Next year brings more focus on financial disclosures

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Next year may bring a renewed focus on more timely disclosures, and though collaboration among market participants is preferred, current market recommendations suggest a more regulation-based solution.

During the last day of The Bond Buyer California Public Finance Conference, market participants said past recommendations from an SEC advisory committee may be a warning shot for future regulation in 2021.

The Fixed Income Market Structure Advisory Committee, which advises the Securities and Exchange Commission, released two recommendations over the past year regarding the timelines of financial documents and urging more pre-trade transparency in the municipal market.

“There is certainly a level of ‘hey folks, if you don’t figure this out on your own, we’re going to sort of figure it out for you,’” said Leo Karwejna, managing director and chief compliance officer at PFM.

“There was sort of a warning shot so to speak,” he added.

It’s also important that a group like FIMSAC has put “a bookmark” down on the topic, Karwejna said.

During an earlier panel, Rebecca Olsen, chair of the SEC’s Office of Municipal Securities said this coming year the SEC plans to explore ways to get more comment on FIMSAC’s recommendations.

“We could explore ways in the disclosure space to collect more focused public comment specifically on the FIMSAC recommendations,” said Rebecca Olsen, director of the SEC's Office of Municipal Securities.

“We could explore ways in the disclosure space to collect more focused public comment specifically on the FIMSAC recommendations,” Olsen said.

Timely and more frequent disclosure from municipal issuers have been long-standing SEC goals. Issuers have said more regulations in disclosure would be negative and harm smaller issuers’ desire to participate in traditional markets. Analysts have said more disclosure is beneficial in gathering information.

Market participants got together as part of a Disclosure Industry Working Group to address disclosure needs. In August, that group including bond lawyers, issuer officials, analysts and municipal advisors, released a recommendation paper to provide guidance on timely disclosure, especially during the pandemic.

“We are consistently working to make sure that there are good market disclosure practices by issuers,” said Emily Brock, director of the Government Finance Officers Association’s federal liaison center. “There is no resting on our laurels in this world and we are continuing to make sure we put out information and we are representative as an industry with common principles on how we can advance.”

Since the pandemic began, the Municipal Securities Rulemaking Board has released reports on the number of COVID-19 related disclosures in the secondary market. Issuers got some reassurance from the SEC back in May when the regulator provided some guidance on disclosures issuers should be making and noting that good faith attempts would not likely be second-guessed.

As of the beginning of October, just 40% of all distinct CUSIPs traded in 2020 had a COVID-19 related disclosure attached to them, according to the MSRB. That figure prompted surprise from some market participants, many of whom said it should be much higher.

On Thursday, Olsen said it was encouraging to see voluntary disclosures.

“I read some very comprehensive voluntary secondary market disclosures that included both a current snapshot of how the current COVID-19 pandemic has impacted the current municipal credit as well in some instances, forward-looking information,” Olsen said.

However, Olsen encouraged more issuers to disclose.

“I would encourage more issuers to talk to the market and provide more timely, comprehensive, current information because we are all facing a lot of uncertainty” Olsen said. “We want to equip investors to make informed decisions when deciding whether to buy, or sell or hold a security.”

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