Muni analysts urge SEC to improve EMMA submission calendar

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Municipal analysts are urging the Securities and Exchange Commission not to approve a proposal to track the timeliness of secondary market disclosures unless it is amended to better serve investors.

National Federation of Municipal Analysts Chair Scott Andreson made that argument in a comment letter filed with the SEC ahead of the commission's stated comment period deadline this week. The SEC invited market participants to comment on the Municipal Securities Rulemaking Board's plan to institute a "submission calendar" on EMMA, which would provide the public with a static "timer" measuring the gap between the submission of financial disclosures and the end of the period the disclosure covers.

"Unfortunately, the MSRB’s proposal to provide a static calculator based on the number of days between the last annual financial disclosure to the EMMA system and the end of the fiscal year applicable to such filing doesn’t adequately address the needs of municipal investors because of shortcomings in the areas of comparability and accuracy," Andreson told the SEC. "To be effective, any disclosure 'calculator' should measure similar documentation and fiscal periods, and the information on which such calculations are based should be reasonably free from error."

The MSRB proposed the change, which it said wouldn't require any extra work on the part of issuers, last month. 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.

Though "stale" secondary market disclosure has been a focus for SEC Chairman Jay Clayton, Andreson told the commission that the MSRB's proposal needs some key fixes before it should be approved.

The calculator is triggered based on the submission of any document tagged as a required annual financial disclosure, whether it is an audit, a different type of annual financial filing, or a failure to file notice, Andreson wrote.

"In practice, this means that the calculation for one obligor can be triggered by an annual filing of tax base information and/or other unaudited data versus the audited financials of other obligors. This construction is likely to result in confusion among market participants (particularly non-professional investors), and opens the opportunity for manipulation of the calculation as issuers can improve their “number” through the submission of incomplete or alternative disclosure documents."

Transactions with multiple obligated parties also pose problems under the proposal, Andreson wrote, since the earliest party to submit an annual filing will trigger the calculated date regardless of its relative importance to the repayment of the debt.

Andreson also said he is concerned by the potential for misleading results stemming from filing errors, a common occurrence on EMMA.

"We urge that this proposal not be approved unless the issues raised in this letter are adequately addressed," he told the SEC.

Andreson said on a Monday press call that the MSRB should "strongly consider" outsourcing at least some disclosure tools to the private sector, where he said better tools than EMMA already exist. Andreson said he and the NFMA have been working with the MSRB and the SEC for a long time to try to improve EMMA.

More industry groups are expected to comment on the proposal this week. The SEC could choose to approve the proposal as is, or could require changes.

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Municipal disclosure Secondary bond market MSRB rules SEC regulations Washington DC