Bond lawyers push for solutions to SEC's disclosure concern

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BONITA SPRINGS, Fla. — Bond lawyers on Friday pressed Municipal Securities Rulemaking Board representatives to help find solutions to the Securities and Exchange Commission's concern about stale issuer financial information, including by telling the SEC that its worries are overblown.

The comments from attorneys came during a breakfast dialogue with multiple MSRB officials and board members at the National Association of Bond Lawyers Conference here. The discussion eventually settled on SEC Chairman Jay Clayton's December pronouncement that he has asked the commission's Office of Municipal Securities to work with the MSRB to improve transparency and increase the timeliness of issuer financial information.

Issuers have brought up many reasons why it sometimes takes longer to release their audited financial statements, from a decrease in auditor availability to reliance on other parties for audited information.

“I would say that we’re exploring a number of options to address the concerns expressed by Chairman Clayton,” said Lynnette Kelly, MSRB president and CEO.

One lawyer present Friday raised the issue of low staffing in state auditors’ offices, causing backlog for issuers.

“I would appreciate your thoughts on how to manage this desire for more transparency, faster financials when we have a situation where the issuer isn’t in the driver’s seat,” she said.

Some bond lawyers asked for a safe harbor for issuers to provide unaudited information without needing to be fearful of anti-fraud laws. Many market participants have expressed concern that the SEC might consider the release of those interim documents on EMMA misleading to investors. An audience member asked if EMMA could have a designated safe place for unaudited financials with a uniform disclaimer attached.

A lawyersaid she wanted some comfort from the SEC that displaying unaudited financials would be legitimate.

“If you created a safe space for it and could get some comfort from the SEC about that safe space, it might be a way to achieve two things,” she said. “One to encourage a better disclosure of unaudited financial statements in a way that didn’t create the discomfort.”

She continued and said unaudited financial statements could be more standardized on EMMA rather than individual sites.

Ben Watkins, director of the Florida Division of Bond Finance, urged the MSRB to consider telling the SEC that its worries might be off-base. rather than accepting what the SEC decides and “dancing to the music.”

“In other words, pushing back on the SEC and educating them because they’re making the perennial mistake of taking corporate concepts and thinking they can apply,” he said.

Jerry Ford, an MSRB board member who is president of muni advisory firm Ford & Associates, then said the MSRB was having active discussions with the SEC on that issue and that Watkins shouldn't assume his views aren't held by some on board.

“I think there’s a role for all of the organizations to play around with this issue of timely financial information and I think you guys have a role in that in terms of educating and thinking about these ideas,” Watkins said.

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Municipal disclosure Secondary bond market Securities law Jay Clayton Lynnette Kelly MSRB SEC Florida Washington DC