Wide array of industry groups seeks collaboration, not regulation

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Lisa Washburn, managing director at Municipal Market Analytics spoke during a virtual panel Monday afternoon.

A wide array of muni market leaders are hopeful that their efforts will inspire more disclosure without a need for strict regulation and future rulemaking.

During the second annual Government Finance Officers Association MiniMuni virtual conference, issuers, broker-dealers, securities lawyers and analysts agreed that working among groups to promote disclosure in the municipal market is a better option than the creation of more rules.

“More regulations will only impact everybody most likely in a negative way,” said David Erdman, Wisconsin’s public finance director.

More regulations could also harm smaller issuers’ desire to participate in traditional markets, he said.

“My concern is that if there are more disclosure requirements that are placed on us through regulations, you’re going to see a lot of smaller issuers that are going to throw their hands up and simply say, I just can’t access the public markets anymore,” Erdman said.

A diverse range of major market groups signed onto a broad-based disclosure principles document in late August, a feat since disclosure has often divided issuers and analysts.

Those groups, part of the Disclosure Industry Working Group, which includes bond lawyers, issuer officials, analysts and municipal advisors, released a recommendation paper to provide guidance to issuers on timely disclosure, especially during the pandemic.

The recommendations reminded governments of their current disclosure requirements, noting that the Securities and Exchange Commission did not suspend disclosure filing requirements during the COVID-19 pandemic. The group encouraged good investor relations to facilitate widespread, fair access to information provided to individual investors.

The group also referenced SEC Chair Jay Clayton’s statement from May that encouraged issuers to provide forward-looking information about COVID-19.

Erdman emphasized that some issuers need to understand that disclosure doesn’t end in the primary market and needs to continue in the secondary.

“Part of what’s important for us as the municipal market industry is to work on to further explain that municipal bonds aren’t the end of the process,” Erdman said.

Lisa Washburn, managing director at Municipal Market Analytics, said now more than ever, more disclosure is needed.

“I’m hopeful that with the work this group has done as well as some of the guidance from the SEC really sets us up for moving that ball forward for getting to see more frequent and regular information from issuers so you’re not left wondering what is going on between audits,” Washburn said.

The panelists also predicted ESG (environmental, social, governance) issues and cybersecurity will be major topics in 2021 for the working group. Erdman prefers for the SEC’s Rule 15c2-12 to stay the same as they parse through cybersecurity and ESG disclosure.

Washburn said issuers tend to use Rule 15c2-12 as a checklist. Instead, issuers should think about it more broadly. The rule lays out the types of information underwriters must confirm issuers have agreed to disclose on an ongoing basis.

The National Association of Bond Lawyers also announced Monday that it plans to release a paper for its members on how to craft disclosure procedures in regards to Rule 15c2-12’s newer events.

Those events involve financial obligations. Event 15 says issuers have to disclose when they incur financial obligations, if material, as well as agreements to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer that could affect security holders. Event 16 says that in connection with those financial obligations, issuers have to disclose events which "reflect financial difficulties," such as a default or modification of terms.

NABL said that paper will be released before the end of the year.

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