The Municipal Securities Rulemaking Board is close to releasing a notice aimed at helping issuers avoid a “disclosure vacuum” similar to the one that brought federal enforcement actions down on Harrisburg, Pa. earlier this year.
MSRB deputy executive director Ernesto Lanza announced the forthcoming notice at the Council of Development Finance Agencies’ National Development Finance Summit.
Issuer officials present had just finished asking Rebecca Olsen, an attorney fellow at the Securities and Exchange Commission’s Office of Municipal Securities, whether filing required continuing disclosure documents to EMMA could potentially offset erroneous statements by public officials. The SEC dinged Harrisburg for misleading public statements during a stretch in which the city failed to properly file its continuing disclosure documents.
The notice will include a chart of steps issuers can take to properly file their disclosures with the MSRB, Lanza said, and will also feature some new information for investors. Lanza also reminded attendees that they can get EMMA to send them disclosure reminders so that they do not fail to file documents as required by their continuing disclosure agreements.
“We certainly encourage issuers and their advisors to go ahead and do that,” Lanza said.
Olsen said she did not want to speculate about whether proper bond document filings can shield an issuer from SEC action related to missteps by public officials such as mayors, but noted that the SEC’s 21(a) “Report of Investigation in the Matter of Harrisburg” makes clear that any false statements that make their way to the market might become the basis of an enforcement action.
Both Olsen and Lanza heard from conduit issuers, who said that current educational materials and resources do not seem to be designed with them in mind. One issuer asked Olsen how to tackle the problem of potentially shoddy disclosure from conduit borrowers, which are often small municipalities unable to tap the market without the assistance of a pool deal.
“They might just not understand how important it is,” Olsen replied. “Maybe you can develop a policy to hand out to conduit borrowers.”
Lanza heard a similar query during a discussion of the MSRB’s Rule G-17 on fair dealing. Under the rule, underwriters send letters to issuers disclosing that the transaction between them will be conducted at arm’s length, and that the underwriter might have interests that differ from those of the issuer. One conduit issuer told Lanza that he frequently receives G-17 letters because his instrumentality’s name is on the bonds, even though he is not the borrower and not actually the one engaging the underwriter ‘s services.
The Securities Industry and Financial Markets Association has a G-17 model letter available online, but it is not designed for underwriters of conduit deals.
Lanza said the MSRB may also soon release additional educational information about this topic, though he could not put a timeframe on it. Lanza also gave the CDFA members a rundown of current MSRB initiatives, including a recent request for comment on a possible best execution rule. Lanza said the process may take some time because the MSRB is interested in actively engaging members of the market to fully understand the ramifications of any such rule.
“We need to do that baseline research,” he said.