WASHINGTON — The Bond Dealers of America is urging the Securities and Exchange Commission to limit the scope of its continuing disclosure violation self-reporting program and extend the deadline for participating by more than three months.
The BDA made its push in a four-page letter sent to SEC chairman Mary Jo White and its officials met two days later with Commissioners Daniel Gallagher and Michael Piwowar to discuss these issues.
The letter, dated June 9 and signed by BDA president and chief executive officer Mike Nicholas, argues that the SEC's Municipalities Continuing Disclosure Cooperation initiative should make clear that issuers and underwriters only have to review bond documents on the Municipal Securities Rulemaking Board's EMMA website, most of which date back to only 2009. MCDC should also give issuers and underwriters until Dec. 15, rather than Sept. 10, to be eligible to participate, the letter said.
The MCDC allows issuers, other borrowers and underwriters to get lenient settlement terms if they voluntarily self-report their failures to ensure bond offering documents were not false or misleading about their compliance with their continuing disclosure obligations. The program has caused controversy among both potential participants and bond lawyers, but SEC officials have defended it.
By making BDA's suggested changes, Nicholas' letter states, the SEC would improve the program.
"BDA members believe that the MCDC initiative has caused a financial and personnel investment by issuers and underwriters that goes beyond what is needed to achieve the goals of the SEC because its scope relies upon the now defunct NRMSIR system," the BDA letter reads.
EMMA became the sole Nationally Recognized Municipal Securities Information Repository recognized by the SEC in 2009, but searches for muni information prior to that relied on a subscription-based and less user-friendly multiple NRMSIR system.
Although the MCDC only covers misleading official statements going back five years, issuers and underwriters have to look back to pre-EMMA days in some cases. For example, bonds offered five years ago in 2009 could have misleading official statements if there were disclosure failures in the five years before that. Some of the NRMSIRs were criticized for mislabeling and misfiling documents.
"Given the difficulties associated with the NRMSIR system, BDA members believe that the MCDC initiative is causing unnecessary and unhelpful investigations into this failed defunct system that will lead to a quantity of, and not quality of, data," the letter states. "If the SEC does not limit the scope of the initiative in order to elicit the most valuable data, an onslaught of data will make the task of determining the important instances of 'false statements' considerably more difficult."
The SEC has said the MCDC creates a "modified prisoner's dilemma" by forcing underwriters and issuers to effectively turn one another in by self-reporting, but the BDA said that the program's short deadline restricts the ability of broker-dealers to discuss potentially problematic past official statements with issuers. By extending the deadline to December, the BDA argues, the underwriting community will have time to go through their past deals and talk to issuers about which ones warrant self-reporting.
"As it currently stands, the short deadline of Sept. 10 will have the effective cutting off almost all dialogue between underwriters and issuers and thereby will frustrate one of the potentially most valuable impact that the MCDC initiative could have," the letter states.
Issuer officials at the Government Finance Officers Association meeting last month asked the SEC's Peter Chan, an enforcement lawyer in the Chicago regional office, about the prospects of an MCDC extension. Chan told them such a change was very unlikely.
