Cox: MSRB Should Host Muni Edgar

WASHINGTON — Securities and Exchange Commission chairman Christopher Cox has directed SEC staff to send the commission draft changes to Rule 15c2-12 on disclosure within the next few months that would require issuers to send disclosure information to the Municipal Securities Rulemaking Board rather than to the four existing nationally recognized repositories. The move is significant because Cox has not previously said publicly that the MSRB should host such a site. “I write to reiterate my support for the board’s plan to streamline the existing municipal securities disclosure system by creating a centralized filing venue similar to the commission’s Edgar system” Cox wrote in the letter, which was dated Nov. 21 and sent to Frank Chin, the MSRB’s chairman, and carbon copied to Lynnette Hotchkiss, its executive director. Released by the board yesterday, the letter comes about two months after Chin and Hotchkiss said the MSRB would be willing to host a muni-Edgar site if given the green light by the SEC. Cox had indicated in a private meeting with Chin in August that he supported the board as a host for the site, according to the letter. Chin has said that such a system would function as an add-on to the access equals delivery system the MSRB is developing. Under that system, which is to be launched in a pilot format as early as March, dealers will be able to electronically post new-issue offering documents on a widely available Web site in lieu of sending paper copies to investors. Access equals delivery will provide a comprehensive display of relevant information concerning a security on a single screen, including historical and recent trade price information from the board’s real-time transaction reporting system. In a recent filing with the SEC, the board proposed a prototype “portal” page for a bond issue, which included space for secondary market disclosure information. Cox’s letter embraced the idea of the MSRB switching to an entirely electronic system for both primary and secondary market disclosures. “Replacing the multiple paper filing venues of the existing system with an electronic filing system that is freely accessible to the investing public on the Internet would be a significant step forward to increase public access to municipal securities disclosure,” Cox wrote. In welcoming Cox’s remarks, Chin said yesterday that designating the MSRB as the host for the muni Edgar is “the next logical step of integrating the full municipal securities disclosure regime into a single comprehensive and centralized disclosure utility.” The muni-Edgar is a key peg in Cox’s list of eight initiatives to boost municipal disclosure and accounting standards, which he unveiled in July. Though Cox urged Congress this summer to pass legislation that would incorporate his muni initiatives, no lawmaker has yet introduced a bill in either the House or the Senate. Earlier this month, SEC officials said the commission would consider changes to Rule 15c2-12. Cox added his own voice to the idea yesterday and provided a few details. “Given the significant technological developments that have occurred since Rule 15c2-12 was last updated in 1994 ... I agree that it’s time for the commission to reevaluate the information dissemination requirements that are specified” in the rule, he told the MSRB. “I have instructed the commission staff to prepare a proposal that — if approved by the commission after notice and an opportunity for the public to comment — would amend [the rule] to provide that disclosure information be filed with the MSRB rather than with multiple repositories.” Martha Mahan Haines, the SEC’s municipal securities chief, said yesterday that the commission has no intention of introducing sweeping changes to Rule 15c2-12, which stipulates that dealers cannot underwrite bonds unless the issuer has contractually agreed to send annual financial and operating information to each of the NRMSIRs. Issuers must also agree to send notices of material events either to each of the NRMSIRs or to the MSRB. Haines stressed the amendments would only prevent a dealer from underwriting bonds unless the issuer agreed to send disclosure documents to the MSRB-hosted muni-Edgar. By altering 15c2-12, the commission may be able to circumvent the controversy that would surround any attempt by the SEC to try to get Congress to repeal the 1975 Tower Amendment, which currently prohibits the SEC and the MSRB from directly or indirectly requiring issuers to file documents with them prior to bond sales. Last month, the Governmental Finance Officers Association, the largest group of issuers, reaffirmed its support for a central disclosure repository, suggesting it would support one hosted by the MSRB, as long as it did not involve the repeal of Tower. The head of one NRMSIR, Peter Schmitt, chairman and chief executive officer of DPC Data Inc., has previously warned that establishing a muni-Edgar would harm its business. But Schmitt appeared to be less upset about the idea yesterday. “As a NRMSIR, we serve at the pleasure of the SEC,” he said. “We’re still assessing the impact of all of these changes on our business.” It is expected that a muni-Edgar would not hurt the other NRMSIRs, which would be able to continue incorporating issuer disclosure information into their information services and products, but that it would result in the shutdown of the Central Post Office site that is being operating by the Municipal Advisory Council of Texas. The CPO collects issuers’ secondary market disclosure information and transmits them to the NRMSIRs.

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