York IN: FIN SU:

MP-TB -- NY040 -- 5698 07/26/93 12:42 EDT
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