TRANSPARENCY ISSUES AROUND MUNICIPAL SECURITIES
The biggest problems with municipal securities are centered on the low level of transparency that is provided to company investors. When compared to different elements of U.S. capital markets, municipal securities are less regulated.
This has led to the repeated application of outdated ideas by many in the securities industry regarding the right to overcharge investors for bond purchases. Industry insiders see it as decentralized and less accessible. This, of course, works to the detriment of the individual investor, who gets more significant charges (called “markups”) when compared to other investments. This lack of transparency has allowed “markups” to reach billions of dollars.
UNDERSTANDING MUNICIPAL SECURITIES
The municipal securities market is unique in the sense that it has a direct impact on the daily lives of investors. This is because they are composed of many of the infrastructure essentials (such as utilities or schools), which are financed by municipal securities. Since a strong infrastructure is a foundation for a thriving local economy, these types of Bonds are one of the most popular investments amongst retirees. An added bonus is that these bonds are generally not taxed.
What Are the Solutions to Stop Unnecessary Markups?
Municipal securities are facing new initiatives designed to provide increased transparency and fairness to investors. Consequently, thanks to the Municipal Securities Rulemaking Board’s (MSRB) proposals of new rules, the responsibilities and duties of municipal advisors are beginning to shift.
These new proposed rules dictate that Municipal advisors must disclose reference price information on any principal trades made on a given day. Requirements also call for best practices for those trades made by retail investors.
Another proposed solution calls for the repeal of the Tower Amendment (which prohibits the SEC and Municipal Securities Rule Making Board from directly or indirectly requiring issuers to file municipal securities documents with them before the securities are sold). Proponents of this approach cite the ability to mandate those who are issuing municipal securities to disclose and review the details being offered to investors.
PROBLEMS OF PRICE TRANSPARENCY
There are many problems that exist in the municipal securities market. These have resulted from ongoing issues especially relating to price transparency. The markups and other fees that have continued to develop only hurt investors. These issues also keep investors from performing a proper evaluation of the prices quoted.
As interest rates rise, the risk of these types of transactions only highlights the need for the SEC to provide better regulation to protect individual investors. Increasing the level of transparency in the municipal securities market and all bond markets is long overdue. If you have more questions or feel like you might have been taken advantage of contact the attorneys at Vernon Litigation Group. We will go over the facts and determine if you have a case.