WASHINGTON -- Bond trustees were stunned by the Securities and Exchange Commission's decision to defer a vote on the Municipal Securities Rulemaking Board's proposed continuing disclosure system, but said Friday they expect to put their new guidelines for secondary-market disclosure into effect without a major delay.
"It's unbelievable," said Jeffrey Powell, vice president of the First National Bank of Chicago and one of the drafters of the guidelines being developed by the American Bankers Association's corporate trust committee.
"It takes a pin out of one of our basic strategies," he said. "We're going to have to regroup."
But, he added, "We do not intend to wait" for the MSRB to get a new proposal for the Continuing Disclosure Information/Electronic Submission system cleared by the SEC before putting the bankers association's new voluntary guidelines into operation. "We are going forward. A copy of the guidelines should be available by the end of June."
The SEC on Thursday approved the MSRB's proposed electronic disclosure library for official statements and advance refunding documents, called OS/ARD. But it deferred action on the MSRB's plan to set up an electronic system to dispense secondary-market information until the board is capable of accepting information in paper form. The current proposal only permits electronic filing of continuing disclosure information, which commissioners warned would scare off many issuers.
MSRB officials said Thursday they can have the OS/ARD system in operation by the end of this year or early next year.
But they could not say definitely whether the board will again propose its secondary-market disclosure system and indicated that any new proposal would take months to prepare.
The bankers association's corporate trust panel was scheduled to meet yesterday at its annual conference in Reston, Va., to study the implications of the SEC vote. Several workshop sessions are scheduled today to discuss the latest draft of the new guidelines, which have model indenture language that spells out what secondary-market information issuers should authorize trustees to disclose. The model language also includes a space for the issuer to state how the disclosures are to be released.
The trustees panel has stated repeatedly that it prefers the MSRB's proposed CDI/ES system to any other private system.
"There's no question that we are disappointed that CDI/ES is being deferred," said Mary Jo Ochson, vice president of Federated Research Corp. in Pittsburgh and chairwoman of the National Federation of Municipal Analysts. "We want to encourage the MSRB to move ahead as rapidly as possible" with a new proposal, she said. "This is an area where we critically need information." She added that the SEC's approval of the electronic library for official comments was a step in the right direction.
John McEvoy, executive director of the National Counsel of State Housing Agencies, said he was surprised by the SEC vote but was confident that the MSRB would make a new proposal to the agency later this year. He said state housing issuers will continue to send quarterly secondary-market disclosure information to private vendors who have been designated by the SEC as nationally recognized repositories. Seventeen states now send the quarterly formats to vendors such as J.J. Kenny Co., The Bond Buyer, and Bloomberg Financial Markets, he said, adding that many more states will be ready to fill once the MSRB implements CDI/ES.
David Francescani, general counsel for J.J. Kenny, said the firm is "absolutely ready" to take in secondary-market disclosure information immediately. The firm launched a continuing disclosure system called KennyAlert earlier this year, but filings have only trickled in. The system has received and disseminated electronically only about 45 notices, half from bond trustees and half from issuers.
He urged the bankers association to encourage bond trustees to file with KennyAlert.
"The corporate trust committee can serve a substantial information function in advising members about the alternatives to get information out. They are like a traffic cop. Once they give everyone the green light, people will take advantage" of the systems out there, he said. "It's ripe to do something now."
At the same time, William McLaughlin, a spokesman for The Bond Buyer said, "We're ready, willing, and able to accept trustee disclosure. We did not want to get in the way of the MSRB's plans for secondary-market disclosure, but now that the SEC has put those plans on hold, there is no reason to wait any longer."
People can make electronic facsimile submissions to the company, which will then broadcast them as soon as possible over Munifacts News Service. Until now, the service has disseminated only notices concerning primary offerings.