The Municipal Securities Rulemaking Board does not want to withdraw a proposal to more visibly track the timeliness of secondary market disclosures in the midst of opposition from analysts and issuers.
In a letter filed to the Securities and Exchange Commission Thursday afternoon, the MSRB said the SEC should not reject its “submission calculator” despite criticism from muni market participants. The tweak to EMMA would help efforts to improve transparency in the market, the MSRB said.
“The MSRB believes the proposed rule change is complementary to such efforts and so the proposed enhancements should not be withdrawn or disapproved at this time in anticipation of the outcomes of ongoing industry initiatives,” said Gail Marshall, MSRB chief compliance officer.
The MSRB proposed the “submission calculator” in November and would show the number of days between the posting of an annual financial disclosure and the end date of the financial period. The calculation would be triggered once the submission is made on EMMA. It would not require extra work from issuers.
The new feature would provide an informational box including a link to the disclosure of annual information and/or an audited financial statement for the most recent fiscal period and the end date of the financial period detailed in the disclosure. It would also include the date the disclosure was posted to EMMA and a static calculation of the number of days between the posting of the first disclosure for that fiscal period and the end date of the financial period detailed in that disclosure.
The SEC asked stakeholders to comment on the proposed amendment to EMMA Information Facility IF-3, which outlines the basic functions of the EMMA site. Those stakeholders want the SEC to withdraw the calculator.
In particular, commenters were concerned about submission errors and the National Association of Health and Education Facilities Finance Authorities said it would be inevitable for there to be errors.
The National Federation of Municipal Analysts echoed that and said submission errors are already frequent in the EMMA system, posing a high risk that a meaningful number of calculations will be based on inaccurate information. NFMA suggested greater oversight of the submission process to be sure documents are classified and labeled correctly.
Though the MSRB believes commenters’ concerns are relevant to the rule change, market behaviors also come into play and would persist regardless of the rule change.
“Consequently, to the degree that the submission calculator and the other proposed enhancements would provide new prominence to the information submitted, the board believes that submitters would have an additional incentive to properly categorize and describe annual financial disclosures, and the incidences of submissions with erroneous information would be expected to marginally decline from current rates,” Marshall said.
The MSRB believes submitters should retain the ultimate responsibility for their accuracy and completeness of information submitted to EMMA.
Amid concerns about correcting errors, the MSRB makes clear in their letter that EMMA already allows issuers and obligated persons to change prior continuing disclosure submissions by selecting different categories and editing dates.
In comments from December, participants were concerned about how investors would use information from the calculator and whether it would be used to compare the timing of disclosures for different types of securities or issuers.
The Government Finance Officers said some issuers would be unfairly judged by investors that information may not be timely when it is submitted as quickly as possible and within the timeframe noted in its continuing disclosure agreements. Under SEC Rule 15c2-12, issuers have to enter into CDA, a contractual obligation of the issuer to the investor.
NFMA said the calculator should only perform as a calculation on filings marked as audited financial filings, not for those marked as unaudited.
“The MSRB does not disagree with the observations underlying many of these comments; however, the MSRB believes that the comments do not necessarily demonstrate flaws unique to the proposed rule change but are more generally representative of the variation and complexity of disclosure practices in the municipal securities market,” Marshall said.
The MSRB can mitigate potential investor confusion through various education resources, Marshall added.
MSRB said it welcomes further discussions on issuers’ compliance with the contractual terms of their continuing disclosure agreements, concerns from analysts on identifying delayed annual financial disclosures, among others.
A working group representing several municipal market groups and organized by the Government Finance Officers Association asked the SEC to reject the proposal in part because the MSRB did not reach out for input beforehand.
The MSRB said it could provide stakeholder consultation, subject to the SEC’s approval, during the period between the publication of the SEC’s approval and the date the proposed enhancements are visible to the public on EMMA.
“While the MSRB believes that engaging in such stakeholder outreach can be valuable, the legal standard under the Exchange Act applicable to the approval of a proposed rule change does not require such engagement,” Marshall said.
The Exchange Act says the SEC can approve a proposed rule change from a self-regulatory organization if it finds that the change is consistent with rules and regulations.
