WASHINGTON — The inclusion of a free, real-time feed of municipal bond ratings on the Electronic Municipal Market Access system has long been a goal of the Municipal Securities Rulemaking Board, which operates the disclosure and transparency portal.
"We believe that the proposal's assumption that [nationally recognized statistical rating organizations] may, or should, provide credit rating and related information regarding municipal securities to the MSRB, at no charge, is commercially untenable and does not appropriately account for the value of NRSROs' intellectual property," Sharma wrote.
His letter comes about a month after the board formally asked the SEC for permission to display ratings on EMMA, a proposal for which the commission is collecting comments through July 23. The request stipulates that the board would only display the ratings if they are provided free of charge by the rating agencies.
Sharma's letter, the first filed with the SEC on the matter, confirms what market participants have said for weeks: that Standard & Poor's is opposed to the MSRB proposal, as previously reported in The Bond Buyer.
His letter also cuts a strong contrast with the two other rating agencies that rate munis - Fitch Ratings supports the board's proposal and Moody's Investors Service had no immediate comment.
In addition to warning that it is not a commercially viable proposition, Sharma stressed that the SEC's existing rules for credit rating agencies registered as NRSROs already provide an appropriate level of disclosure.
In addition, he said the agency's most-current ratings are already available through its own Web site, ensuring they are made widely available to the public while "guaranteeing that key safeguards to our proprietary information are in place and enforced."
"For example, access to our website establishes an agreement between the user and ratings services" in which the visitor agrees not to use the ratings for commercial purposes, Sharma said. While Standard & Poor's can terminate access to ratings for users who violate the agreement, he warned that no assurances had been given that the MSRB will aggressively monitor and take action against such abuses.
As a result, "there can be no assurance that market professionals will not be able to strategically collect credit rating and related information from EMMA as a substitute for products and services currently provided on a fee basis" by Standard & Poor's, Sharma said.
While users of EMMA must agree to a terms of use policy, Sharma said the board could unilaterally change it without consulting rating agencies.
Among other concerns, he warned that the board could profit off the ratings, at NRSROs' expense, by unilaterally redistributing them in their subscription services for feeds of bulk information supplied to EMMA.
Asked to comment on the letter, MSRB executive director Lynnette Hotchkiss said: "We hope that all nationally recognized statistical rating organizations choose to participate and if they do, the MSRB will work with these organizations to establish appropriate protections for their intellectual property rights."
In seeking to post ratings on EMMA, board officials have said the system would be elevated to a new level of transparency and usefulness for the market — coupled with its existing trade data and market disclosures that are already available free of charge.
Issuers currently are required to report their securities' rating changes in material event notices filed with EMMA but have complained they are never formally notified of the changes by the rating agencies. Some issuer officials have said that if the MSRB were to implement direct rating feeds, the feeds would eliminate the need for them to file notices of rating changes.
Moody's spokesman John Cline declined to comment on Sharma's letter.
Dan Champeau, Fitch's managing director for U.S. public finance and global infrastructure/project finance, said in a statement: "Fitch Ratings fully supports the elements of the Municipal Securities Rulemaking Board's proposal to the SEC that will make municipal bond ratings free and available to the public through its electronic disclosure system, EMMA. As such, Fitch intends to make its municipal ratings available via EMMA and is working constructively with the MSRB to achieve this."
