Muni Dealers Have Stood Up And They Should Be Counted

We were disappointed that your recent story "The trouble with munis" (Cover Story, Sept. 6) left the reader with the impression that dealers in municipal bonds are somehow ignoring the problems. In fact, nothing could be further from the truth. Public confidence in the market and protection of the interests of individual investors, in particular, are of paramount concern to our members.

Yet despite a number of conversations with several of your reporters, the story omitted any reference to the strong positions that have been taken over the past few months by the Public Securities Assn. (PSA) on behalf of municipal-bond dealers with regard to two important concerns: the lack of credit information on municipal bonds traded in the secondary market and solicitations of campaign contributions.

On both issues, the PSA has taken the unusual position of recommending that strong new rules should be promulgated by the Securities & Exchange Commission to require the disclosure of more information about the awarding of bond underwriting business and about the continuing financial condition of the bond issuer.

The PSA believes that new rules regarding disclosure or prohibition of political contributions are in order but that they should apply to all participants in the market, including independent financial advisers, attorneys, engineering and feasibility consultants, and bond insurers--not just to the underwriters. Furthermore, the public official who has solicited and collected the contributions is in the best position to disclose fully contributions of all types: PAC, corporate, and personal.

With regard to secondary-market disclosure, municipal-bond dealers have long been concerned with the lack of credit information available to dealers and investors about bonds trading in the secondary market, with its effect on securities trading.

PSA believes the SEC should promulgate rules requiring issuers to submit continuing disclosure information to the Municipal Securities Rulemaking Board to be made available to all interested investors and dealers on a fair and timely basis.

We are also concerned that your article did not accurately portray default rates in the 20% of the market that is made up of nonrated bonds. Ratings are costly, and many smaller issuers are able to sell their bonds locally without a rating and choose to save the money. In a recent study, PSA found that nearly 40% of the fonrated issues are for education and utilities. During the six years studied, there was not a single default in either of these two major categories of nonrated bonds.

We hope that in the future BUSINESS WEEK will seek and reflect the consensus views of municipal bond dealers when writing about this important securities market.

Heather L. Ruth


Public Securities Assn.

New York

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