The National Federation of Municipal Analysts plans to push the Securities and Exchange Commission to require issuers to use the Central Post Office disclosure facility to transmit their secondary market bond-related disclosure documents to repositories, Eric M. Friedland, the NFMA’s new chairman, said in a recent interview.
The NFMA also plans to develop a policy paper that will recommend what information municipal issuers should disclose to the marketplace in the wake of a disaster such as Hurricane Katrina, as well as when and how that information should be disclosed, said Friedland, a director at Financial Security Assurance Inc. in New York, as he outlined the group’s agenda for the year.
In other action, the group plans to complete a policy paper recommending how the federal securities laws should be interpreted and applied to muni issuers that release bond-related information. It also expects to develop or update papers recommending best disclosure practices for bond insurers and swaps as well as for the dissemination of information by issuers and borrowers. In addition, the NFMA disclosure committee is discussing the idea of developing a paper on mass transit as well, but has not made any decision yet.
Apart from the papers, the NFMA also expects to unveil its Gateway project, an Internet site that will post links to state and local muni issuers’ bond-related financial and socio-economic information. The site will include links to information for hospital, airport, transit, and other such systems, as well as governments, Friedland said.
The NFMA feels strongly about making the CPO mandatory because it is necessary to “eliminate filing redundancy and incomplete recordkeeping” by the nationally recognized municipal securities information repositories, or NRMSIRs, Friedland said in the interview. “Although the usage of the CPO is increasing, it’s not as widespread as we’d like it to be,” he said.
Friedland talked about making use of the CPO mandatory just before Mary Simpkins, a senior special counsel in the SEC’s Office of Municipal Securities, said publicly that the commission’s market regulation division plans to ask the SEC to approve an interpretation of its Rule 15c2-12 that would require universal use of the CPO.
The CPO, which was developed by muni market groups and is run by the Municipal Advisory Council of Texas, is supposed to serve as a one-stop filing place for issuers and eliminate the inconsistencies in the way documents have been filed and stored at the four NRMSIRs. It is supposed to help issuers by providing them with a tickler system that will warn them when filings are due and by giving them receipts showing their filings were received. It should help investors by providing an index of all the documents sent to the NRMSIRs.
Issuer officials generally have opposed making use of the CPO mandatory. But members of the Government Finance Officers Association’s governmental debt management committee said at a meeting in January that they might recommend the SEC require use of the facility on a phased-in basis, to give smaller issuers more time.
Friedland said that while he has not discussed the idea with GFOA members, he would like to do so. “I think the way to move forward with this is to have a dialogue with representatives of the SEC and market groups like GFOA,” he said. “It would be good to see what common ground there is.”
The NFMA decided to develop the white paper on disaster recovery, Friedland said, because “we haven’t seen anything like this out there” and “we think this is something that could serve as a good tool for analysts and municipalities.” He said he hopes the paper can be drafted and released for public comments before the end of the year.
The NFMA wanted to write a white paper or policy paper on the securities laws because “there’s been some confusion as to how issuers or bond counsel apply the securities law when disclosing information to investors,” Friedland said. Some issuers and lawyers have tried to use the SEC’s Reg FD, which stands for fair disclosure, “as a shield for borrowers not to answer questions from analysts,” he said.
The regulation, which was designed to prevent publicly traded companies from selectively disclosing information to favored investors, requires companies to disclose material information to all market participants at the same time. Tom Weyl, vice president and manager of the municipal research group at Eaton Vance Management in Boston, is heading up the project to develop a white paper on the impact of securities laws on disclosure, and plans to work closely with attorneys on this paper, Friedland said.
The impetus for the NFMA to make disclosure recommendations for bond insurers stems from the fact that “the bond insurance industry has become a significant part of the municipal market,” Friedland said. “At least 50% of all municipal bonds are insured so it’s important for municipal bond analysts to get as much information as they can from the bond insurers,” he said. The subcommittee heading up that effort is co-chaired by Sara Kisner, a municipal analyst at A.G. Edwards & Sons Inc. in St. Louis, and Greg Aikman, a vice president at Mellon Private Wealth Management in Boston.
The paper on the dissemination of disclosure information will focus on how to “improve the mechanics of the distribution of disclosure information” and will probably include recommendations that issuers use the CPO to transmit secondary market disclosure documents to the NRMSIRs and make more use of their Web sites to disclose information to the market, said Gerard “Gerry” Lian, an executive director at Morgan Stanley Investment Management in New York and former NFMA chairman, who is co-chairing the subcommittee writing the paper along with Alex Fraser, a director at Standard & Poor’s Corp. The group hopes to have an exposure draft of that paper ready to put before the NFMA board in May, so that it can be released for public comment, Lian said.
Friedland said the NFMA also plans to update a white paper on swaps and other derivatives that it released in May 2003. “The swap market has changed quite a bit over the years,” he said. “There are different types of derivative instruments out there and because of that there are different things that need to be disclosed. We thought the paper needed to be updated to reflect the changes,” Zahra Afkari, a director at the Royal Bank of Canada in New York, is heading up that project.
The NFMA also plans to survey members on whether they think some sort of program should be developed by the NFMA or another entity to certify analysts. “It’s very exploratory,” Friedland said. “Creating this type of program would be expensive and time-consuming. We didn’t want to put the cart in front of the horse if our members weren’t interested in this,” he said, adding, “There hasn’t been widespread interest in this” to date.
Friedland is a transportation and utility bond specialist at FSA, focusing on securities issued to finance water, sewer, electric, airport, and toll road systems in the Eastern region of the country. He also has had experience with the tax-backed, redevelopment, assessment, higher education, and lease-backed financing sectors. He has been with FSA since 1993, first at its office in New York, and then at its office in San Francisco for seven years, before moving back to New York in late 2004.
Before joining FSA, he was a senior analyst at Moody’s Investors Service, where he was responsible for muni ratings in the Far West region and prior to that he was a financial analyst in the muni bond trading department at Salomon Brothers Inc. He began his career as an auditor at Ernst & Whinney in New York. Friedland holds an MBA in finance from the Fuqua School of Business at Duke University, a master’s in professional accounting from Northeastern University, and a bachelor’s degree from the State University of New York in Albany.
