Transcript:
Announcer (
Thank you for joining us today. I'm Gera McGuire. I'm an associate managing director at Moody's Investor Service and on the panel today we have Donna McIntosh and she's an associate at Greenberg Traurig in the public finance and infrastructure practice. Her focus is public finance and she represents local government schools and state agencies in financing infrastructure and related projects in the many hats she wears. Donna serves as bond council underwriter, council borrowers council for state's, municipalities, transit and nonprofit organizations in the issuance of revenue and general obligation bonds. Next to Donna, we have William Kim, who is the Founder and CEO of MuniPro, where he leverages his expertise in municipal markets and financial technology to build artificial intelligence that enables data and productivity platforms for corporate and municipal bonds. Prior to founding MuniPro will spent many years as a public power investment banker at Wells Fargo and Merrill Lynch. Last but certainly not least, we have Gregg Beinstock, who is a senior vice president and group head of the municipal markets at Solve Fixed Income. Gregg is a former CEO and co-founder of Loomis and a frequent speaker on municipal market technology and compliance topics. He authors several articles on the current regulatory issues impacting the municipal market and the benefit of adopting technology to all of the municipal markets. So just kind of an introduction of what we're going to talk about today is we've gathered this group to really talk about on December 23rd the Financial Data Transparency Act or the FDTA was adopted. So happy holidays, but the ACT really directs certain regulatory agencies including the SEC to jointly issue, proposed rules for public comment that will establish new data reporting standards within 19 months of said enactment. But the new SEC rules will impact entities that post on EMMA proponents of the act believe it will make information collected, make it more what's in the public available to regulatory agencies and easier to access, analyze and compare by requiring those documents to be machine readable or in machine readable format. Similar to what is done for publicly traded companies through Edgar, the law only changes how the information is submitted. It doesn't actually change the disclosure requirements or at least as I understand it, and well it seems like the standards a few years down the road before it takes effect. There's obviously potential costs and we're going to talk about that some here today. We've all kind of been utilizing and hearing about artificial intelligence for a long time. I know at Moody's we realtime upload the filings through the MSRP and we take searchable documents, make them searchable and then look for specific words that we want to investigate further that are in some of those disclosures. So I think the market relative, relative events in the market are, or things that we're interested in may benefit from FDTA, but there's certainly a lot of unknown questions that we kind of want to think about here today and talk about here today. While the panel has prepared questions and answers, we really wanted hope hoped for an open dialogue, so please, please feel free to ask any questions. I should warn you if you're trying to make eye contact with us, we can't see, so raise your hand!
Gregg Beinstock (
Does anyone have sunglasses for us?
Gera McGuire (
But please feel free to interact as much as possible. So we'll get started. So I'm going to start with Donna because you accidentally sat next to me, but we'll get the guy's opinion on it. Can you just discuss the FDTA where we are right now with it and just kind of what happens now that this has passed?
Donna McIntosh (
Okay, so I think you gave a good intro into the ACT and what it's going to require now that it's passed, the SEC will work with other covered entities under the ACT to draft rules for reporting required information. As you said, this touches the municipal marketplace through Rule 15C2-12, which requires issuers and obligor's to report certain information on the M's B's website. While we don't fully know or know right now what the full impact will be to issuers until at least we see the rules, we can look towards the public market to see what could be coming down the road. Currently, public companies must file their information through XBRL reporting requirements, which is a structured data reporting requirement and it's likely that the information required under Rule 15C2-12 will also be required under to be submitted under a structured data format. So what is structured data? Supposedly it allows a more analysis, a greater analysis, and there's benefits to comparison across entities. It also provides more granular detail down to financial line items such as it can provide the accounting codification associated with that item. It can also give other general information. So that's what the FDTA is.
William Kim (
Yeah, so I think what I see is this kind of continuing trend in the marketplace where you're putting the cities, the counties, the states that make up this country into a corporate box and the corporate box is stuffed with trillion dollar companies who can handle the requirements of XBRL and requirements of structured data. But really they're putting all the onus on the issuer or as currently imagined it's put on the issuer. What we at Muni Pro propose is to flip the equation and have all of the onus be on either the regulatory agency at MSR or SEC and have just the basic digitization of the existing financials happen and that should comply with the letter and spirit of the law. Frankly, you have everything available to you. I would say I believe that XBRL being the existing standard for corporates makes it a very tough thing to stop, but we're trying to just say, Hey, what's already in the financials if we digitize the verbatim, that's stuff that's been checked by auditors produced by staff. It's got dozens of pairs eyes on it and is good to go from a GA fee perspective in terms of your accounting standards as well as the management discussion analysis. It's got everything in there, let's just take it verbatim, let's publish it, have it available to investors and whatever bodies that might be.
Gregg Beinstock (
I think maybe I'll approach this slightly differently. So first off, I think first of all, great summary and tell us what's there. The rules for Munis are slated for completion for four years and that's assuming everything goes according to plan. We'll see what happens there. And I think the point of fully searchable and machine readable, we've been, I think all been looking for something like that over the years. And so I do think, to your point, on the one hand digitization of everything, unlocking documents that exist today that are already filed and available, that's a good step. But as we look forward, I don't know if XBRL is the right answer and candidly I'd like to think that with the evolution of markets and technology that there is a better way. So where I go back to here is the importance of data standards and as I think about what's trying to be accomplished here, consistency in data where there's an opportunity for consistency. And I've said this a lot recently, which is the Muni market's just different. And I say it a lot because we were recently acquired. And so the folks that I'm working with now are principally outside the Muni space and so I keep reminding them, but when we think about the Muni space, what's most critical from a data standards is a taxonomy and having a consistent taxonomy. But what's important there is that we look at apples to apples when the apples are in fact apples. But we also recognize that there are going to be apples, oranges, and strawberries and blueberries and for every sector there's going to be something that's unique and different. And that's something that's really critical as we go through the process over the next four years. And as the SEC listens to us and the marketplace, I think it's really critical that market participants really speak their mind on this subject because we will potentially be stuck with this down the road. I think one of the other challenges that we're going to face here is where there are no regulatory requirements for data submission right now based on standards and Munies. All of a sudden there's going to be detailed data requirements and I do think there's going to be a need for potentially a need for reconciliation with the tower. And how do you go about telling municipalities, how does the SEC go about telling municipalities what it is they have to do when we have a tower amendment that exists? So I think there are some other challenges that we're going to confront along the way here and it'll be very interesting to see something that's clearly critical and important to the well functioning of our market. So it's always been about getting more information out to the market participants, but in a way that we could hopefully get to where I think the original intent of EMMA was in fact to be able to do that. But it's because of the difference between the corporate market and the muni market. Edgar and EMMA, while they're I guess siblings, they are different and in terms of what they deliver to us. The last piece, and this is a part that I think about as well, and a small, relatively small firm, we were a relatively small firm, we're sold relatively, I think small, but what's been put out there is that it has to be non-proprietary or open license. So whatever it is that's done here and what's concerning there is that there's a lot of really smart people out in the marketplace. There are folks who start up firms and doing really value-added things for our marketplace. But in terms of the resources to go ahead and try to tackle this problem and it's a big issue, it's a big matter, it's not a small piece and it's not going to be two guys in a garage or two people in a garage getting it done. I worry that by saying that everything has to be open, licensed and non-pro proprietary, is that going to discourage some people helping devise the proper technological solution from in fact putting their able to do that because they're not going to be able to monetize what it is they're doing. And it's just another piece of the puzzle here.
William Kim (
And I think to that point, I was on a call just the other week with IBM and a bunch of large corporations who are proponents of the existing XBRL system. You've got 15,000 fields that you've got to stuff all the munies into. And even though XBRL is an open standard and you've got other open standards out there that are license free, it's not actually free implementing it, it's going to cost a fortune. You've got to hire these extremely expensive consultants from big name firms like IBM and Microsoft, whoever. But also you have these huge vested interests in these offshoring firms who will hire folks in the Philippines and India to do your XBRL translation. And so what does that mean? It means additional costs for issuers and that translates to less firefighters, less teachers, less policemen. It is a real impact that it's going to happen to issuers around this country. And there's an enormous amount of dollars that are, it's estimated to, it's going to estimated to cost billions of dollars over the life of this thing to all the issuers in the country. And what we're proposing is let's not go with XBRL, which is free in it. It's supposedly free but not free in implementation. Let's go with actually digitizing all your stuff for free in just a regular format, which is just a standard data format, structured data format that almost every single thing on the web uses currently and actually have it be free. And to that end, MuniPro will be offering free tools to digitize all issuer financials to comply with the FDTA. And so hopefully that'll be a alternative to the expensive xbrl solution. We're actually going to make things free and we'll see it. It's going to be a couple years of implementation before it becomes settled in terms of how you submit all these documents. But I think getting ahead of the SEC's decision on what format to use will be incredibly important to reducing cost for around the country.
Donna McIntosh (
And I think we also have to remember that it's not just issuers impacted by this under rule 15C2-12, smaller non-profits that are the underlying Al Gores on the municipal debt will also have to somehow find a way to get these costs paid and comply with the rule. So even though there is a provision in the act that requires the SEC to make sure that they don't create a huge burden on small issuers and smaller entities, I still think it's something that a lot of smaller non-profits may not even see coming down the road.
Gregg Beinstock (
Yeah. Just on a related point, I'm just going to jump back cause you will have to give me an interesting point here, right? So we're four years out from potentially having something that have to do here, but the players who you know just spoke to who are involved, the IBMs and the others, I don't know, does anyone see them around here at this conference? Seriously, and when you think about, and we're going to get onto another subject in a moment where this will also be paramount and important is that I said it before, a Muni market is different. You got to know our market. If you want to play in the space, you got to know the market and IBM's got a ton of resources, but do they really understand the depth of our market? And I think whether what Will's approach, digitization is the way that they go is from my perspective is not as important as that. The people in the room who are involved in what becomes the governing rule for us or regulation, they actually know our market and not just more broadly fixed income. And I think that's really critical.
Gera McGuire (
Well, I'm going to go a little bit out of order, which I know all speakers love. But Greg, I wanted to, we started talking about the cost and all of that, and I just wanted to ask, we've got this ongoing challenge in our market, compressed spreads a need for issuers to do more and it creates this just natural tension with costs and in the meantime we're also seeing fewer human resources to access and manage that data. So just like how is your firm helping with that regard?
Gregg Beinstock (
So I think you start with the point. I think everyone is always cost conscious and I think the current environment, when you look just across our market, whatever position you occupy, whether you're a banker, whether you're on the trading desk or an underwriter or an issuer, especially in the current environment, cost becomes critical. And the flip side of that is we are all asked to do more candidly by our clients do more with less in terms of the resources. And then the third piece, the leg of the stool is the fact that there is simply more data available to all of us all the time and it's just increasing every day. I mean, you look at what's available on your phone a month ago, a year ago, two years ago, and what you have available today, it's just massive. And so the idea is how do you take all that data and create information and be responsive to your clients in a cost effective and efficient way? When we started our business, one of the core things that we focused on was the idea of the creation of an obligor database. And the critical aspect of the obligor database is to be able to map every issue, every issuer, every bond up to the obligated party level, and then to do proper sector designation and then next proper geolocation. And so the idea is to be able to map all kinds of data back to the obligated party or alternatively right down to the bond level for whatever purposes that you're doing it. So I think it's, for us, it's about that aggregation component and then it's about making data into information is the way I like to think about it. We've done a few things on the regulatory side. So 15 C2-12 was mentioned, that's something that we did. We've done, we continue to do something we do around retail time at trade disclosure as well. I remember the conversation sitting with a client long enough ago when she said, we have a bigger problem here, which is the examiner was just in and wants us to actually comply with this rule. And if we have to comply with it, it's going to take us about 20 to 30 minutes per trade. You know, guys do something with technology. And so we take that problem and you get it down, it's retail time and trade disclosure and you take that and you get it down to less than a second. That's what technology can do. And therein is the idea of being able to do more with less in terms of resources. And then it fast forward some of what we do. We do something similar as well in terms of a debt analysis, being able to literally type in an obligated party or an issuer and be able to just pull up all outstanding debt for that obligated party. If we could take away 90% of the work that the analysts had previously done, that's giving the limited human resources that you have a greater ability to get more done with less. And similarly, we've done something along the line, and this was really in response to a client's request on, hey, can you use technology to create indicative scales to give us a market read? We spend a lot of time back and forth, back and forth, back and forth, or creating an indicative scale for each market segment for our business. And that's eating up resources and how do you go about creating efficiencies? So I think as I think about the marketplaces, I think about the limited resources you all have. And when we started our business almost 13 years ago, it was how do you solve a problem that exists? And for better or worse between regulation and then economics general, the marketplace keeps giving in the sense that they keep asking for, help us more efficiently tackle a problem and address all this influx of data that's now available to us that we didn't have before. Long-winded answer. Sorry.
William Kim (
I think adding on to that, echoing those comments, you see more stuff on everyone's plate. And so when I talk to my issuer clients, they're extremely busy whenever an audit's coming up, but they also have constant budget reports and just board presentations. And so how do you use technology to really help that? On one side, like Gregg mentioned, we have full capital structures by credit, so a little tighter than the obligor view, but we also have now with our free FDTA financials tool, all the financials in. And so we tie that in to build out proform projections so that you know, don't have your budget only once a year when you're doing an audit, but actually at any given point you can see exactly what your financials going to look like, what's your coverage is going to look like. And so that really helps our issuer clients with budgeting as well as our FA clients who are really assisting multiple issuers at once. And on the banker side, they're always looking for the next deal, looking for the next refinancing or the new money structure. So we have all of that modeled as well. So I think where we help and Gregg and others is really leveraging the human component so you can do more with less as opposed to just being told, hey, do more and you get no resources. I think using technology kind of bridges that gap.
Gregg Beinstock (
Yeah. One other piece I just want to add. Cause on the, you brought up again the issuer point, right? I do think it's also at the end of the day providing tools so that an issuer can tell their story better, and that's really important. And so I'll give a shout out, I don't know if he's in the room, but Muni is a platform for example, that takes advantage of that they know what the buy side is looking for and so they're able to go ahead and help their issuer clients by getting their information out into the marketplace. And it comes down to it at the end of the day, it's the aggregation of information and then you said it, creating reports, telling the story. And any tools that can do that, whether it's what Will's doing or what those guys are doing or what others are doing, I think are really beneficial to the marketplace and there's a good opportunity for folks to do what they need to do in that regard.
Gera McGuire (
Okay. Well, I mean we talked about technology, but will more specifically, there's a lot of news about artificial intelligence like chat GPT, so it just rolls off the top. Where do you see AI specifically being helpful in the municipal market and how should issuers and market participants think about AI?
William Kim (
Yeah, so you've heard it in the news, it'll write a poem for you. It'll maybe compose an email or fix your spelling where we see generative AI, AI is a big field, but when we're talking about large language models, degenerative AI is called Chat GPT or Lamar, other names from other big firms is typically, it typically used to, as it says, create stuff. Where we see it being super helpful for Munis and why we're able to offer these tools for free is we can actually help it extract information. So kind of the opposite, even though it's called generative, it's really helpful when extracting information from a PDF document, right, that's locked. So we'll say for example, Hey Muni pro GPT, this is what I think the financials are, right? Tell me if I'm right or wrong and fix any spelling errors. And that takes you from a standard kind of OCR scanning the text document accuracy of 50 to 70% to what we're seeing. Frankly, I'm quite surprised like a 99.9% hit rate of getting these tables out and getting all the words correct and having everything sum up. And so I think that's where Munis can really benefit, which is, hey, let's take our documents. We can have a conversation with them. That's a kind of like a neat trick, but ultimately the end result is we can actually unlock these documents and it's not just financials. I was talking to another issuer today who has thousands of documents coming in from schools, and so they want to see those digitized as well. That's something that technology can do that I think previously was considered impossible.
Gregg Beinstock (
I was going to say, so I'll agree with you a thousand percent there. The evolution in terms of document reading and extraction information is incredible. Just a slight twist on it, and I can probably get to 15,000 feet go much lower than the, but in terms of just AI deployment, machine learning, so one of the things that we use it for in our platforms is around pricing technology. So we build a tool that can create indicative scales, but the age old problem, one of the age old problems in our market is that there are a lot of bonds out there that they trade once, twice and then never again. And you get issuers coming to market where you're looking for comps in the marketplace and they're difficult to find, especially when you start to tighten up timeframes and you say, Hey, I only want to look at primary, I want to look at secondary a certain way. So when we're using technology to build scales, the first component is you have to identify comps, which is relatively easy, the structural and credit characteristics. But what do you do when you're creating a 30 year curve and the middle six years, there are just no comps out there. And so the idea is not to use an evaluated price. When we started out, we use interpolation or extrapolation depending where you're on the curve and what we found is that's fine, but it's not real. And so over time what we've been able to do is using machine learning is to create models which they will, I think forever, continue to be refined. But what we have found is that those models do a much better job and it is artificial intelligence. They do a much better job in identifying on the curve where the price and yield potentially should be, right? At the end of the day, it's still going to be market driven when at the point in time when you come to market. But when you look at the difference between an inter interpolation and where AI takes us it's actually, it's pretty stark contrast. And so that's another use of AI in our space right now.
William Kim (
And I think both with generative AI and kind of neural net pricing AI, you have one fundamental issue. And this kind of ties in with the regulatory environment, which is no one can tell you exactly how you got from step A to step B, nobody because of the nature of the AI model, it's got billions or even trillions of parameters that it's checking against and it spits out a, I guess estimate, right? So that's the same thing for what we're seeing. It's like no one can actually confirm exactly how it got there, but we look at the result and they look good and you know, look at traditional comps. So I think Greg's firm does a great job at looking at indicative scales and looking at quotes in the market and kind of verifying that with their AI stuff as well as what we have. But I think the question will be, will the MSRB, will the SEC will federal government say, if you can't prove it, we don't want to see it because Bloomberg just got hit with a $5 million fine because they said they were using some system to generate prices and they happened to not be. But I think the biggest takeaway from that is not, oh, they messed up. The biggest takeaway is they wanted the SEC actually wanted to audit how they were doing it because how else would they even know that there was an issue?
Gregg Beinstock (
Yeah, it's right. They got hit on the anti-fraud provision, right? And it was basically you said your process was A, B, C, D, and you just did, that's the issue there. To your point, and we'll start to use words and I wasn't going to be able to, so when we launched our AI piece, people are a lot smarter than me, wrote a paper of white paper that's on our website and I confess that I've gotten through to page five and I'm done and it's nine pages and there's like things like cubic spine and triple, and I don't know what the hell it means, but I do know that the model is good and it continues to get refined over time, but to Will's point, it gets down to can you explain it and is it supported by your results? And I think what we all try to do and what we do.
Gera McGuire (
Yeah, I think it's funny that I'm on this panel since you, I can't even explain technology again, even you both, yeah. I'm like, oh hey, can you guys come over and talk to my Alexa? She's been real snarky lately buddy. But Greg, I wanted to ask you a little bit about some of the solutions you have built in response to some of the new updated regulatory impacts on Munis and what are your thoughts around some of this and how it will fold into the new FDTA?
Gregg Beinstock (
So maybe I'll take a step just in terms of just thinking about what's out there right now. So one of the new rules, potential rules that is out there, it was be Reg best X, which is something that the SEC has put out there and it's rather broad. And so comment letters were just submitted and I went on the SEC website yesterday, the day before, and I think I counted over 200 comment letters. And part of the problem is again, they're trying to treat Munis like everything else, but it's not just fixed income, it's broader than that. And so there's a lot there whether it ever becomes rule and there are a lot of people who said in some form or another it will become rule and I think that's likely or probable. But when I think about the critique that I've heard from SIFMA and the BDA and where they come out, and I think some of their responses are very well founded. So for example, do we really need a third best X rule? And while the MS, MSRP and FINRA said we're going to kind of follow suit with the SEC remains to be seen, will there be exemptions? Should there be exemptions? We think, I agree that there should be for institutional investors and the MSRBs rule, they have SMMP something that should be adopted there. There's the conflicted transaction sections, which based on everything I know and everything I've read and the folks that I've heard speaking on some of the calls that I've been on, it doesn't, the concept of what they're trying to accomplish doesn't really seem to work. Where I would focus, where I'd like to focus though is one of the things that there have been concerns about is quotation based elements of the market that not necessarily tailored to fixed income and specifically munis and that there are no industry wide sources for this type of data. And actually it's one of the things that solve does is the idea of being able to take unstructured messages and information. So all the chatter that goes back and forth, whether it's Bloomberg or runs or Outlook exchanges back and forth, being able to take unstructured pre-trade data and being able to parse that and return it in almost instantaneously back to market participants. We do that and I think at least for that argument, I think the hard part is done. We do it others, there are others in the marketplace do it. I was on a call this morning with one of the asset management firms, they have their own internal capabilities to do that and so I think there's a lot of talk around that as being an issue. I think that's the smallest of the issues out there because I think the technology and the capabilities exist. And so I think the arguments around Best X focusing away from we can't do it because it's expensive or we can't do it because it's really hard or we're not sure how to get access to the data. I think those things get solved. I think some of the other arguments are more meaningful and more relevant. So whether it's the first subject we talk about or where we end up in a conversation around Best X parsing messages is pretty, it's done. It's out there deduplication to get rid of false sense of liquidity in the marketplace being done. If you're taking feeds from ATSs, that's not going to be done for you and quality of quotes is going to be an issue. Identify identification of comparable bonds or trades in the market to try to get a good sense of, well, the target bond is not out, there are other bonds that are comparable. Again, it's done able to do it because you can identify the structural and credit characteristics of a bond or a transaction and so you start to look at data quote information and you look at trade data. I think some of that stuff is out there and so I think part of that problem can be solved, but I think the other arguments that I alluded to earlier I think are actually really meaningful and very relevant for the market. And so it'll be interesting to see when we hear back from the SEC on this. Like I said, think think it was about 200 responses and some of them are a paragraph and some of them are 10 pages. So we'll see what they have to come back with.
Gera McGuire (
Well Donna, do you want to talk a little bit about where you see the costs and of compliance and what does non-compliance look like?
Donna McIntosh (
Sure. I think Gregg and Will probably know more than me about the numbers involved with specific costs, but I know that there could be increased capital costs, increased operating costs if you have to hire third party providers to do the translation for you, definitely there'll be personnel costs, increased personnel costs and training costs because regardless of how the data is translated, whether in-house or through a third party provider, somebody inside the entity is going to have to review the data and make sure that it's correct and it's what they want to put out there to the interested readers. As far as non-compliance goes, we will have to wait and see what the rules provide and hope for some guidance on what non-compliance looks like for municipal entities and obligor's. But for now we can look at what that is for public companies and for public companies that they do not file their information in the structured data format. They are non-compliant with their statutory reporting requirements and they could also be deemed to not have adequate public disclosure information available under Rule 144, which can open up those companies to investor liability.
William Kim (
So, I think at our earlier session today, Chris Brown spoke that the city of Houston, I believe about how they have this wonderful data program, but it costs them $500,000 a year and for a lot of cities and counties who are not that big, $500,000 a lot of money to be spending on something that folks are already preparing. So that has a chilling effect on issuance even on the municipal market. If you're doing a million dollar deal and you are trying to build some more schools in your county or something and you have a $500,000 cost to comply with FDTA, that's not going to fly. You're just going to go out and get a taxable bank loan. And that's not something that we want to see in the muni market. We want to see tax and bonds building infrastructure in this country, and that's why we're saying let's not do this XBRL thing, which is going to put all the cost and onus on issuers. Let's just digitize what we've got. MuniPro is willing to do it for free. I think we have to get ahead of the curve because this is, even though there's a four year timeline, it's approaching pretty quickly. People are making decisions this month and next month that are going to have ramifications for the next couple decades.
Gregg Beinstock (
You're ambitious there. You think the SEC is going to move that quickly.
William Kim (
They have a meeting you made.
Gregg Beinstock (
I know there are meetings. There are a lot of meetings. I actually think on the fdta though, I think one of the points there on just Donna responding to you a little bit here from a cost perspective, I do think going back to the point earlier about that it has to be non-proprietary and open source. I worry that standard could create increased cost for issuers in the sense that you retard competition. If you tell a firm will, this is the only way we're doing it and it's not proprietary. The incentive for a firm, a small firm, pick whoever you want to engage and say, yeah, we're going to put both ours in the water and we're going full board at this versus going someplace else where the return on that is four years from now. It's really challenging for small firms to do that. And competition is really good in the marketplace. It's beneficial to you all in this room. And when there's more than one provider or there are multiple providers who can deliver a solution to you, that's a good thing for all of you in this room.
Gera McGuire (
Well, but my brain just went blank so you won't ever know what I did have a question kind of, we talked a little bit about whether or not it takes the full four years or it takes less time or it starts to become more clear. What do you do now? The act has been passed, so what should you be doing now? I don't know. You have any thoughts?
Donna McIntosh (
Yeah, sure.
Gera McGuire (
From Legal Perspective.
Donna McIntosh (
So the ACT mandates that SEC engage the marketplace and get comments, and now is the time to start sending in the letters and calling the Department of Treasury and calling the SEC and getting them to engage in discussion with the marketplace so that issuers and obligors can have a say on how these rules are designed and drafted. I think it's not necessarily that we just have to adopt the standard and just move forward with it. There could be discussions had about how it will roll out. Maybe there will only be certain key points that will be required to be reported in the structured data, not the entire financial statements. Can we take this all in one bite or can we just break it up little by little? But now it's the time to start having those discussions and getting engaged.
Gregg Beinstock (
I would just add to that, the other point we mentioned earlier is that it's not one size fits all for the Muni market. And so adding on to what you're saying is that engagement is hugely important on a sectoral basis so that there's an understanding of if we end up down this road, what are the critical data components? What are the meaningful data components? Because it's not just what you have to report, but it could be something that you don't report today because it has no meaning or it has no relevance to where you operate. So that's really important. And at the same time, it should be something that's meaningful to the investor community, those folks that are buying your bonds. And so engagement from all parts of the market is really critical. And so I echo a thousand percent.
William Kim (
I think you need to mark your calendars for May 10th cause that is when the SEC will be holding comments on the FDTA and implementation of the FDTA. In my conversations with stakeholders across the market, what I've learned is they need to see proof before moving off this XBRL train that you can digitize your financials, that issuers are interested in doing it this way. And so if sending those letters, working with folks to digitize your financials ahead of the four year deadline, I think that's critical to getting to a place where issuers aren't bearing all the cost and we have a sensible solution, not based on XML from the 1980s. You have a real modern solution for this market.
Gera McGuire (
We talk a lot at conferences and across the market on the primary issuance. Do you see any transparency or added transparency in the secondary market? Anything that would take effect from FDTA?
Gregg Beinstock (
I think until that's fleshed out, I think it's hard to answer the question. I think there's been obviously resulting from MCDCA. I think there's greater amount of information, more filings that are done in the marketplace, which is beneficial to the secondary market. And then for retail investors. So that's all out there. There's a proposed, I guess, amendment to MSRB 47, which is around retail time and trade disclosure. Again, let's see where that goes in terms of whether that's really additive in putting more meaningful information out in the marketplace. But it goes back to something I said earlier, right? There's more data out there and it's really the important point of creating information from that data that's useful and meaningful. And that's done in a very efficient way. Cause you could just throw a bunch of crap out there and at the end of the day if people can't access it or can't read it or they don't have enough time to read it because there's too much of it and they can't filter through what's important, then it becomes meaningless. And so that there's a balance here that has to be kind of maintained.
Gera McGuire (
Garbage in, garbage out kind of theory. Yeah. Okay. So we only have a couple three minutes left. Oh, did you want to? So we wanted to know if anybody had any questions or wanted to go into any more detail. If you're in the back, we can't see your hand be raised, but does anybody have anything for the panel that you want to talk about a little bit more? Oh yes. Okay.
Audience Member 1 (
Hi. Thank you all for doing this. So who in the Muni industry is engaged on this issue so far? Do we see our issuers, it sounds like not really aware of this, but our auditors being engaged are who is moving all this?
William Kim (
I think Emily Brock at the GFOA is an incredible resource for all issuers. I think she has the public finance network and I think she has a lot of influence amongst the regulators. So if I think from an issuer perspective, you should reach out to Emily Brock. I know that Gasby is monitoring the issue, but they don't have really a stake or kind of an opinion on how it goes. Just that they want to be involved. And so I would definitely reach out to GFOA. Emily Brock in particular. She's fantastic.
Gregg Beinstock (
I don't know if she's in the room, but she is here. Yeah,
William Kim (
So definitely reach out to her.
Audience Member 2 (
I have a question about the scope of the transparency Act. I've seen some email exchanges among some securities lawyers who expressed concern that the statute and the last minute wording that moved the regulatory authority from the MSRB to the SEC is brought enough to allow the SEC to impose some substantive requirements, not just procedural. For example, if 80% of the issuers in the sector are reporting on five fields of information and the rest are only reporting on four may be requiring everybody that report on five fields of information or requiring quarterly reporting instead of annual reporting. Does, have you heard that concern and is the legislative history clear enough that the SEC was not intended to be given that power?
Gregg Beinstock (
I would think the last part of your questions, right? I'm not sure that the SEC was intended to be given that power. And then in terms of, I have not studied the legislative history there and I think it's mostly been around the idea of moving data and I think there was a strong lobby around the XBRL component of trying to create standardization. So I have real concerns in that regard. I also think just again going back to a point I raised earlier, I think one of the major challenges, this is not one size fits all, creating a taxonomy. If it was easy, it would've been done. There's a gentleman in our marketplace who's been talking about XBRL for, I don't know, eight to 10 years. You know what I'm talking about. And it's just not easy. So when I think from an authority perspective, it's good that it's sitting with the SEC as opposed to the MSRB in some respects, but because it's broader than Munis. But at the same time, I just wonder whether where it ends up is going to make the most sense for our market. That's my concern there.
William Kim (
Yeah, I would say the SEC does is involved, right? MSRB is no longer involved at this point. The SCC is making the rules. So if you have any comments, it's true to SEC. Unfortunately, your guess is that if we go down the exterior oil path, there's not just five fields. There's 15,000 fields that you will have to map to. So even if you have only 30 fields on your financial statement, you're going to have to look at 15,000. And so that's where this cost estimate comes from. You're going to have to hire someone to map your 30 fields to the 15,000 fields that they have out there for XBRL. And unfortunately that is, I believe my understanding is that's within their mandate.
Gregg Beinstock (
I think I have. The hope is though, right? Realistically that's why that's four years. There's lots of time for engagement so that market participants aren't looking at 15,000 fields that it's going to get down to a realistic number. But I go back to the taxonomy question. It's like you already have existing fields, so we're going to be sticking square pegs and round holes in a lot of places unless that's fixed. And there are a lot of different pegs in the muni spaces.
William Kim (
And I think the legislation specifically carves out munis because FDTA is kind of broad. It also covers, corporates specifically says, and you need to consult with muni market participants. So they're looking for your feedback. And so I think we need to give it to them.
Gera McGuire (
Unfortunately, we've run out of time, but the four of us are available for your family parties, and so we'll be expecting invitations as we exit the stage. Thank you for joining us.