Disclosure Obligations of Underwriters of Municipal Securities

Investors held over $800 billion of long-term municipal debt at the end of 1990.1 Although this amount is not significantly less than the over $900 billion held by investors in the long-term corporate debt market,2 the disclosure protections afforded investors in municipal securities under the federal securities laws are less defined than those in corporate finance. Until recently, the disclosure responsibilities of municipal security issuers, underwriters, financial advisers, and their counsel were governed almost exclusively by the general antifraud provisions of the federal securities laws and by the rules for municipal securities dealers established by the Municipal Securities Rulemaking Board (MSRB). The general antifraud provisions of the federal securities laws governing disclosure in securities transactions do not specifically distinguish between corporate and municipal securities; nevertheless, there has been little commonality in disclosure practices between corporate and public finance. Within many investment banking and law firms, teams of professionals operate independently of one another to resolve similar issues concerning disclosure responsibilities under the same provisions of the federal securities laws. Even contractual issues, such as which party to the transaction ultimately will be responsible for determining the need for disclosure of particular matters, have been allocated differently in municipal and corporate offerings.