WASHINGTON — The Municipal Securities Rulemaking Board has proposed requiring underwriters to file issuers’ preliminary official statements on the EMMA system in an effort to boost pre-trade transparency in the new-issue bond market.
The proposal, outlined in a “concept release,” requests market feedback on the idea of requiring underwriters to submit the document to EMMA by the end of the day on which they receive it from an issuer. The plan, which would only apply to bonds sold on a negotiated basis, also would grant issuers the option to restrict underwriters from posting the documents.
Comments on the proposal are due Feb. 9.
“Earlier access to information about an investment, in a centralized location, is better for investors and can lead to an expanded investor base,” said Lynnette Kelly, MSRB’s executive director. “We want to make sure potential investors have as much information as possible .... This helps us reach the goal of [providing] additional pre-trade information and pre-trade transparency.”
Although the Securities and Exchange Commission’s Rule 15c2-12 already requires underwriters to send POS’, if available, to investors upon request, the board said its plan could ensure all investors have equal access to the documents.
The board will decide whether to propose rule changes after reviewing comments. Kelly said the proposal could be advanced through changes to the board’s Rule G-32 on disclosure, which requires underwriters file official statements within one business day of receiving them from an issuer.
Although the MSRB allows issuers to voluntarily file POS’ on EMMA, only 62 pre-sale documents were filed between May 2011 and September 2012, said MSRB General Counsel Gary Goldsholle. During that period there were more than 21,000 new municipal securities issued, he said.
Kelly said the MSRB was careful not to tread on the Tower Amendment, which prohibits the SEC or MSRB from requiring issuers to file documents with them before offering munis. That’s why the proposal lets issuers opt out, she said.
“We have been very careful to make sure this concept release has been drafted within the law and spirit of the Tower Amendment,” she said.
Michael Decker, co-head of the muni division at the Securities Industry and Financial Markets Association, said he still needs to review the proposal, but that it could be structured to minimize burdens for dealers. But he questioned whether the “opt in or opt out” language could create “compliance headaches for dealers.”
Decker added that dealers, when pre-marketing bonds, make POS’ available to customers.
He also said the proposal highlights the “indirect” regulation of issuers’ disclosures through dealers.
“That structure is probably less efficient than in other sectors of the market where issuers are [responsible] for their own disclosure activity,” he said.
Ben Watkins, Florida’s director of bond finance, said the proposal is “a good idea if you want to get information out to potential investors,” and that it doesn’t appear overly burdensome. He noted that Florida already files POS’ voluntarily on EMMA.
Though the market works “fine” with dealers sending POS’ to investors, adding more information to EMMA could help it evolve into a primary information source for investors and analysts, said Watkins.
“Its evolutionary, not revolutionary,” he said.
The Government Finance Officers Association said in a statement that it will review the proposal and “respond accordingly.” It said GFOA has encouraged members to post POS’ voluntarily on EMMA.
Mike Nicholas, chief executive of Bond Dealers of America, said his group supports the proposal and intends to submit a comment letter.
“The increased availability of preliminary official statements will allow investors to more-efficiently identify and access these documents,” he said.
