Muni Bond Buyers to Get More Pricing Info
The Securities and Exchange Commission on Thursday set new rules intended to help municipal bond investors get prices and financial information about their investments.
Under SEC prodding, the municipal bond industry unveiled plans to distribute information so investors can price their bonds more accurately.
The initiatives mark the latest far-reaching municipal bond market reforms pushed by SEC Chairman Arthur Levitt Jr. and Commissioner Richard Roberts. The SEC approved new political campaign contribution restrictions in the municipal bond market earlier this year.
Municipal bonds have emerged as popular investment alternatives for individual investors because many are tax-exempt. The $1.2-trillion muni bond market helps finance construction of public schools, bridges, roads and other public projects.
Until now, a key problem for individual investors has been getting accurate information about their bonds. There is no central marketplace where municipal bonds are traded. Wall Street brokerages and regional bond dealers trade among themselves, as well as with customers and agencies that issue munis.
Further complicating matters are munis’ sparse trading patterns. Individual investors tend to hold on to munis for extended periods, so the lack of steady turnover makes them difficult to price.
Many investors have simply had to rely on their brokers to quote an accurate price. The SEC pushed for greater price disclosure to deter possible manipulation or fraud by brokers.
As a result, the Municipal Securities Rulemaking Board, a self-regulatory agency that oversees the muni market, has advanced a pilot program to provide investors with last-sale price information so they can determine the value of their bonds.
By January, prices for trades between bond dealers will be reported to the rule-making board, with institutional and retail trades to follow by 1996.
In addition, the Public Securities Assn., the industry’s main trade group, is planning to start 900-number telephone service that will provide investors with prices and other trade information.
The SEC also approved rules requiring local government agencies that issue muni bonds to update their financial statements when something happens that could affect the agency’s financial outlook.
The rules and industry proposals will be phased in through January, 1996, to give the industry time to adjust computer systems and implement reporting practices.
