While the Securities and Exchange Commission
That was the message from Dave Sanchez, director of the Securities and Exchange Commission's Office of Municipal Securities, speaking Tuesday at a virtual disclosure conference hosted by XBRL US.
"Having joint standards that are as uniform as possible is obviously a great goal, but then ... what is the practical reality of making this happen?" Sanchez said.
The rulemaking process for the FDTA, legislation signed into law in December 2022, is a two-step process. The first step was the joint rulemaking process involving the SEC and nine other federal agencies to establish joint data standards. As a second step, the FDTA directs most of the agencies, including the SEC, to issue agency-specific rules implementing the final joint standards.
The principles have carve-out language and allow for various exceptions, and regulators have the authority to create long phase-in periods as well as identify which disclosure should be standardized and which market participants — it applies to issuers, municipal advisors and broker-dealers — should go first.
Tailoring a provision that mandates the use of a legal entity identifier, or LEI, will be particularly important, Sanchez said. Market participants have already
The point of the LEI is to make it easier for investors to know where their exposure is, Sanchez said.
"That works fairly well or really well in the corporate market. But when you get to muni credits, it could actually be the opposite," he said. "Because you have these situations where you might have LEI identified with a major city, but the credit someone actually owns is a slice of a very specific tax," he said.
"I think you have some really big challenges trying to put that system into munis — that doesn't mean that it can't be done, but I think you have some really big challenges trying to do it," he said.
"There's a variety of carve-out language we can use if something is not working for our particular market," adding there is a "fair amount of flexibility" when it comes to implementation.
The FDTA rule will also need to general enough to adapt as artificial intelligence reshapes the market.
"The big issue is not so much writing a rule for where we are today or where we are exactly two years from now or whenever this final rule is finalized," Sanchez said. "It's really building in that flexibility to make sure that we're not locking in something completely unnecessary."
While the rulemaking process as outlined is a two-step process, it may end up taking more time, Sanchez said.
"I actually think it'll end up being a three or more step process," he said.
The next phase is the SEC-specific rulemaking for municipal securities, "which I would say is phase two," he said. The rule will then require one or more Municipal Securities Rulemaking Board rules to implement, he said. "So we finished step one, but we've got at least two more steps to go, and maybe more before this thing is fully realized."
Meanwhile, Sanchez
"What would you think if we did a five-year phasing period? Or what would you think if the first people that had to report were states?" he said. "That preliminary conversation is going to be really important in order to get to the secondary conversation that again is more focused for everybody."
