The Dodd-Frank Wall Street Reform and Consumer Protection Act1 is long and complicated, and months of controversy surrounded its passage. Nevertheless, it is but the opening shot in a barrage of reform initiatives for financial institutions and markets. Numerous provisions require rule-making by the Securities and Exchange Commission (SEC) and other agencies for their implementation. In addition, numerous studies are mandated by the regulatory agencies and the Government Accounting Office (GAO). Although Dodd-Frank greatly increased the SEC’s powers and responsibilities, the SEC was unable to obtain all of its wish list for the regulation of the municipal securities market. Dodd-Frank did, however, grant the SEC some of the enhanced authority it desired over the municipal securities market and provided for studies that may eventually result in further reforms.
The municipal securities market is no longer a market for only the professional investor. There were $2.8 trillion in municipal securities outstanding as of the end of 2009. Individual investors held approximately 35 percent of outstanding municipal securities directly and another 34 percent indirectly through money market funds, mutual funds and closed end funds.2 Approximately 51,000 state and local issuers of municipal securities have floated municipal securities, and during the 1990s, at least 917 municipal bond issues went into default.3 Further, the trading market for municipal securities is active; almost $3.8 trillion long and short municipal securities were traded in 2009 in over 10 million transactions.4 One needs only to read the daily newspapers to realize that further defaults are likely in the future given the precarious financial condition of many state and municipal issuers.
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