WASHINGTON — As lawmakers and regulators debate improvements to secondary market disclosure, the new chairman of the Municipal Securities Rulemaking Board stresses it is ready to expand its role to disseminate issuers’ interim financial information through its EMMA system.
Alan Polsky, senior vice president of Dougherty & Co. in Minneapolis and former chairman of the National Federation of Municipal Analysts, took the helm of the MSRB on Oct. 1, the beginning of the board’s second year as a 21-member, majority public body.
His one-year chairmanship emerges at a critical time for the board, which is beset by a revenue shortfall and which less than a month ago withdrew five controversial muni advisor rule proposals — key initiatives of the previous board and chair — that had been pending with the Securities and Exchange Commission.
Meanwhile, a draft bill that Reps. Mike Quigley, D-Ill., and Patrick McHenry, R-N.C., are circulating for input, would give the SEC authority to direct the content and timing of issuers’ disclosure documents, including interim financial statements, potentially paving the way for such information to be posted on the MSRB’s online Electronic Municipal Market Access system.
Polsky championed secondary market disclosure as NFMA chairman in 2001, when the group released several “best practices” documents recommending how issuers, borrowers and other market participants could boost disclosure in various market sectors. He says he and EMMA are ready.
“I’ve worked on disclosure issues for a long time,” he said.
In particular, Polsky said, EMMA now has the capacity to handle issuers’ quarterly financial reports if the SEC receives statutory authority to require issuers to furnish them to investors and designated EMMA as the repository. “It’s not a problem for the system,” he said.
But Polsky — who is responsible for Dougherty’s negotiated municipal underwriting and fixed-income institutional sales and research — inherits a slate of unfinished regulatory business from his predecessor, Michael Bartolotta, a vice chairman at First Southwest Co.
In the coming year, the MSRB plans to finalize a professional licensing exam for municipal advisors, continue evaluating its system of imposing fees on broker-dealers and dealer FAs who bear the brunt of funding the board’s operations, and repropose the withdrawn muni advisor rules after the SEC finalizes the job’s definition.
The SEC, which floated a muni advisor registration scheme for comment late last year, is slated to release a permanent registration scheme and definition by the end of this year. But last week, in remarks before a muni bond summit sponsored by the Securities Industry and Financial Markets Association, SEC commissioner Elisse Walter signaled the possibility of a lengthier delay, saying the agency could, if necessary, extend the existing registration scheme, which expires at the end of 2011.
Polsky said the MSRB would like to refile the muni advisor rules “as soon as” the SEC’s definition is available.
“But it doesn’t change our resolve to go about it properly,” he added.
In addition to disclosure, Polsky identified several priorities for his tenure, including educating retail investors and brokers about EMMA.
In particular, he said, analysts at mutual fund companies know how to use the system, but the key is making sure retail investors know how find it and to use it. Adding rating agency information will help, he said, as will the board’s ongoing efforts at investor education, including social media, such as Twitter.
But Polsky said the best place to start is with retail investors. “It has to start from the ground up,” he said.
Still, an issuer said Polsky’s contributions as MSRB chairman may stem from his disclosure expertise, not from any proposed EMMA enhancements for retail investors.
“The reality is retail investors don’t read,” said Ben Watkins, Florida’s director of bond finance and a former MSRB board member who knew Polsky as NFMA chairman and counts him as a good friend. “It all sounds good, but I don’t think it’s going to make a huge difference.”
On the other hand, Watkins noted, Polsky can embark on discussions with the SEC about a topic that does matter to issuers: secondary market disclosure.
“Alan knows disclosure backward and forward,” Watkins said. “So he’s in a good position to be able to talk intelligently to them about what makes sense and what doesn’t make sense in terms of enhanced disclosure.”
Others, including colleagues who worked with Polsky on the NFMA board, hailed his ability to navigate the market’s disparate sectors.
“He’s just easy to get along with,” said Robert Reardon, a senior investment officer at State Farm Insurance who served on the NFMA board with Polsky. “He always did a good job of building consensus and moving things forward instead of getting bogged down in the details.”
A state and local government group echoed this view as well.
“We’ve always appreciated his strong outreach and relationships with issuers,” said Susan Gaffney, director of the federal liaison center for the Government Finance Officers Association.
Even independent financial advisors, who criticized the MSRB in comment letters on its proposed muni advisor rules, saying the board hasn’t gone far enough to police dealer FAs, sound either noncommittal or cautiously optimistic about Polsky. Several independent municipal advisors, who declined to speak for attribution, said they knew little about him.
An independent FA group, the National Association of Independent Public Finance Advisors, said Polsky has agreed to speak at their annual conference in Denver later this month, and will appear there with Lynnette Hotchkiss, the MSRB’s executive director.
“To me, that was huge,” said NAIPFA president Colette Irwin-Knott, a partner at H.J. Umbaugh & Associates in Indianapolis.
Hotchkiss, rather than Bartolotta, spoke at the NAIPFA conference last year, according to Irwin-Knott and MSRB spokeswoman Jennifer Galloway.
Still, Polsky does not discount the challenges of his new role, especially since issuers often say they don’t have the staff or technology to prepare interim financial statements. In his work at Dougherty, he said, he tells issuers inadequate operating or financial data “can keep people from the table.”
“The better understood your credit is in the marketplace, the better access you’ll have to the capital markets,” Polsky said.