The Municipal Securities Rulemaking Board's revamped municipal-bond disclosure system, set to go live next month, won't be quite the panacea for disclosure that regulators hope, according to some observers.
Once it is operational, the Alexandria, Va.-based MSRB's Electronic Municipal Market Access system will become the single repository for all types of municipal disclosure data. It also will provide the latest reported prices and trading volume for municipal bonds.
Currently, municipal issuers file disclosures with one of several designated repositories. Next month, they will be obligated to file official statements, annual financial and operating information, and notices of material events with EMMA.
Officials of the MSRB and the Securities and Exchange Commission point to the system as the key initiative in providing more transparency to the municipal-bond market.
Retail investors own about two-thirds of outstanding municipal securities, but regulators have been concerned that investors have had no free and convenient way to get bond data as they have with the SEC's online EDGAR system for corporate securities.
“In terms of ease [of access] and efficiency, [EMMA] seems to be an improvement,” said Lisa Good, executive director of the National Federation of Municipal Analysts in Pittsburgh.
The current repository system was “workable except that issuers didn't necessarily file with all [the repositories], so you may have had to search several to get what you needed,” she said.
But EMMA critic Peter Schmitt, chief executive of DPC Data Inc. of Fort Lee, N.J., one of four of the official repositories, said the disclosure system is not ready to go.
In a letter this month to SEC Chairman Mary Schapiro, he asked that the EMMA rollout be delayed until technical requirements with the system are set. The MSRB has published some technical specifications for getting bulk data out of the system, “but they don't have a full functioning vendor feed in place,” Mr. Schmitt said in an interview.
“There's no question that [the EMMA technical specifications] are out there, published and finalized,” said Ernesto Lanza, the MSRB's general counsel.
“Some [commercial users] are not quite ready,” but others are, he said. “It depends on how early or late they got started” in preparing for EMMA, Mr. Lanza said.
“As far as investors go, the information will be there on day one,” he added.
While the MSRB plans to launch EMMA as planned, according to spokeswoman Jennifer Galloway, Mr. Schmitt contends that commercial vendors haven't had enough time to build their own software interfaces.
“What really drives the market is all the commercial feeds,” which enable firms to integrate municipal data into
portfolio management systems and trading platforms, he said.
“Everybody talks about retail [users], but the reality is that [retail investors] go back to their financial adviser” for municipal data and documents, Mr. Schmitt said. “And the broker gets it from commercial vendors. It doesn't seem like they've had vendors in mind” with EMMA, Mr. Schmitt added.
“In light of your letter to Chairman Schapiro, the MSRB has redoubled its efforts to ensure that they make available appropriate support to all potential users” of EMMA, Martha Haines, assistant director in the SEC's Office of Municipal Securities, said in a letter sent to Mr. Schmitt last week.
A test of EMMA's automated-uploading system “seemed to be working” two weeks ago,” said Michael Stanton, who runs EZDisclose, a unit of SourceMedia Inc. of New York, that files information for issuers.
“We're still very much in the testing mode,” he said. “The only question is if [EMMA] will be as fully automated as it could be.”
The rollout schedule has been “ambitious,” Mr. Stanton added, but “we'll have no trouble making sure our clients stay in compliance.”
Another issue with EMMA is that it will not have the “quality of the disclosure and the type [of disclosure]” the municipal market needs, Ms. Good said, adding: “That's what we're hoping is the next step.”
In a letter to the SEC this month, the NFMA said municipal issuers should be required to disclose more fundamental operating data and “the terms and counterparties of contingent activities such as swaps, other derivatives, guarantees and liquidity agreements.”
Some counties and cities have become ensnared with costly interest rate swaps, some of which require repayment if the issuer is downgraded.
“In many cases, these [disclosure] items are routinely missing,” the NFMA said in its letter.
Mr. Lanza said municipal disclosure requirements are limited under federal law. But EMMA will make municipal information more accessible than corporate information and allow investors to compare issuers for the quality of their disclosures, he said.
In a speech this month, Ms. Schapiro said she wants the SEC to improve disclosures to municipal-bond investors.
“And I plan to request Congress' assistance to more fundamentally address municipal-security disclosure,” she said.
E-mail Dan Jamieson at [email protected].
