Dealers will have to submit bidding information and program documents for auction-rate securities and variable-rate demand obligations in nine months under an expansion of the Municipal Securities Rulemaking Board’s transparency system for short-term debt, approved by the Securities and Exchange Commission late last week.
The additional transparency comes nearly three years after unprecedented tumult began for short-term muni debt, ultimately causing the ARS market to collapse, followed by temporary spikes in interest rates for VRDOs. In response, banks sharply reduced their supply of liquidity facilities that back VRDOs while simultaneously raising prices for them and demanding more favorable terms from issuers.
The additional bidding information and program documents the MSRB will collect come on top of the basic reset information dealers must submit to the board through its short-term obligation rate transparency, or SHORT, system, which is displayed on the MSRB’s EMMA site.
Though the ARS market collapsed in early 2008, there are roughly $70 billion of municipal ARS still outstanding that have consistently failing auctions, according to recent estimates, as well as more than $400 billion of outstanding VRDOs. Most of the remaining muni ARS was issued by nonprofit student-loan lenders.
Under the SHORT expansion, which the board proposed to the SEC in March and amended last month, dealers would have to submit bidding data for ARS in a set of individual data points to “better facilitate data analysis and the computation of statistics, such as a bid-to-cover ratio, that would provide meaningful information about the demand for specific ARS.”
Dealers also would have five business days, rather than the originally proposed one business day, to commit their best efforts to submit new or amended version of documents for VRDO liquidity facilities such as standby bond purchase agreements and letters of credit.
They also would have to report the identities of VRDO tender agents and the par volume of unremarketed variable-rate bonds that are held by liquidity-providing banks. Though dealers warn they may be unaware of this information, they will be required to report what they are aware of at the time of interest-rate resets.
For existing VRDOs, dealers will have 90 days to submit program documents for existing ARS and VRDOs.
“Bidding information for auction-rate securities allows investors to better understand liquidity and depth of the market, and liquidity facility documents provide key information about the support available for variable rate securities,” MSRB executive director Lynnette Hotchkiss said in a release. “Free access to this data is essential so that retail investors can evaluate the benefits and risks.”
The SEC last week also approved MSRB changes to EMMA to reflect new materiality standards for continuing disclosures as well as changes to a list of event-based disclosures that borrowers may voluntarily submit to the system. The proposal is to take effect on or before Dec. 1, the effective date of related SEC amendments to its Rule 15c2-12, which bars dealers from underwriting municipal securities unless issuers have contractually agreed to make continuing disclosures.
The MSRB Monday also announced improvements to the search capabilities of EMMA designed to help investors more easily locate muni data and documents on the site. Investors can now conduct searches for real-time trade data for up to a month rather than just for a single day, allowing for review of data over a particular time period.
