Issuers push back on FIMSAC disclosure suggestions

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A preliminary recommendation that the Securities and Exchange Commission be given additional statutory authority to enforce compliance with continuing disclosure agreements was among several recommendations that was the subject of a spirited discussion at an SEC advisory committee meeting Monday.

The municipal securities transparency subcommittee of the Fixed Income Market Structure Advisory Committee discussed and then approved several preliminary recommendations connected to the subject of secondary market disclosure timeliness. The subject has been of interest to the SEC for many years, but has come more sharply into focus recently because of several public mentions of it by SEC Chairman Jay Clayton. Issuers have historically been hesitant to embrace more regulation of their disclosures, and suggested that hesitance Monday.

“I’ve heard numerous concerns from issuers,” said Giedre Ball, debt program manager for the Metropolitan Washington Airports Authority. “Grave concerns. It is seen as opening a Pandora’s box.”

Former SEC Chair Elisse Walter, right, urged FIMSAC to make a strong recommendation to strengthen the SEC's authority over continuing disclosure in the muni market.

Ball said there is serious fear among issuers that giving the SEC explicit statutory authority to enforce secondary-market disclosure violations beyond the use of the anti-fraud provisions would be a first step to eroding the protection of the Tower Amendment.

Named for former Texas Senator John Tower, that provision of the securities laws prevents the SEC or Municipal Securities Rulemaking Board from requiring issuers to file documents with regulators prior to selling bonds.

Ball acknowledged that the recommendation was consistent with the SEC’s 2012 Report on the Municipal Securities Market and that it is not on its face an attempt to undo Tower. She said she supports the fifth and final recommendation considered by the subcommittee that the SEC “explore ways through which it can raise awareness of the potential consequences of providing less timely and less robust disclosure information.”

Emily Brock, director of the Federal Liaison Center of the Government Finance Officers Association, said issuers do not support the SEC handing down disclosure mandates.

“We would like to have a better definition of the policy problem here,” Brock said. She told the subcommittee the issuer community would be happy to work with regulators and investors to find solutions, provided it be collaborative and begin with educational efforts.

Other recommendations included that the SEC be given additional statutory authority to provide a safe harbor from private liability for forward-looking statements for municipal issuers that satisfy certain conditions, that the SEC should explore ways through which it could make disclosure deadlines for annual financial information and audited financial statements more certain and predictable, and that the SEC seek wide-ranging public comment on the subject.

Buy-side analysts asked by the subcommittee to give their opinions of the recommendations said they were generally supportive. Elisse Walter, a former SEC chair who was the driving force behind the 2012 report and a member of the subcommittee, said the sluggish pace of muni disclosures remains a problem.

“There hasn’t been a great deal of progress made,” Walter said. She said she was disappointed in the recommendations because they didn’t go far enough.

“I think it’s time to take stronger action,” she said, opining that the SEC should be acting now to ask Congress to pass a law giving them more robust authority over secondary muni market disclosure.

Walter said that such a process would take time, and that to even get such legislation introduced would be a challenge.

"This is an attempt to get the ball rolling," FIMSAC Chairman Michael Heaney said.

The SEC is not bound by FIMSAC recommendations.

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SEC regulations Securities law Municipal disclosure Washington DC