An essential check on federal overreach into state and local sovereignty.
The “Tower Amendment” refers to a 1975 addition to the Securities Exchange Act of 1934 (“Exchange Act”) that prohibits both the U.S. Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) from directly or indirectly requiring issuers of municipal securities to file documents with the SEC and the MSRB prior to a sale. In addition, it restricts the MSRB (but not the SEC) from requiring any issuer of municipal securities directly or indirectly, through a broker dealer, municipal advisor or otherwise to furnish to the Board or to a purchaser any information with respect to such issuer.
These provisions provide an essential check on federal overreach into state and local sovereignty and emphasize that the MSRB does not have jurisdiction to regulate issuers of municipal securities. The Tower Amendment was motivated by constitutional arguments, the absence of abuses in the municipal market, the sophistication of our market’s investors, the structural relations of federalism, and a desire to take the federal government out of state and local debt raising activity. It also recognizes that the municipal market consists of a significantly broader universe of issuers that includes many small and rural communities with limited resources to comply with additional regulatory burdens— compared to the corporate market.
Over the years, proponents of repealing the Tower Amendment have argued that it limits regulators’ ability to require issuers to produce material information to the market in a similar manner as registered companies. While municipal offerings are not subject to the pre-sale approval and consent by the SEC or to specific line-item disclosure requirements, as are their registered-company counterparts, they are subject to:
- Anti-fraud provisions of the federal securities laws;
- Primary offering rules; and
- Continuing disclosure agreements (CDAs) with underwriters under Exchange Act Rule 15c2-12, that require them to provide continuing disclosure through the life of the security.
Taken together, along with rules governing the sale of municipal securities to investors by broker dealers, these existing laws result in a robust regulatory regime that is sufficient to ensure that issuers are required to provide material information to both primary and secondary market purchasers of municipal securities.
Why We Care
We support transparency in our municipal markets. We also acknowledge that existing regulations and statutes already compel municipal issuers to provide the market with material information. The Tower Amendment provides a stopgap against unnecessary and burdensome regulatory overreach into a vibrant and extremely diverse market.
We oppose any effort to restrict or eliminate the vital protections offered by the Tower Amendment to our communities.
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