MSRB Offers Long-Range Plan to Improve Transparency

WASHINGTON ­— The Municipal Securities Rulemaking Board on Thursday released a long-range plan to improve transparency in the muni market by collecting a wide range of new information from a variety of sources, integrating that data on the Electronic Municipal Market Access system, and making it available to investors and other market participants in a more user-friendly and searchable format.

MSRB executive director Lynnette Kelly called the 27-page plan a long-term “vision,” the core of which will be an enhanced EMMA platform, referred to as “EMMA 2.0.”

The plan was approved by the MSRB in January, but its specific initiatives, some of which will begin this year and others that may take five to seven years, must be approved by the board and the Securities and Exchange Commission after public input.

The MSRB is encouraging market participants and others to provide input on the plan and has posted a link on its website, www.msrb.org, for filing comments.

Kelly said the plan has been under formal development for roughly one year and will help further the MSRB’s goal of promoting a fair and efficient municipal securities market.

“We continue to think that transparency is vitally important to make sure this market is as efficient and fair as possible,” Kelly said. “We want to make sure investors and stakeholders have ready access to the right information.”

While Kelly could not give a specific estimate for the costs of implementing the full plan, she said it was developed with the assumption that the board’s budget would remain flat.

The MSRB reported total revenues of $33.5 million for fiscal 2011, up from $22.7 million in 2010, according to the annual report. It reported net assets of $33.3 million for fiscal 2011, up from $25.9 million for fiscal 2010.

With the upgrades, the MSRB hopes to provide information on upcoming new issues, complete real-time initial offering price information, price information on pre-award conditional trading commitments, conflict of interest disclosures for underwriters and muni advisors, expanded liquidity and credit support documents, and derivatives disclosures, among other things.

The MSRB also would like to make available pension and post-employment benefit disclosures, bank and loan municipal lease disclosures, and more contemporaneous real-time price and yield information for all muni trades.

EMMA 2.0 would incorporate data from the next generation of the group’s Real-Time Transaction Reporting System, and would become a “central transparency platform,” or CTP, allowing public access to real-time pricing data and live and historic bid-offer and pre-trade information.

“While maintaining all execution activity in the hands of private-sector market participants through their own platforms,” such as through voice brokerage, electronic platforms or other processes, “the CTP would, over time, evolve to become a centralized venue providing universal public access to pre-, concurrent/real-time (live) and post-trade pricing information across the municipal market,” the MSRB said in its plan.

The MSRB also hopes to make EMMA 2.0 more user-friendly, improving the search function and allowing users to view statistical information in graphs, charts and tables.

Issuers would be able to create personal web pages in the system, where they could view local and statewide bond information. “Each state would have its own home page where information about state bond issues as well as other relevant statewide disclosures would be housed, together with direct navigation to counties, municipalities, agencies, authorities, and districts within the state,” the board said in the plan.

Public non-professional users would be able to establish user accounts, at no charge, that allow them to set personal preferences and create portfolios or categories of securities.

The MSRB also said it wants to “work to remove barriers from using industry-accepted security identifiers and promote improved identification of securities, issues, and issuers.”

Frank Hoadley, Wisconsin’s capital finance chief, applauded the plan, saying, “I think they’ve got some pretty good ambitions here, some things that [the Government Officers Finance Association] and I have pushed for. Small issuers are going to be upset at things that attempt to impose new burdens and costs on them, but so far I don’t see anything that threatens to do that.”

William Daly, senior vice president of government relations at Bond Dealers of America, said his members support the MSRB’s planned improvements and efforts to boost transparency. “Fundamentally, we are in favor of what they are doing,” he said.  But he fears upgrades will cost more than anticipated and that dealers could end up shouldering the costs. He noted that fees paid by dealers mostly support the MSRB’s budget, and that those fees increased last year with the introduction of a $1-per-transaction technology fee.

“Running a computer system, and improving it and maintaining it, is expensive. There is a concern there,” he said.

Daly thinks costs should be shared with other segments of the industry, including municipal financial advisors, which have been under the MSRB’s jurisdiction since October 2010. “The cost should be borne more broadly by the industry, including non-dealer municipal advisors,” he said.

Leslie Norwood, managing director, associate general counsel, and co-head of municipal securities at the Securities Industry and Financial Markets Association, said MSRB’s upgrades could ease dealers’ data reporting requirements, which can be costly, time-consuming, and duplicative.

In a statement, Norwood said SIFMA “will be focused on trying to improve straight-though processing, reduce duplicative reporting requirements and data entry, thus reducing transaction costs and improving data quality,”

Tom Vales, chief executive of TMC Bonds, a fixed-income trading company, said the MSRB’s plan would benefit the entire muni market. He said the board’s decision to expand its data programs does not look like an effort by the board to create a municipal bond exchange. “An exchange like in an equity market isn’t appliable to the bond market,” Vales said, noting that 99% of munis don’t trade regularly.

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