Dealers say repeat data leaves more room for error in MSRB form
WASHINGTON — Requiring more data from underwriters about new issues of bonds creates the potential for more human error, the Securities Industry and Financial Markets Association told the Securities and Exchange Commission.
SIFMA's comments came in a May 2 comment letter filed with the SEC. In March, the Municipal Securities Rulemaking Board filed for SEC approval of rule changes that would require underwriters to manually input certain information about new offerings of bonds onto Form G-32 under Rule G-32 on disclosures in connection with primary offerings. SIFMA said to manually input the data would require more time, force dealers to amend or create new policies and procedures, and demand more time for quality-checking and more staff.
Leslie Norwood, SIFMA managing director, associate general counsel and head of municipal securities, said that the biggest issue is the time the new requirements would demand. Norwood said that the data the MSRB wants manually-entered is already in the official statement, which is produced and vetted by the entire deal team.
“There’s high confidence in that data," Norwood told The Bond Buyer. "When we’re talking about inputting fields into back-office systems, it’s naturally done by operations clerks. One person does that, not a team of people. As a matter of fact, it is riskier in terms of making sure your data quality is as good as possible.”
The new amendments to Rule G-32, if approved, would provide for some of the new data to auto-populate from the New Issuer Information Dissemination Service (NIIDS) onto that form.
The NIIDS system, developed by the Depository Trust Company at SIFMA’s request, collects information about a new muni issue from underwriters or their representatives in an electronic format and then makes that data immediately available to vendors that provide such information to market participants.
Form G-32 is submitted to the MSRB by underwriters and provides information about a new issuance, such as the underwriting spread, maturity date, initial offering price, minimum denomination and more. Under the proposed amendments, MSRB will ask for dealers to provide the minimum denomination of a new issue and to indicate yes or no on whether a minimum denomination is subject to change. The MSRB will also require data on names of additional managers and municipal advisors in a deal. Currently, the data only shows syndicate managers.
In the past, the MSRB has said adding more information to it would increase transparency and equal access to information. SIFMA said that since the MSRB already has the data in official statements on EMMA,it shouldn’t “shift the burden to regulated entities.”
“SIFMA would also like to point out that these data fields would not be particularly helpful to investors should they be publicly disseminated in the future,” the group said. “Their dissemination could have the effect of discouraging investors from reading the official statement and missing other important information relevant to them, that the MSRB surely does not want.”
If the MSRB is going to require underwriters to input more data, SIFMA said it must find the least burdensome way possible. SIFMA suggested a bulk uploader like the Depository Trust Company or the Financial Industry Regulatory Authority already provides.
As for specific data on the Form G-32, SIFMA has been supportive of the voluntary collection of legal entity identifier, and wants more clarity from the MSRB about when an LEI must be provided. LEI identifies a particular party, as opposed to a security and has been gaining traction in the swap market and in transactions in Europe.
Yet, SIFMA told the SEC that obtaining that LEI through a search engine can be futile since thousands of results appear over several pages of search results and can be time-consuming to identify them.
“For example, in multi-family and senior-living deals, or other deals where a special purpose entity set up to be the borrower, a separate LLC is set up for every transaction," SIFMA writes.
SIFMA also asked the MSRB to release specifications on the methodology for inputting data before requiring additional data fields.
“It can be made easier or more difficult depending on how the implementation goes,” Norwood said. “Is there a drop down box, is there a checkbox versus a yes, no? There are definitely preferences in terms of ease of use among the operations professionals.”
SIFMA also wrote in its letter that it supports the amendment in Rule G-11, on primary offering practices, requiring a senior syndicate manager to communicate, at the same time, to all syndicate and selling group members when the issue is free to trade.
The group wanted to make a technical correction to Subpart (k) for Rule G-11 on primary offering practices, which governs the retail order period representations and requires disclosures.
Currently, the subpart requires dealers who submit orders during a retail order period provide those representations and disclosures “from the end of the retail order period but not later than the time of formal award.”
However, dealers submit earlier than the end of the retail order period, which is not technically within the four corners of the time frame specified in the rule, SIFMA told the SEC.
SIFMA suggested the rule be amended to require the representations and disclosures simply be made by the time of the formal award.
“The best time for the investors to get the representations and disclosures is when they’re in communication with the dealer and putting in the order,” Norwood said. “So we want to make sure that the rule permits that at the appropriate time.”