Municipal market groups have mixed views about a Municipal Securities Rulemaking Board proposal to require underwriters to file preliminary official statements online over the EMMA system.
Groups representing dealers said they support measures to improve transparency but raised various concerns, while the National Association of Independent Public Finance Advisors said the plan would probably not benefit the muni market.
Other groups, like the National Federation of Financial Advisors and the Investment Company Institute praised the proposal, while the Government Finance Officers Association urged that issuers retain authority to make filing decisions.
The proposal, outlined in a December “concept release,” would require underwriters to post POS’ online by the end of the day they receive them from issuers. It would let issuers restrict underwriters from posting the documents.
The MSRB sought comments on the proposal and asked questions about costs and benefits, and if municipal advisors rather than underwriters, should be required to post POS’ in competitive transactions. It also asked if smaller issuers should be excepted from such requirements.
The Securities and Exchange Commission’s Rule 15c2-12 requires underwriters send POS’, if available, to investors upon request and the MSRB lets issuers voluntarily file POS’ on EMMA, though board officials say few do so.
NAIPFA’s letter, signed by president Jeanine Rodgers Caruso, questioned whether the plan would improve investors’ access to timely information and called for a “comprehensive quantitative analysis.”
Underwriters already make POS’, if prepared, available to customers, and many underwriters and issuers post POS’ on their web sites, where customers are most likely to search for them, Caruso said.
“NAIPFA is not convinced that simply requiring underwriters, and potentially municipal advisors, to post POS documents to EMMA will increase investor participation,” she wrote in her letter.
Caruso said the real barrier retail muni investors face is from dealers, which cater primarily to institutional investors and lack the retail client base or interest to make significant retail sales.
“NAIPFA does not believe that any lack of participation is the result of a lack of access to information,” the letter said. “Issues which may exist in the market with respect to retail investor access is the result of the business structure of the broker-dealers who engage in the underwriting of municipal securities,” NAIPFA said.
NFMA and the ICI disagreed, calling the plan a cost-effective solution to ensure all investors have timely information needed to make investment decisions.
NFMA’s letter, signed by William Oliver, its industry and media liaison, said POS’ are not widely available on issuers’ web sites and that the MSRB should not give a small-issuer exception because “infrequent issuers are often the subject of greater disclosure problems for investors.” NFMA supported requiring MA be responsible for posting POS’ in competitive issuers.
ICI’s letter, signed by Dorothy Donohue, its deputy general counsel of securities regulation, said the plan “would advance the MSRB’s long-standing goal of making information useful for an investment decision more easily available.”
GFOA has not yet filed its comments, but Susan Gaffney, a GFOA consultant and former head of the group’s federal liaison center, said underwriters should not be allowed to post POS’ without permission from the issuer. Information should be disseminated as quickly as possible, Gaffney said, but issuers should retain control of the process.
The Securities Industry and Financial Markets Association’s letter, signed by Managing Director David Cohen, said the fastest way to make POS’ available to investors is for issuers to post them voluntarily on EMMA. He called for educational outreach to issuers and, possibly, best practices calling for voluntary posting.
“We urge the MSRB to carefully weigh the incremental benefits to a small pool of retail investors that would actually review a POS on EMMA prior to the time of first execution of trades,” he wrote in the letter.
The MSRB should study the cost impact on dealers and on the technology budget of the MSRB, which must archive the documents, SIFMA said. In addition, the board should disclose information about the voluntarily-filed POS’ already on EMMA, such as how frequently the documents are viewed by users, said SIFMA.
SIFMA and Bond Dealers of America noted that POS’ sometimes become outdated due to changing market conditions or other factors. Stale POS’ could lead investors to purchase munis based on inaccurate information and expose dealers to liability, SIFMA said. BDA said it supports the plan only if it will not lead to more additional POS-related filing requirements for dealers.
“BDA is concerned that what seems to be a simple filing requirement ... may inadvertently lead to the imposition of additional responsibilities and the potential creation of further regulations,” wrote BDA Chief Executive Officer Mike Nicholas.
BDA and SIFMA said filing a POS on the same day it is received is overly burdensome, noting that final official statements must be filed by underwriters within one business day of receipt.