Why some think MSRB selective disclosure advisory has been harmful

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PHOENIX - The Municipal Securities Rulemaking Board's notice warning issuers against disclosing information to select investors may be making it more difficult for analysts to get the information they're looking for on municipal securities.

Some buy-side analysts feel that the MSRB’s September 2017 market advisory on selective disclosure, in which the board warned that issuers sometimes inadvertently reveal information to investors that is not publicly-available, has actually harmed muni market disclosure and become an obstacle in their work.

Others are less certain that the MSRB’s notice is responsible, but still note a drop in the willingness of issuers to share information with analysts as they have long done over the phone and by email.

Joseph Rosenblum, director of municipal credit research at Alliance Bernstein, said he isn’t aware that the MSRB’s notice specifically has created a problem.

“I say that with the caveat that there is a steady increase in the number of issuers who won’t talk,” Rosenblum added.

Rosenblum said that it has been common for analysts like him to call issuer officials to ask for clarifications about information that is available or to ask about the availability of data they can’t find. Some issuers will provide him with that information. But other issuers have told him that they don’t want to selectively disclose information, and directed him to submit his questions in writing so that the answers can be posted publicly for all to see.

A fixed income asset manager who requested not to be identified said that while the MSRB didn’t intend for the market advisory on selective disclosure to discourage issuer-investor communication, the practical result is that it has.

In several instances, in both primary and secondary market scenarios, analysts at the asset manager’s firm have been told by an issuer that it doesn't want to engage in one-on-one communication because of the MSRB’s notice. The result is that, not only have institutional investors been handicapped, but retail investors have as well, the asset manager said. Analysts are being given less opportunity to find and help correct shoddy disclosure.

Further, the asset manager said, the MSRB has done a poor job of articulating who this market advisory has helped or why it was necessary.

MSRB Executive Director Lynnette Kelly acknowledged that the board has heard the concern that its market advisory has created a chilling effect on disclosure. But she said the board’s comment on selective disclosure was never intended to discourage issuers from communicating with investors and that the board has gotten positive feedback on the piece from multiple sectors.

The advisory was meant to be “a very positive reminder” about inadvertent sharing of non-public information, Kelly said, adding that the advisory stated explicitly that it was not meant to discourage communication between issuers and investors.

“We’ve also heard from numerous people that were pleased,” Kelly said, including a regulator, issuers, and bond lawyers.

MSRB general counsel Michael Post pointed out that the National Federation of Municipal Analysts and the National Association of Bond Lawyers have both issued papers discussing selective disclosure in the municipal market, including its potential pitfalls such as insider trading liability if an investor were to trade on non-public information.

But federal laws and regulations are what they are, Post said, and there is no reason for the MSRB’s comment to make anyone feel more chilled about talking to investors.

“Our piece didn’t change the rules,” Post said.

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Securities law MSRB rules Municipal disclosure MSRB NABL NFMA Washington DC