WASHINGTON - The Municipal Securities Rulemaking Board is about to take a giant step toward getting its state-of-the-art secondary market disclosure system off the ground.
This week, the board will notify roughly 1,500 bond trustees nationwide that it is about to launch a pilot version of its Continuing Disclosure Information system.
Under the 18-month experimental system, bond trustees and issuers will be able to file three-page- notices of important events that affect the bonds they oversee, such as calls and draws on escrow funds, according to a copy of the notice.
Trustees and issuers, under the system approved last April by the Securities and Exchange Commission, will be able to file the notices electronically, by facsimile machine, or through the mail. The SEC approved the system after a two-year roller-coaster effort by the MSRB to get it off the ground.
The first six months of the pilot plan are restricted to filings by trustees. A smattering of trustees and issuers already have been filing secondary market notices through private repositories. But bankers say that once the system takes off, it is anyone's guess how many banks will test it during its first few months.
"I wish I could give you numbers. But I don't think anyone knows," said Jeffrey Powell, vice president of the First National Bank of Chicago. "Those trustees who are currently providing CDI to the nationally recognized repositories will simply add MSRB to the list and forward documents, primarily by fax machine."
"The information that primarily will be transmitted will be call notices, default notices, the primary disclosure documents," Powell said.
As for more controversial notices such as draws on reserve accounts that can signal, in some cases, impending defaults, he said, "I think it's questionable right now. Remember, many of these trustees have advice of counsel that they should make sure the information is in the documents. Be very careful. It's going to be slow." He noted that his bank already is releasing notices on draws.
The MSRB, for its part, says it can take up to 100 notices a day. Most banks participating in the pilot are expected to file using facsimile machines, Powell said.
In a 12-page notice currently being mailed to trustees, the board said the pilot will ensure that time-sensitive information gets out on an equal and timely basis to all market participants.
The disclosure system also will help dealers comply with board rules requiring them to deal fairly with customers, to recommend only suitable transactions to buyers and to price bonds fairly, the MSRB notice says.
The question of whether those customer protection board rules need to be tightened was the subject of a board notice last month, which requested broad market comment by Dec. 1.
Christopher Taylor, executive director of the MSRB, predicted the board will launch the disclosure system's pilot before Thanksgiving. He said that unlike the various repositories currently available to issuers and trustees, the system will be a "central hub" of information.
David Campbell, assistant manager at Bloomberg Financial Services' municipal department in Princeton, N.J., said the service currently receives roughly 80 secondary market notices a month from bond trustees and issuers.
Similarly, Thomas Jessop, senior research analyst for Kenny S&P Information Services, said the service is receiving and sending out to the market roughly 75 to 100 notices a month through its KennyAlert system.
Both Campbell and Jessop said they have seen an increase in market sensitive notices as a result of a recent initiative by the National Federation of Municipal Analysts, under which issuers pledging to provide state-of-the-art ongoing disclosure receive certificates of recognition from the group.
Gary Schneider, manager of the municipal research group for the Bond Buyer, said the company has a secondary market information service that receives 25 to 40 notices a month. The Bond Buyer plans to announce a formal secondary market system, dubbed Muni Flash, shortly.
Meanwhile, the board will broadcast notices it receives to subscribers by computer modem for those who file on computer, or by facsimile machine for those who file on fax or via mail. The system will give top priority to documents submitted by modem. Facsimile submissions receive the next highest priority, while paper submissions get the lowest priority. But the MSRB says the disclosure system's staff will "strive to process each document, now matter how it is submitted, as quickly as possible."
Trustees who enroll in the system will get a submitter number, a personal identification number, and, if they plan to file by computer, a diskette containing software called MSILMode.
The board will accept submissions to the disclosure system between 9:00 a.m. and 4:00 p.m. eastern standard or daylight savings time, whichever is in effect.
