MSRB's EMMA System Would Violate Tower Amendment, DPC Letter Says

One of the four nationally recognized municipal securities repositories warned the Securities and Exchange Commission Friday that the proposal to create a central disclosure repository at the Municipal Securities Rulemaking Board would violate the Tower Amendment and place the MSRB in direct competition with commercial vendors.

The Fort Lee, N.J.-based DPC Data Inc. raised the Tower Amendment in a three-page letter that slammed the MSRB and SEC proposal as "a railroad job aimed at taking the public's attention away from the true disclosure problems" in the municipal market and the SEC's lack of enforcement against broker-dealers that underwrite the bonds of issuers chronically delinquent on their disclosure filings.

The Tower Amendment, added in 1975 as an amendment to the Securities Exchange Act of 1934, bars the SEC and MSRB from requiring municipal issuers to directly or indirectly file documents with them before issuing municipal securities.

Of the four existing nationally recognized municipal securities information repositories, DPC Data is expected to be the most competitively hurt by the MSRB's Electronic Municipal Market Access, or EMMA, system, which would replace the NRMSIRs and begin collecting secondary market disclosure documents from muni issuers on Jan. 1, 2009.

In its comment letter, DPC Data said that EMMA would violate the Tower Amendment by "plac[ing] de facto regulatory power in the hands of a federal regulatory body." It also charged that EMMA would create conflicts of interest because the MSRB is led mostly by banks and broker-dealers that underwrite muni securities.

DPC Data said it became a NRMSIR at its own expense and has "continued to invest significant amounts of capital in these efforts based [in part on] reliance on the policies and statements articulated by the SEC and the MSRB over many years that gave comfort that the MSRB would not directly compete with [it]."

"We view the MSRB's vaguely stated intention to provide fee-based data feeds sometime in the indefinite future as abusive and anticompetitive behavior by this self-regulatory organization ...without an indisputable public benefit to offset or justify their actions," the NRMSIR told the SEC.

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