SEC Notifies NRMSIRs, CPO Ahead of EMMA Shift

WASHINGTON — The Securities and Exchange Commission has formally notified the four existing nationally recognized municipal securities information repositories and the Central Post Office that it is revoking their so-called no-action letters as of midnight June 30.

The move is part of a long-planned, closely choreographed transition to making the Municipal Securities Rulemaking Board, through its EMMA site, the sole repository for continuing disclosures beginning July 1. It comes after the commission approved changes to its Rule 15c2-12 on disclosure in December that essentially replace the four existing NRMSIRs and CPO with EMMA.

Specifically, the SEC is withdrawing no-action letters that say  the commission staff will not recommend enforcement action if broker-dealers use the NRMSIRs and CPO to meet their disclosure obligations.

The four NRMSIRs are DPC Data Inc., Bloomberg Municipal Repository, Standard & Poor’s Securities Evaluations Inc., and FT Interactive Data Corp.

The SEC is withdrawing the no-action letter that it provided the CPO in 2004. The CPO, which is operated by the Municipal Advisory Council of Texas, was created to collect issuers’ secondary market disclosure documents and transmit them to the NRMSIRs. Because the Texas MAC had agreed to operate the CPO through the end of the year, it had to request permission from the SEC to terminate the service on June 30.

Under the SEC’s Rule 15c2-12, dealers cannot underwrite most muni securities unless issuers have agreed in writing to file annual financial and operating information and notices of material events with the NRMSIRs.

But when the NRMSIR system was put into place in the 1990s, some issuers did not send disclosure documents to all four repositories and when they did, the documents were often labeled and maintained differently. This made it difficult for broker-dealers to check issuers’ disclosures, something they must be able to do under 15c2-12 before recommending bonds to issuers. It also made it difficult for investors to obtain disclosure information.

The establishment of a mandatory repository comes after years of work by market participants to improve muni disclosure. MSRB officials first expressed an interest in becoming a repository in the early 1990s. But electronic disclosure was still relatively new and the board did not have the support of issuers, who feared the MSRB would try to regulate them, or private vendors who wanted to obtain and provide the information to market participants. As a result, the SEC embraced a decentralized approach, allowing private parties to apply to become designated as NRMSIRs.

Initially there were seven NRMSIRs, but several firms pulled out of the business. In 2004 the Muni Council, which consists of about 20 muni market groups, tapped the Texas MAC to create and operate CPO, to serve as a one-stop filing place for issuers’ secondary market disclosures and eliminate the inconsistencies in the filing and maintaining of documents. But issuers were never required to use it.

Support for the MSRB’s creation and operation of a mandatory central repository arose in 2007 after then-SEC chairman Christopher Cox unveiled a series of initiatives to boost municipal disclosure and accounting standards, including the creation of a free Web site, similar to the SEC’s EDGAR system for corporate securities, through which investors could easily access disclosure information. The MSRB offered to provide the system.

Though the idea gained traction throughout the industry, unlike most of the other initiatives, at least two NRMSIRs — DPC Data Inc. and Standard & Poor’s — warned or indicated EMMA would harm their businesses and showed some opposition to the system.

Last week, DPC Data asked the SEC to delay the transition for six months. On Friday, an SEC spokesman declined to comment on the DPC Data request.

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