WASHINGTON -- Bond analysts, issuers, and the Municipal Securities Rulemaking Board are jointly exploring an expansion of the board's secondary market disclosure pilot system to accept annual financial reports and other longer documents, analysts announced yesterday.

The collaboration between the National Federation of Municipal Analysts, the Government Finance Association, the National Council of State Housing Agencies, and the MSRB was disclosed at the analysts' annual conference this week in Seattle.

The analysts' federation said the groups hope to focus initially on transmitting two types of reports over the board's Continuing Disclosure Information Pilot system, which began operation Jan. 21.

One is the Comprehensive Annual Financial Report, or CAFR, routinely prepared by issuers and often carefully read by buyers of the issuers' bonds. The second is the quarterly and annual reports filed by state housing finance agencies using a ground-breaking format developed in 1989 by the National Council of State Housing Agencies.

Under the board's "CDI" system, market participants can file notices of up to three pages to the board by mail, facsimile machine, or electronically. The board transmits the notices electronically or by fax machine to subscribers, who then transmit them to market participants.

Participation in the 18-month pilot program has been light. Market participants have warned that they need more than three pages, and they object to having to compress sensitive information into a small space. Also, up until this week, the system was open only to bond trustees, who can release information over the system only with the permission of issuers.

But expanding the system to CAFRs, annual audits, and other longer documents is no simple task, issuers and analysts say.

"CAFRs are large documents," said one key issuer. "It's not uncommon for them to exceed 100 pages," which when multiplied by the number of issuers who could be filing CAFRs could flood the MSRB's system.

"So the question is, how do we take long documents and get them through a process that makes them available to the industry in a timely fashion?" the issuer said.

He said one option being eyed by the groups is the use of software developed through the Government Finance Officers Association, called CAFRonMICRO, which provides assistance in preparing annual reports.

The analysts' federation stressed that the groups' efforts to expand the size of filings over CDI does not affect an ongoing federation project to supply standardized three-page formats for ongoing disclosure in 16 different market sectors.

"It's the next step in ongoing disclosure since it would provide access to all the information including the audits and CAFRs that the analysts need to make their investment decisions," said Katherine Bateman, the federation's chairwoman and assistant vice president and sector manager for higher education securities at John Nuveen & Co.

The group in March released the first format, which is designed to collect information on college and university bonds. Earlier this month, analysts released two more formats, one on health-care revenue bonds, and one on water sewer bonds.

The college and university format drew a mixed reaction from market participants when it was first released in March. One rating agency representative said the format provides all the "basics" that firms like hers need to review or maintain ratings. But broker-dealer representatives warned that the format would miss many of the complicated details firms need about college and university issues.

Meanwhile, MSRB Chairman Charles Fish conceded in a recent interview that he is "disappointed" by the level of banks' participation in CDI. But he said he does not blame the banks. "I think there's a lot of other forces involved here. They're not going to disclose anything without the concurrence of the people who have employed them," he said, referring to issuers.

Fish said banks that have not signed up for the pilot program may feel it is not in their best interest now "because they're afraid they'll either offend an issuer, or they've been stonewalled by senior management of the bank."

Asked whether he thinks the board's continuing disclosure effort is in danger of being discontinued' by the SEC because of the low participation level so far. Fish said, "absolutely not."

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