Taylor to SEC: force issuers to file reports to one place.

The Securities and Exchange Commission should consider requiring municipal bond issuers to file periodic financial reports with the Municipal Securities Rulemaking Board's central repository, the MSRB's executive director said yesterday.

"We need a market where analysts are ~analyzing' information, not ~searching' for it," said Christopher Taylor, who outlined his views in a keynote address at The Bond Buyer's All-American Municipal Conference in New York City and in an interview following the speech.

Noting that the SEC has asked issuers to develop a list by January of items that should be disclosed, Taylor said the board "applauds" the commission's aggressive move, but has "concerns" that the commission may not be going far enough.

Taylor said that there are two kinds of secondary market disclosure that need to be collected. One is time-sensitive notices by issuers about events such as a withdrawal of funds from an escrow account or a change in the key personnel of an issuer. The other is release of annual financial reports and other periodic information, he said.

Taylor is worried that the SEC may not be focusing on the release of annual reports and other documents in the second category.

He said the board first voiced its concern in an Oct. 7 letter to SEC Chairman Arthur Levitt, which the board released yesterday.

"The commission staff has stated that it will recommend a rule prohibiting dealers from recommending outstanding municipal securities to customers unless the issuer makes available certain continuing disclosure," the letter says.

"Such a rule might bring the secondary market in municipal securities to a halt unless dealers can access reliable and comprehensive information about the the continuing disclosure activities of 50,000 issuers. The very sizable market in mutual funds containing municipal securities could also be adversely affected by such a rule."

Taylor said the SEC would alleviate the board's concerns if it applied the antifraud statutes of the federal securities law to issuers that fail to adhere to certain disclosure requirements. Specifically, the SEC should rule that issuers would be in violation of the statutes if they do not make certain periodic disclosures through a central place that ensures availability to all market participants at the same time, he said.

Taylor told meeting participants that the MSRB should set up a "central tracking system" to help market participants find four important pieces of information. They are: whether periodic disclosure documents will be produced by an issuer; when a periodic disclosure document is expected to be produced during the calendar year; if a disclosure document has, in fact, been produced; and where the disclosure document can be obtained."

Taylor said the, problems are addressed in the corporate securities market by a requirement that all information be filed in a central location -- the SEC.

"Without a similar mechanism in the municipal securities market, we fear that the effort that issuers undertake to produce additional information" may not lead to improvements."

"We question how dealers will be able to comply with any dealer conduct rules written by either the SEC or ourselves if the information is not readily available on an equitable basis to all market participants ... at the same time," Taylor said.

"The board is willing to expand the MSIL system to provide the central tracking function for continuing disclosure information and to provide cost-effective dissemination of expanded numbers of continuing disclosure documents," Taylor said.

The recommendation is expected to draw a strong protest from such issuer groups as the National Association of State Auditors, Comptrollers and Treasurers, which has argued for years that such tracking can adequately be done by states.

Taylor said that while it may sound like "heresy" to some analysts, regulators should consider off a list of 16 items that the American Bankers Association proposed last year that trustees disclose.

"If issuers were required to disclose them to MSIL, which was what the system was designed for, we would probably deal with many of the disclosure problems that the market has experienced," he said. The requirement could be applied to all oustanding issues with little or no additional costs to issuers, particularly GO issuers," he said.

Some analysts warn that if the SEC publishes a set list of disclosures that all or most issuers should make upon request, then the same issuers can refuse to give analysts information that is not on the list.

The heaviest objection to the bankers association's list came from bond lawyers, who argued that trustees often have no authority to release the 16 pieces of information, Taylor said.

The list of 16 items was pared down to four and trustees were authorized to disclose only what an issuer wanted the trustee to disclose, Taylor said. "So much for the market and investors."

"Candidly, the participation in the the MSRB's CDI system has been disappointing," Taylor said. Continuing Disclosure Information began operations last January and in May was opened to issuers. "Few trustees signed up, and the information disclosed was primarily the announcement of bond redemptions. Only a handful of the more than 50,000 issuers have signed on. And only two of a total of 600 notices have announced significant economic information."

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