2

1

2

3

through the semicolon following "does not apply to such security".

(b) Section 3 of such Act is amended by adding at the

4 end thereof the following new subsection:

5

"(d) The Commission may from time to time by its

6 rules and regulations and subject to such terms and condi7 tions as may be prescribed therein add to the securities ex8 empted as provided in this section any class of securities 9 issued by a State of the United States or by any political sub10 division of a State or by any territory of the United States 11 or political subdivision of a territory or by any public instru12 mentality of one or more States or territories if it finds, hav13 ing regard to the purposes of this title, that the enforcement 14 of this title with respect to such securities is not necessary in 15 the public interest and for the protection of investors.".

16

(e) Section 15B (d) (1) of the Securities Exchange Act 17 of 1934 is amended by striking out "Neither the Commission

18

nor the Board is" and inserting in lieu thereof "The Board 19 is not".

[H.R. 10606, introduced by Mr. Solarz on November 6, 1975, and

H.R. 11534, introduced by Mr. Solarz (for himself, Mr. Koch, and Mr. Rosenthal) on January 27, 1976,

are identical as follows:]

A BILL

To amend the Securities Act of 1933 and the Securities and Ex-
change Act of 1934 to require the Securities and Exchange
Commission to regulate the issuance and trading of munic-
ipal bonds and similar securities.

1

Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, SECTION 1. (a) Section 2 of the Securities Act of 1933

3

4 (15 U.S.C. 77b) is amended by adding at the end thereof
5 the following new paragraph:

6 "(15) The term 'municipal security' means the same as

7 the term 'municipal securities' as defined in section 3 (a)

(29) of the Securities and Exchange Act of 1934.".

9 (b) Section 3 (a) (2) of such Act (15 U.S.C. 77c)

I

2

1 is amended by striking out "or by the District of Columbia,

2

or by any State of the United States, or by any political 3 subdivision of a State or territory, or by any public instru4 mentality of one or more States or territories," and inserting 5 in lieu thereof "or by any political subdivision or public 6 instrumentality of one or more territories,".

7 (c) Section 3 (a) (2) of such Act is further amended 8 by striking out "or any security which is an industrial de9 velopment bond" and all that follows down through “para10 graph (1) of such section 103 (c) does not apply to such 11 security;".

12

(d) Section 6(a) of such Act (15 U.S.C. 77f) is 13 amended by inserting "to a municipal security or" after 14 "except that when such registration statement relates".

15

16

17

18

19

20

(e) Section 7 of such Act (15 U.S.C. 77g) is amended(1) by inserting "a municipal security or" after

"when relating to a security other than", and

(2) by inserting "to a municipal security or" after "in Schedule A, and when relating".

(f) Section 10 (a) of such Act (15 U.S.C. 77j) is 21 amended

22

23

24

25

(1) by inserting "and other than a municipal security" in paragraph (1) after "other than a security

issued by a foreign government or political subdivision thereof", and

1

2

3

3

(2) by inserting "to a municipal security or" in

paragraph (2) after "(2) a prospectus relating".

(g) The amendments made by this section shall apply

4 only with respect to securities offered for sale on or after the

5 date of enactment of this Act.

6

SEC. 2. (a) Section 3 (a) (12) of the Securities Ex

7 change Act of 1934 (15 U.S.C. 78c) is amended by insert

8 ing "12 (k)," after "municipal securities shall not be deemed

9

10

to be 'exempted securities' for purposes of sections."

(b) Section 15B (d) (1) of such Act (15 U.S.C. 780

11 4) is amended

(1) by striking out "Neither the Commission nor the Board is authorized" and inserting in lieu thereof

"The Board is not authorized", and

(2) by striking out "with the Commission or the Board" and inserting in lieu thereof "with the Board".

Mr. MURPHY. Our first witness this morning is Commissioner Philip A. Loomis, Jr., of the Securities and Exchange Commission. Commissioner Loomis, if you would come up, and if you want any of your assistants or staff with you, please bring them.

If you would identify them.

STATEMENT OF HON. PHILIP A. LOOMIS, JR., COMMISSIONER, SECURITIES AND EXCHANGE COMMISSION, ACCOMPANIED BY PETER KEERNAN, LEGISLATIVE LIAISON OFFICER

Mr. LOOMIS. Yes; with me is Mr. Peter Keernan, a legislative liaison officer.

I appreciate the opportunity to provide the Commission's views on H.R. 15205. I do not propose to read my statement in full, but I do intend to read portions of it since I doubt if I could improve on it extemporaneously.

I am aware of the committee's direction that we limit our presentations, and I will conform to that.

The bill would amend the Securities Exchange Act of 1934 to require the preparation of annual reports and distribution statements by issuers of municipal securities. The Commission welcomes the improved disclosure that would be provided to investors in municipal securities if this bill is enacted. We previously expressed our support for its counterpart in the Senate, S. 2969, an identical bill, and I will today reiterate our reasons for that conclusion.

Legislation providing disclosure requirements for municipal securities should have two principal objectives: First, to provide adequate information to investors to guide their investment decisions, and second, to assist issuers and underwriters of municipal securities by reducing uncertainty as to their legal responsibilities.

Before discussing the specific provisions of the bill, I should like to note that, as Chairman Murphy noted, legal questions recently have been raised as to whether the Congress has authority, under the commerce clause of the Constitution, to enact any legislation imposing obligations on state or their political subdivisions. As has been widely reported, the cities of New York and Philadelphia have taken the Commission to court in an effort to test constitutionality of the Commission's authority under existing law.

Speaking very generally, that law prohibits fraud and the use of false or misleading statements in the offering or sale of any security. This includes not only municipal securities, but also those issued by the United States. There is another pending case in which a municipal securities dealer is challenging the constitutionality of the provisions of the Securities Act amendments of 1975, imposing regulatory requirements on such dealers. In essence, this dealer claims that he is so closely associated with the state as to share in its sovereignty. We have responded that we do not agree that he can have such sovereignty.

As the Chairman mentioned, advocates of the position that municipalities are immune from regulation under the commerce clause rely on the Supreme Court's recent decision in National League of Cities v. Usery, which incidentally is miscited in our statement. It is not 95 Supreme Court; it is 96.