WASHINGTON - The Municipal Securities Rulemaking Board has adopted its controversial plan to require underwriters to send official statements for short-term and variable-rate demand note deals to the board's central repository, MSRB Executive Director Christopher Taylor said yesterday.
However, the board backed away, at least temporarily, from a proposal that would have required dealers to send documents for private placements to the board's Municipal Securities Information Library, Mr. Taylor said.
The expansion of the repository, which drew heavy opposition from, bond lawyers when it was proposed in April, means that official statements for nearly all municipal securities issued in the United States will be available from MSIL's primary market disclosure section.
The board reached its decision to expand the documents it collects at a quarterly meeting last week in Santa Fe, N. M. It will announce the move soon in MSRB Reports, Its newsletter to dealers.
The rule still must be approved by the Securities and Exchange Commission, which will open it up for another round of comment later this year. It would not take effect until January, at the earliest, Mr. Taylor said.
The MSRB action is the second attempt by regulators in recent months to impose tougher disclosure requirements on issuers of short-term bonds.
Critics have called the moves backdoor efforts by rulemakers to force improved secondary market disclosure of long-term offerings.
Late last year, SEC Commissioner Richard Roberts urged the SEC staff to add a provision to the agency's money market Rule 2a-7 that would bar portfolio managers from buying variable-rate demand notes from issuers that do not pledge to make ongoing disclosure.
The Investment Company Institute, the lobbying arm of the mutual fund industry, objected to the move in a letter to Mr. Roberts, warning that such a rule would place tax-exempt money market funds that buy such variable debt at a competitive disadvantage. In an effort to head off SEC action, the group has begun drafting voluntary secondary market disclosure guidelines for tax-exempt money market funds.
Similarly, a panel of the National Association of Bond Lawyers warned on June 4 that the MSRB's latest proposal is really an indirect attempt by regulators to supply more information to the secondary market for use by small investors. If issuers have to update official statements each time they come to market with a note offering, then the information will be available to buyers of their longer-term bonds in the secondary market, NABL said.
Such a move is not only an unfair burden and expense on issuers of short-term debt, which is generally sold to sophisticated buyers, but it may be "determined" to the overall push for improved secondary market disclosure, said Jack Gardner, the chairman of NABL's committee on securities law and disclosure.
Mr. Gardner, a partner with Ballard Spahr Andrews & Ingersoll in Denver, contends the information will be provided "out of context."
"What is fair disclosure to one category of purchaser of one type of securities may be misleading disclosure to other holders or purchasers of other types of securities," Mr. Gardner wrote last spring.
"The bottom line," said Mr. Gardner, when contacted yesterday, "is that we think that continuing to have these documents filed voluntarily would allow issuers to make information available in cases where they thought it was appropriate without the risk of including inappropriate disclosure to the markets in general."
The board's action will wipe out most of the exemptions dealers now have from MSRB Rule G-36, which required underwriters to send official statements of primary offerings to the board.
Currently exempt from the filing rule are bonds in denominations of $100,000 or more that have maturities of nine months or less, variable-rate demand notes and bonds that are sold no more than 35 sophisticated investors.
The MSRB exempted such offerings from Rule G-36 to be consistent with the SEC's rule 15c2-12, which requires the preparation of a final official statement for all but those categories of deals. But the MSRB said in its April proposal that there may be "significant interest among market participants" for the documents.
Such offerings frequently are fairly large in par value and may, in some cases, be actively traded in the market, MSRB officials say.
The board began collecting official statement for its primary market disclosure system, dubbed OS/ARD,. in 1990. The system went high-tech this April when Kentucky-based Appalachian Computer Systems, a contractor to the board, began providing electronic "imaging" of official statements and advance refunding documents. Magnetic tapes from the system became available for the first time to subscribers in June.
