NFMA calls for SEC to take action on issuer disclosure

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WASHINGTON — Issuers need to disclose more information on a continuing basis and the Securities and Exchange Commission needs to provide interpretative guidance to make that happen, said the National Federation of Municipal Analysts.

In a letter sent to the SEC and the Municipal Securities Rulemaking Board late last week, the group said lapses in issuer financial disclosures in the secondary market are unacceptable and are inconsistent with more timely and robust disclosures investors are accustomed to in equity and corporate bond markets.

“The current state of disclosure is unacceptable,” NFMA Chair Scott Andreson told The Bond Buyer. He cited Puerto Rico defaults, saying that since then disclosure hasn’t changed. “It hasn’t gotten better, it’s gotten worse.”


The NFMA requested that the Commission provide interpretive guidance, updating a previous one published in 1994, which said “municipal issuers reportedly resist developing a routine of ongoing disclosure to the investing market because of concerns about the costs of generating and disseminating that information and potential liability relating to such disclosure.”

NFMA asked for the SEC to provide guidance for types of information it would consider valuable to improving disclosure with assurances that support a flow of information and communication with investors. It also wants the SEC to put out interpretive releases on a regular basis.

NFMA said the lack of official guidance from the SEC since 1994 has resulted in a permissive stance in the secondary market, with some issuers being advised by counsel to limit public disclosures and interactions with investors.

“Many issuers continue to file financial reports long after the close of their fiscal years and resist making timely continuing disclosures affecting publicly-issued debt because of concerns about the costs and potential liability relating to such disclosure,” NFMA said.

The market has since become status-quo oriented, said Bill Oliver, NFMA industry and media liaison.

“The absence of any comment by the SEC has allowed people to interpret things in their own way and that has been going on for the last 25 years,” Oliver said.

Currently rating agencies can call issuers for information, and Andreson said investors have a harder time getting that same information.

“You know the information is out there and it’s just very difficult to get it in a timely manner,” Andreson said. “It’s unlike any other fixed-income asset class out there. Things just need to change and improve.”

Corporations that issue securities in the municipal market via conduit issuers provide less timely and complete information for municipal investors on MSRB’s site EMMA than on the SEC’s EDGAR, the group said. The inequity could be remedied by requiring corporations with muni securities to file contemporaneously to EDGAR and EMMA, the group suggested.

The group also pointed to the wholesale electric, hospital, private higher education and toll road sectors, which have a reporting time of less than 120 days. For state and local governments, the slowest median financial audit completion times were between 169-179 days. Those numbers for municipalities have rarely changed over the years, Oliver said.

NFMA would like to see those times reduced. NFMA also asked for unaudited financial information to be disclosed, particularly in the context of a government with component units that produce a CAFR, the group said.

Currently the Tower Amendment prohibits the SEC and MSRB from requiring issuers to file municipal securities documents before bonds are sold. Late last year SEC Chair Jay Clayton indicated that the SEC may be looking to take additional steps to improve disclosure in the municipal market, saying he believes there are steps it and the MSRB could take and still be consistent with the Tower Amendment.

NFMA also asked the MSRB to use EMMA to improve how data is captured and categorized. The EMMA system was supposed to replicate the EDGAR system, Oliver said. EMMA has become an important utility, but finding information on it is difficult, Oliver said.

In the letter, the NFMA suggested linking bonds not only by its issuing entity but by its obligor and project, standardizing sector classifications to make it consistent with industry standards, creating quality assurance procedures, providing a mechanism to identify active material events and providing greater transparency on the currency of audit filings.

Market participants have asked for these things in the past, and the MSRB recently said it would be improving EMMA’s search capability.

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Municipal disclosure Munis Securities law Law and regulation Jay Clayton SEC MSRB NFMA Washington DC
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