Merrill Lynch & Co. and Lazard Freres & Co. have missed two deadlines set by the Massachusetts state treasurer to explain apparent omissions in a required 1991 disclosure form, an assistant treasurer said yesterday.

Last week, state treasurer Joseph P. Malone announced that neither firm would be allowed to participate in an upcoming state refunding issue because in a December 1991 disclosure questionnaire the firms did not reveal to the state a fee-splitting and retainer agreement on swap transactions.

The agreement was written in 1990 by Merrill Lynch managing director Douglas Hamilton and signed by Mark S. Ferber, then partner at Lazard.

"Both firms were initially given a July 14th deadline to explain why the agreement was not disclosed, and both asked for and received an extension until last Friday," Susan Collins., an assistant treasurer, said. "Neither firm made that deadline."

Collins said she was surprised and concerned by the amount of time the firms were taking to respond to the treasurer's requests.

James Wiggins, a spokesman for Merrill Lynch, said, "We will respond to the treasurer's questions in a timely manner. We have set no definite timetable."

A spokeswoman from Lazard Freres, meanwhile, confirmed that that firm made no response to the treasurer by Friday's second deadline or by late yesterday. She said she had no other comment.

Both firms were given a chance to respond to the treasurer's office before last week's public announcement of the underwriting ban for the firms, Collins said.

Questions about the firms' relationship began when financial officers at the Massachusetts Water Resources Authority said Ferber -- the authority's financial adviser -- failed to fully disclose all the terms of the agreement between Lazard and Merrill.

Ferber had been the MWRA financial adviser for over 10 years. In that time, he was employed at Kidder, Peabody & Co., First Boston Corp., and Lazard. He is now vice chairman at First Albany Corp.

Over the life of the contract, Merrill was one of three senior managers the authority used to sell its bonds.

The contract provided that Merrill and Lazard were to split fees on certain swap transactions and that Lazard would also be paid an additional 800,000 per year for other swap services on retainer.

MWRA chief financial officer Philip N. Shapiro said last week that the full terms of the agreement were never fully disclosed by Ferber.

The agreement has raised questions about whether a financial adviser can provide an issuer with independent advice while being kept on retainer at a firm involved in the underwriting of that issuer's debt.

Ferber, while employed at Lazard, was paid $170,000 over a 17-month period to review the corporate structure and cash management of First Albany, also a member of the authority's underwriting syndicate. The state has also banned First Albany from its upcoming deal.

In response to the release of details about the agreements, the board of directors at the MWRA voted last week that the lack of disclosure was enough to dismiss Ferber and his new firm, First Albany Corp., and dissolve its entire syndicate.

Additionally, the MWRA introduced a new set of ethical and fiduciary guidelines with which firms involved in providing financial services will have to comply.

The propriety of the arrangement and the public outcry that has resulted has propelled other issuers in the state to review their disclosure forms.

Although Merrill and Lazard are not moving as quickly as state officials had hoped, two authorities in the commonwealth have wasted no time in attempting to improve the level of disclosure required from both underwriting and advisory firms.

Daniel O'Connell, executive director of the Massachusetts Industrial Finance Agency, said in response to the reports of these secret agreements that MIFA will institute a new disclosure package.

In addition to the agency's standard slate of questions, requests for proposals will now require issuers to disclose any formal or informal fee-splitting arrangements.

"It really is designed to sharpen our focus on disclosure," O'Connell said. "Proper disclosure goes right to the essence of our business, and failure to properly disclose is a serious matter."

O'Connell, a former bond counsel at the Boston-based firm of Gadsby & Hannah, said the change in agency RFPs will go into effect immediately.

The agency does not employ a financial adviser, and O'Connell said it sends out RFPs for almost every bond sale it undertakes.

Linda Dailey, a spokeswoman for the Massachusetts Turnpike Authority, said yesterday that the authority's bond counsel -- Mudge Rose Guthrie Alexander & Ferdon -- has been instructed to review its disclosure practices to assure that such a situation does not occur at the turnpike.

She also said that the situation does not affect the turnpike authority as directly because its financial adviser -- Commonwealth Capital Partners Inc. -- is not involved in underwriting municipal bonds.

The turnpike authority's last deal was a $366 million refunding sale in March, senior managed by Bear, Stearns & Co.

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