SEC approves submission calculator despite objections

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The Securities and Exchange Commission approved a tool that would more visibly track the timeliness of secondary market disclosures despite stakeholders’ disapproval.

The SEC announced late Tuesday that it had approved the “submission calculator” rule change, saying it would protect investors while preventing fraud and manipulative acts and practices. The new tool will be displayed on the Municipal Securities Rulemaking Board’s EMMA site.

“The Commission believes that the changes to the EMMA Portal contemplated by the proposed rule change would promote the protection of investors and the public interest by increasing their awareness and understanding of the type and timing of financial information available in the municipal securities market, which could enable investors to make more informed investment decisions,” the SEC wrote.

Rebecca Olsen, director of the SEC Office of Municipal Securities

The MSRB proposed an amendment late last year to EMMA Information Facility IF-3, which outlines the basic functions of the EMMA site. The change will not require more work from issuers.

The calculator will show the number of days between the posting of an annual financial disclosure and the end date of the financial period. The calculation would be triggered once the submission is made to EMMA.

Muni market groups have said the calculator could lead to submission errors and investor confusion. Groups were also upset that the MSRB did not reach out for input before proposing the rule change.

Despite concerns from stakeholders, the SEC believes the benefits offset the potential downside. The rule change would also not have a negative effect on capital formation and does not impose any burden on competition, the SEC found.

The SEC has encouraged municipal issuers to provide timely and accurate information to investors. The SEC said in its approval order that the timeliness of disclosures is a “major challenge” in the secondary market for municipal securities.

Rebecca Olsen, director of the SEC Office of Municipal Securities, discussed the calculator at a Government Finance Officers Association conference late last year, pushing back against criticism of it.

The new feature will 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 will 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.

“By promoting transparency and awareness of the timing of annual financial information, the proposed rule change could enable more efficient analysis by investors and others of the age of the financial information available about an issuer and its securities,” the SEC said.

The SEC received five comment letters last year asking for the calculator to be withdrawn. The National Association of Health and Education Facilities Finance Authorities said errors would be inevitable.

The National Federation of Municipal Analysts said submission errors are already frequent in the EMMA system, posing a high risk that a meaningful number of calculations will be based on inaccurate information.

GFOA was concerned that some issuers would be unfairly judged by investors that information may not be timely when it is submitted as quickly as possibly and within the timeframe noted in its continuing disclosure agreements — a contract under SEC Rule 15c2-12, of the issuer to the investor.

The SEC said the MSRB addressed those concerns in a letter it posted earlier this month.

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MSRB rules SEC regulations Municipal disclosure Secondary market GFOA MSRB SEC NFMA
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