The Municipal Securities Rulemaking Board's proposed access-equals-delivery system would require dealers to "undertake an enormous amount of expense" to accommodate customers' standing requests for paper copies of primary offering documents, the Securities Industry and Financial Markets Association is warning.
In a comment letter filed Sunday with the Securities and Exchange Commission, SIFMA, which supports the system, said that it nevertheless believes dealers should only be required to provide investors with paper copies if they are requested to do so on a transaction-by-transaction basis, to conform with corporate disclosure practices.
"If MSRB requires broker-dealers to change their systems to accommodate an investor's standing order for paper documents, broker-dealers will be forced to undertake an enormous amount of expense to accommodate a limited number of retail investors who neither want to receive documents electronically nor ask for paper copies on a transaction-by-transaction basis," wrote Leslie Norwood, SIFMA's managing director and associate general counsel.
"The costs of this requirement seem to far outweigh the perceived benefits, and will delay or prevent issuers and other market participants from achieving the cost savings anticipated by the implementation of 'access equals delivery.' "
The proposed access-equals-delivery system will allow dealers to electronically post primary market disclosure documents through the MSRB's EMMA site in lieu of having to send paper copies to customers, unless paper copies are specifically requested.
Under the MSRB's proposal, dealers asked to provide paper OS' would be required to send them within one business day of the request and also would be required to honor a customer's "explicit standing request for copies of official statements for all of his or her transactions with the dealers."
In an interview yesterday, MSRB general counsel Ernesto Lanza said the board believes requiring dealers to honor standing requests for paper copies is the "right decision," and has long been a part of the MSRB proposal.
"Perhaps some dealers didn't prepare for it, but hopefully most of them have prepared all along and have put in place appropriate policies and procedures," he said.
In its letter, SIFMA also reiterates its call for "straight-through processing" of information that dealers will need to submit to both the MSRB as part of access-equals-delivery and to the separate New Issue Information Dissemination System, or NIIDS, that is operated by the Depository Trust & Clearing Corp.
Specifically, SIFMA would like the MSRB to use the outbound information feed from NIIDS to "pre-fill" Form G-32 used for the access-equals-delivery system, or AEQ, no later than 90 days after the SEC approves the AEQ rule change.
Since NIIDS is designed to improve the timeliness and accuracy of information about new muni securities that are submitted to market participants, it makes no sense for dealers to have to submit the same information multiple times, Norwood said in an interview.
"The industry put a lot of time, effort, and money into developing the NIIDS system and the hope was that it would be used for other regulatory clearance and settlement purposes than the narrow trade reporting issue that precipitated its development," she said.
Lanza agreed that straight-through processing is an "important thing to do," but said the MSRB staff are swamped with the roll-out of several primary and secondary market disclosure projects. Making AEQ submissions more efficient is a top priority but would not occur within 90 days of SEC approval of the rule change, he said.
Lanza added that the board would do its best to give the market as much notice as possible ahead of the implementation of AEQ, though he could not promise the full 30 days requested by SIFMA. The board had originally sought a May 11 start date, but delayed it last week, citing filing and approval delays.
