INDIAN WELLS, Calif. — Issuer and investor groups are working together on a voluntary framework for improved disclosure of municipal swaps and financial information, a move they say reflects unprecedented cooperation between the two market groups, which historically have not been able to reach much consensus on the need for disclosure changes.
Meanwhile, the Securities and Exchange Commission's municipal securities chief said the SEC plans to adopt changes to its Rule 15c2-12 on disclosure sometime this spring. Martha Mahan Haines, who was speaking at the National Association of Bond Lawyers' Tax and Securities Law Institute here, also told The Bond Buyer the SEC plans to hire two attorney-fellows to work in its muni office, and is ideally looking for attorneys that have been traders or bankers or have other industry experience.
Haines said the two attorney-fellows will fill two-year posts that can be extended for up to two additional years by the commission. The annual salary for the positions range from $126,661 to $196,127, she said.
Though SEC officials had previously said the commission would consider the proposed changes to 15c2-12 early this year, Haines said during a panel on muni market reforms that the SEC's packed agenda forced it to move back its consideration of the rule by a few weeks.
"There are some [other] really hot issues for the markets that are going to push us back" on 15c2-12, she said.
The 15c2-12 proposal, which was originally floated in July, would generally expand the types of events that issuers must disclose on a continuing basis and would require that they be disclosed within 10 days of occurrence, replacing the more general, existing requirement that they be disclosed in a "timely basis."
During the same panel, Wisconsin capital finance director Frank Hoadley and Mary Colby, managing director and head of municipal research at Charles Schwab Investment Management in San Francisco, both said their respective market groups — the Government Finance Officers Association and the National Federation of Municipal Analysts — are working jointly on a template for improved disclosure of swaps and financial information.
Hoadley is the head of the GFOA debt committee and Colby is an at-large representative on the NFMA's board of governors.
Colby acknowledged that the joint initiative, which was agreed to at an annual market roundtable sponsored last month by the Municipal Securities Rulemaking Board, reflects a positive shift in the relationship between the two groups.
Historically, the NFMA generally argued that direct federal oversight of the muni market is needed to boost disclosure and accounting standards, while GFOA members warned federal meddling in the market would be costly to issuers and serve no constructive purpose.
But Hoadley said the GFOA supports some of the arguments the NFMA and its members have made recently about the hoops analysts must jump through to find information about an issuer's exposure to counterparty risk in derivatives transactions.
In addition, issuers have expressed an eagerness to provide more financial information to investors, which Hoadley said includes the kind of information in the tables of annual financial statements that would be released more frequently and outside the "auditing cycle."
Colby said the joint work with the GFOA reflects the most cooperation she has seen since she began working in the muni market, and that she is hopeful the groups will make a lot of progress on these and other issues.
"I can't underline how much this is a change from where things have been during the whole time I've been involved with NFMA and even the muni market," she said. "Institutional investors and the major issuer council are going to start working together on reasonable requirements for getting financial information out faster to meet investor needs while also not putting undue burdens on the issuers."
While the GFOA supports working with other market groups on such templates, Hoadley said issuers are troubled about a set of voluntary initiatives floated by the MSRB to specially designate issuers on its EMMA site that agree to make any of four undertakings, one of which would be filing annual financial statements within 120 days of the close of their fiscal years.
While technically voluntary, Hoadley said the initiatives would be de facto requirements because issuers that do not adhere to them would be harmed.
"This is a really hot point for the issuer community," he said. "What's being touted as a voluntary check box is going to be viewed as a de facto standard."
Meanwhile, on a separate panel on enforcement, Elaine Greenberg, an associate regional director in the SEC's Philadelphia office, provided some additional details of the new municipal securities and public pension fund enforcement unit she is heading.
The SEC formally unveiled the unit last month, replacing a more informal working group on munis.
Greenberg said the commission is working to develop a "truly a national unit," staffed with SEC officials across the country to reflect the enormously diverse municipal market. Staff handling muni cases will report to her as well as the heads of the regional offices from which they work, she said.
Though she could not say how large the unit will become, Greenberg said the SEC considering hiring internal as well as outside experts with industry expertise.
Closely mirroring previous comments she has made about the new unit, she said it would bring high-profile cases and actively seek to bring cases involving market activities that pose the greatest risk of harm to investors.
The unit will be focused on five areas of misconduct: offering and disclosure fraud; tax and arbitrage-driven misconduct; pay-to-play and public corruption violations; public pension accounting and disclosure violations; and valuation and pricing fraud.