WASHINGTON - The Securities Industry and Financial Markets Association strongly supports the Municipal Securities Rulemaking Board's proposal to collect and publicly disseminate information about auction-rate securities and is urging the board to launch the site as soon as possible, even if the technology to capture the data is still under development.
"We believe it is very important to provide information to the market on the outcome of auctions, and SIFMA encourages the MSRB to establish a Web site for this purpose as soon as possible," Leslie Norwood, SIFMA managing director and associate general counsel, told the MSRB in a seven-page letter released yesterday. "The ability to access increased data on auction rate securities is extremely useful for market participants, especially in the current period of market dislocation."
SIFMA's views differ sharply from those of the Regional Bond Dealers Association, which told the MSRB Monday that it does not make sense to create a system now because the auction-rate securities market appears to be dying.
Michael Decker, RBDA's co-chief executive officer, said yesterday that if the MSRB had created such a system three or four months ago, it probably would have eased the turmoil in the market.
However, he said: "There's something like $60 billion of municipal auction rate securities that have been taken out [of the market] already and that trend is continuing. If that's the trend, does it really make sense to invest resources and a new system to support this product sector? If we're wrong, and there's a resurgence in the use of auction rate securities, then the MSRB's right on track and this is something that ought to be pursued."
In its March 17 notice asking for comments on the proposed ARS system, the MSRB said that it would expect ARS program dealers to form agreements with third parties such as auction agents, or designate vendors, to provide rate reset and bidding information to the MSRB. The board listed specific items that should be submitted.
But Norwood told the MSRB that SIFMA "recommends that the proposed Web site be developed to receive information directly from issuers or auction agents," because they are responsible for obtaining that information. However, if the MSRB insists program dealers collect and submit information that they cannot verify, "the program dealers should not be legally accountable for the accuracy of the information," Norwood said.
Additionally, she pointed out that, unlike primary muni bond offerings where one dealer typically is designated managing underwriter, ARS deals may have multiple program dealers with none playing a lead role. If program dealers are to submit ARS information, "they should be able to designate one program dealer to act as a 'manager' for all of them for purposes of complying with the proposed rules," she said.
Norwood said that program dealers could be responsible for providing much of the reset rate information, such as Cusip numbers, the names of the dealers in the program, the number of days of the reset period, the minimum denomination, the date and time of the auction, the interest rate for the next reset period, and the dollar amount of securities being auctioned. Most of this information could be obtained and submitted at the start of an ARS program and would not have to be resubmitted on the date of each auction, she said. If any of the information changes, it could be resubmitted.
However, program dealers should not be legally responsible for determining whether the clearing rate is the "maximum rate," the "all-hold rate," or the rate "set by auction," she said, because the auction agents typically make those determinations.
Norwood suggested that since the Securities and Exchange Commission's March 14 guidance for issuers seeking to bid in their own auctions requires the issuers to disclose bidding information, the MSRB may also want to obtain that information from issuers. This would include the number of bidders, the par amount of securities for sale in the auction, the number and aggregate dollar amount of bids made, the number of bidders, and the bids that are high, low and median. The MSRB also is asking for the number, interest rate and amount of bids made by the issuer, conduit borrower, or program dealer for its own account.
Norwood also asked the MSRB to move the deadline for submission of information from auctions to 6:00 p.m. from 5:00 p.m. Eastern Standard Time to accommodate auctions in other time zones. In addition, she said the MSRB should not collect program documents because the official statements for auction rate securities already contain extensive summaries of the underlying programs.
