Awards could create incentives for timely disclosure

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Regulators could consider providing incentives to encourage issuers to submit timely financial information and adopt a machine-readable reporting format like XBRL.

At the Securities and Exchange Commission’s Fixed Income Market Structure Committee meeting Monday morning, some members and panelists suggested giving out awards to issuers recognizing reporting behavior in line with the SEC's goals.


They could be similar to what the Government Finance Officers Association gives to governments for good financial reporting, said Duffy Blackburn, auditor for Will County, Illinois. Will County is a frequent issuer and encompasses Chicago’s southwest suburbs.

“Politicians or local units of government, they like recognition,” Blackburn said. “They like these things that they get. If you’re going to incentivize local governments to do something, you have to give them an award.”

When issuers file on the Municipal Securities Rulemaking Board’s EMMA website, they could get an “early filer award,” Blackburn suggested or if they decide to adopt XBRL, or Extensible Business Reporting Language, they should get an award as well.

Amy McGarrity, chief investment officer at the Colorado Public Employees’ Retirement Association, agreed with Blackburn on incentivizing for timely financials.

“On our wall, we have lots of plaques for our CAFRs (comprehensive annual financial reports) and we are proud of it,” McGarrity said.

Will County has begun using XBRL in its reports without being required to. XBRL has been touted as a way to standardize issuers’ financial documents and improve transparency. It is a standard machine-readable format for financial reports, and proponents argue it is far easier to search XBRL documents than the PDFs most issuers use.

Corporations, which already use XBRL, are motivated by different elements than a government is, said Lisa Washburn, managing director at Municipal Market Analytics.

“As far as the incentives at the state or local level, there is a different goal,” Blackburn said for issuers looking to use XBRL. "There’s sort of a tertiary goal in there. It’s transparency for citizens and more granular levels of details within operations on how many roads and how many curbs and how much law enforcement, which can be included in a taxonomy that could offer some benefits.”

A committee member asked who could force issuers to file their financial disclosures more quickly after the end of their fiscal years.

To that, Mark Kim, MSRB chief operating officer, said it would be up to Congress.

“Congress has the authority,” Kim said. “But absent congressional action, the second-best solution is voluntary adoption.”

There isn’t anything in the securities laws that prohibits the commission from setting disclosure standards with respect to municipal issuers, said Elisse Walter, former SEC chairman. The Tower Amendment doesn’t prohibit it and Walter said the SEC could take steps to walk people towards standardization.

“I agree with Elisse, but I would note that even though the Tower Amendment doesn’t preclude the Commission from promulgating disclosure standards, there’s also no expressed authority for us to do so,” said Rebecca Olsen, director of the SEC’s Office of Municipal Securities.

Exchange Act Rule 15c2-12 did give the MSRB the authority to prescribe the electronic format, which they did by saying disclosures had to be put in a word-searchable PDF.

“So could something in that way be done in the future, it would very much have to be grounded in the authority we have or the MSRB and its authority as set up under the architecture of the rule,” Olsen said. “It’s certainly something we could think about.”

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Municipal disclosure Government finance Data transparency XBRL SEC regulations SEC MSRB Washington DC
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