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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Sec Takes Closer Look At Munis Broader Individual Ownership Brings Stepped-Up Oversight

Federal officials have stepped up oversight of municipal bond markets to protect the increasing number of investors who own the securities, the head of that effort said Wednesday.

Paul Maco, director of the U.S. Securities and Exchange Commission’s Office of Municipal Securities, said individuals now own 73 percent of the $1.3 trillion in bonds and other paper issued by states, cities and other taxation districts.

Broad ownership, much of it through mutual funds, has made it more likely a resident of Washington, for example, directly or indirectly owns bonds issued by distant governments, he said.

Until recently, individuals had few ways to monitor the financial affairs of all those jurisdictions, Maco said.

And in many cases there was no way of getting information on the price or trading volume of a particular bond.

Maco said those problems are gradually being overcome.

Bond issuers must keep updated financial information on file in any one of six private repositories, he said. Bond dealers must have access to that information, and must assure their sales staff uses it when deciding whether a security is suitable for a client’s portfolio.

Also, Maco said, as of Jan. 1, 1998, individual investors will be able to get timely price and trading information on most municipal bonds.

“It will move towards a more transparent market,” he said.

Formation of the office Maco directs was the result, in part, of one of the most spectacular municipal bond debacles ever - that of Orange County, Calif.

The county was forced to file bankruptcy in 1994 after an investment pool run by its treasurer sustained $2 billion in losses, the result of a bad bet on future interest rates.

Maco noted that one of the key rules regarding financial disclosure was triggered by the $2.25 billion bond default by the Washington Public Power Supply System in the early 1980s.

He told county treasurers from around Washington who are meeting in Spokane this week that they have an obligation to maintain investor trust by making the most candid financial disclosures possible.

They should also understand the risk they may be taking when investing municipal funds, he said.

Maco said insurance on a bond is not a substitute for knowing the creditworthiness of the issuer. Several insurers have failed, he said, and “unfortunate surprises” have confronted investors who relied on the insurance and not the quality of the securities themselves.

, DataTimes