Disclosure recommendations broadly approved by market groups

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A diverse range of major market groups signed onto a broad-based disclosure principles document, a major achievement on a topic that has frequently divided issuers and analysts.

The Disclosure Industry Working group, which includes bond lawyers, issuer officials, analysts and municipal advisors, released a recommendation paper this week to provide guidance to issuers on timely disclosure, especially during the pandemic.

“Never have we all, the analysts, the bond counsel, the issuers, all come together on a broad-based principles document,” said Emily Brock, director of the Government Finance Officers Association’s federal liaison center. “So this is the beginning of coordination in the industry and principles that can lead us forward.”

This is the first time groups have gotten together on a broad based document, said Emily Brock, director of the Government Finance Officers Association’s federal liaison center.

Brock is hopeful the paper will be a way to improve disclosure without input from regulators. In 2013, municipal bond groups issued a paper to urge issuers to consider voluntarily disclosing information about bank loans. However, the Securities and Exchange Commission intervened by tacking on more events to its muni disclosure rule, Rule 15c2-12.

The Disclosure Industry Working Group began in July 2019 with the intention to address timely disclosure after increased scrutiny from the SEC. The announcement came after GFOA met with Securities and Exchange Commission Chair Jay Clayton and other commissioners a month earlier to follow up on Clayton’s call for the SEC’s Office of Municipal Securities to work with the Municipal Securities Rulemaking Board to improve transparency and increase timeliness of issuers’ financial information.

In the beginning, the working group discussed whether or not there could be a group paper produced pre-COVID, but participants said there were disagreements on what to put in the document. However, the focus shifted when the pandemic took hold.

In the past, analysts and issuers disagreed on issuer financial disclosures in the secondary market and the need for more voluntary disclosures, but participants are hoping for cooperation rather than regulatory mandates.

“We recognize that this is our problem and rather than a regulatory mandate, we thought it would be best for people that work in the trenches to work together and show the SEC and other parties that we as players in the public finance world can work together and hopefully bring together some proposals or solutions to address the concerns about timely disclosure,” said David Erdman, capital finance director for the state of Wisconsin.

The recommendations reminded governments of their current disclosure requirements, noting that the SEC did not suspend disclosure filing requirements. The group encouraged good investor relations to facilitate widespread, fair access to information provided to individual investors.

The section on investor relations was important to get the National Federation of Municipal Analysts to sign on, said Lisa Washburn, NFMA industry and media liaison.

Voluntary disclosures in the document were also important to analysts, Washburn said.

The working group emphasized that COVID-19 may give urgency to providing information to the markets, but governments should give disclosures context and discuss those with their internal and external financing teams such as bond counsel, they wrote.

“Actual and factual information should be clearly separated from any estimates or projections of revenues and budgets that are disclosed,” the working group wrote.

The group also referenced Clayton’s statement from May that encouraged issuers to provide forward-looking information about COVID-19.

“With the pandemic, with the encouragement given by the SEC, you are seeing an increase (in voluntary disclosure),” Washburn said. “We still have a far way to go, there is a lot more, but it’s still only a fraction of the issuers in the marketplace. Yes, it’s encouraging to see a lot of issuers come forward with really meaningful, good information, but there also are many more that haven’t disclosed anything yet about COVID. I hope this opens the door and that we continue to see, what we’ve seen over the last couple of months, escalate into the future.”

Erdman said the working group will have more documents coming, may make adjustments to this one in the near future. He hopes the group's recommendation letter will encourage more disclosure.

“Hopefully this document, signed onto by many players in the public finance world can address any questions that a lawyer, or an issuer or a municipal advisor may have to get them comfortable to say I should be disclosing more,” Erdman said. “I do expect an increase (in disclosures).

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