WASHINGTON - Seven months after the Depository Trust Clearing Corp. delayed the roll-out of its New Issue Information Dissemination System in response to industry design complaints, the securities industry group helping to develop it is urging the Securities and Exchange Commission to give broker-dealers more time to learn how to use and test it because of the recent market turmoil.
Meanwhile, the nationally recognized repository DPC Data Inc. recently told the SEC that the Municipal Securities Rulemaking Board would be overstepping its bounds by developing the new Electronic Municipal Market Access, or EMMA, another huge project underway in the municipal market. The SEC disclosed the letter in a notice published in the Federal Register yesterday that approved an EMMA pilot, but requested additional comment.
The Securities Industry and Financial Markets Association, which is helping to develop NIIDS, sent a letter to the SEC last week urging it not to approve implementation of the system on June 30, the date when the MSRB plans to require broker-dealers to begin using it.
SIFMA stressed that it strongly supports NIIDS, which is being developed by DTCC in conjunction with the MSRB. But SIFMA warned that the auction-rate securities market turmoil has made it impossible for many firms to try out the new system, which began testing on a pilot basis among a small group of firms in February and is to begin testing for all broker-dealers in mid-April.
"The current unexpected market issues and issuance volume related to auction-rate securities have significantly increased the time demand on the operations staff at the various firms," Leslie Norwood, SIFMA's managing director and associate general counsel, said in the letter. "Based on the current aggressive implementation schedule, SIFMA is of the strong opinion there is not an adequate amount of time for members to undertake the essential amount of education, training, and testing necessary to ensure a reasonably successful implementation of a new system of this magnitude."
SIFMA noted that just 30 firms out of about 200 municipal underwriters have attempted to test NIIDS so far during the pilot testing period and not all of them have completed successful tests.
Edward Kelleher, a spokesman for DTCC, said in a statement yesterday that the NIIDS implementation timetable will be guided by the MSRB and the SEC, and that the company will help firms trying to grapple with the existing implementation schedule amid the ongoing market problems.
"DTCC is here to support the industry in this important initiative," he said.
SEC officials declined to comment, but market sources have said the issue could be resolved quickly by the MSRB. Asked yesterday if the board would consider delaying the effective date of its new rules, Lynnette Hotchkiss, the board's executive director, would say only that it plans to discuss NIIDS at its meeting in Boston today and will announce any related news at a Friday press conference. Norwood was traveling yesterday and could not be reached for comment.
Under NIIDS, DTCC will collect information about new muni bond issues from underwriters or their intermediaries and then electronically disseminate it in a uniform manner, and on a real-time basis, to information vendors and other market participants. Currently, firms report the information separately to each information vendor, and it is not always posted at the same time or in the same manner. The board sent the commission its proposed NIIDS-related rules changes in November.
Though DTCC originally planned to launch the new system last September or October, the company delayed its implementation because dealers complained that its Web application was clunky and hard to use.
The design of the Web application is important because it will likely be the primary method by which small underwriting firms who might not use automated book-running software are expected to send their NIIDS data to DTCC. The Web application also may be used by larger firms to complete some non-NIIDS requirements for DTCC eligibility.
DTCC told The Bond Buyer in November that it was redoubling its development work on NIIDS in response to the design concerns, and said that broker-dealers would have a nearly half-year window to learn how to use it before it became obligatory at the end of June. In addition to the three months between the system's beta testing for all broker-dealers in April and the end of June, DTCC said that its pilot testing in February and March would be open to every underwriting firm, but only 30 pilot firms participated in the pilot.
In early December, SIFMA members and staff met with DTCC management to voice opposition to the DTCC's implementation schedule, SIFMA's letter said. Many of the system's required elements were far from being completed, they noted. DTCC staff indicated that they understood SIFMA's position and said they would pay close attention to the dates for NIIDS implementation.
In addition to seeking changes to the Web application, SIFMA members also have urged a "file upload capability" for NIIDS that would function similar to a spreadsheet. SIFMA told the SEC that DTCC agreed to provide the feature, but that it will not be available for testing until April 16, "two months after the start of initial testing and only ten weeks before the MSRB proposed mandate."
In its letter to the SEC, DPC Data, one of four nationally recognized municipal securities information repositories whose business could be harmed by EMMA, said the system is well beyond the MSRB's mandate and that "by providing value-added content and features on its proposed Web portal," the board will "not only effectively take over the business of providing value-added content to commercial firms, but it will fund this activity with fees collected from broker-dealers."
However, the SEC said in its notice that the EMMA pilot is consistent with the board's mandate and would "remove impediment to and help perfect the mechanisms of a free and open market."
Peter Schmitt, chief executive officer of DPC Data, was traveling and could not be reached yesterday, a spokeswoman said.