WASHINGTON - Responding to pressure from the Securities and Exchange Commission, representatives of eight municipal industry groups have been meeting quietly for several weeks to find ways to improve secondary market disclosure, a source said yesterday.
"We're trying to reach common ground" on a set of "general principals," and the group already has drafted three versions of such a set, he said.
"The ticker's running," said a second source, describing the urgency felt by the task force.
The task force includes representatives of the Government Finance Officers Association National Federation of Municipal Analysts; National Association of Bond Lawyers; Public Securities Association; National Association of State Auditors, Comptrollers and Treasurers; National Association of State Treasurers; and American Bankers Association. The eighth group is unknown.
The groups have been moving quickly to develop the recommendations since they were goaded into action by regulators beginning in September.
Christopher Taylor, executive director of the Municipal Securities Rulemaking Board, kicked off the drive Sept. 22 when he told the Municipal Forum of New York that the SEC staff is "beginning the process of developing a list of items for disclosure."
The SEC wants an industry consensus on what the list should include by January and signaled that the commission may follow up with a proposed rule or legal interpretation that would, in effect, require issuers to disclose the information, Taylor said.
"It was made crystal clear that with or without the assistance of the municipal finance community, the list will be developed," he said.
Two weeks later, SEC Chairman Arthur Levitt, Jr., met with industry representatives in New York City to kick off development of a disclosure plan. SEC officials followed up Oct. 20 at a closed-door meeting in Washington with roughly 25 industry representatives.
An industry source yesterday disagreed with Taylor's statement on Sept. 22 that the SEC is developing a "list" of mandatory disclosure items. A recent SEC letter inviting groups to meet with the agency does not call for such a list, the source said. Rather, it says that the agency wants to discuss "appropriate measures the SEC can undertake to improve disclosure," the source said.
Sources interviewed yesterday would not disclose the eight groups' draft recommendations, but they pointed to voluntary plans that have already been published.
"There are a lot of different disclosure materials that various members of the public finance community have already worked long and hard on. We're not trying to reinvent the wheel," a source said. "I don't think that whatever we produce is an end product. It's the beginning of a process to refine secondary market disclosure."
"Thus far the cooperation has been truly amazing" considering the diversity of groups on the working group, said another industry source, who asked not to be identified.
Market observers say the working group is probably grappling with a variety of tough issues, including whether issuers of GO bonds should be required to provide the same level of disclosure as issuers of conduit bonds. Other issues are whether outstanding bonds should be exempt from new standards and whether credit enhanced or highly rated bonds should have the same requirements as bonds without such features.
A spokesman for the Investment Company Institute said yesterday, for instance, that issuers whose bonds are unconditionally guaranteed by a letter of credit or insurance should not have to provide financial disclosure.
Craig Tyle, vice president for securities, also said that any new rule should either be phased in for outstanding securities or it should exempt such bonds outright.
"Generally we favor disclosure standards by the SEC or MSRB," Tyle said. "At the same time, you have to be sensitive about the impacts on the market."
The analysts' federation, meanwhile, is working feverishly to complete a set of 21 four-page secondary market disclosure formats which it wants issuers to use in making secondary market disclosure via the MSRB's continuing disclosure information pilot system, which was recently extended by the SEC until April 1995. Analysts also hope the SEC will refer to the formats in adopting any new standards.
William Oliver, vice president and director of municipal research for Alliance Capital, who is heading up the analysts' project, said this week that the group is about to release five forms for such tax supported debt as GOs, certificates of participation, special tax/dedicated revenue bonds, tax increment/tax allocation bonds, and special assesment/Mellow-Roos offerings.
The group also is developing three forms for transportation bonds, including airports, seaports, and toll-roads. The utilities group includes five formats - wholesale and retail water and sewer bonds, wholesale and retail electric utility bonds, and waste-to-energy resource recovery revenue bonds.
A category of miscellaneous revenue bonds covers life care bonds, pooled financings, and credit enhanced short term debt. Three more forms will cover such structured financings as single and multifamily housing bonds, and student loan bonds.
"For the most part, this provides a much higher level of information than is generally provided by most issuers. [But] it's not designed to answer every question someone might have," Oliver said.
"We would expect that issuers would still have phone conversations with analysts. But conversations will be more specific," he said, noting that all 21 formats should be final by the end of the year.
