WASHINGTON -- Reactions to the Municipal Securities Rulemaking Board's revamped secondary market information disclosure proposal were mixed yesterday, as many bond market participants called it a good first step, while others complained it does not go as far as the private vendor systems that are already in place.
Their comments came after the MSRB sent the Securities and Exchange Commision a proposal on Monday for an 18-month pilot program that will accept municipal bond information from trustee banks and issuers on paper and through facsimile as well as electronically. The SEC had refused to approve an earlier proposal last June that would have taken the information only electronically.
Several securities officials yesterday praised the MSRB for responding to the SEC's concerns and said they hoped the proposal would be approved as soon as possible.
"I certainly would hope the Securities and Exchange Commission would find this acceptable," said David Thompson, chairman of the Public Securities Association's municipal securities division and chief financial officer of Griffin, Kubik, Stephens, & Thompson Inc.
MRSB executive director Christopher Taylor said it could be December before the SEC votes on the proposal because it must be put out for public comment for 21 days and the commission will then went to consider those comments.
Mr. Thompson called the proposal "a step in the right direction," saying that "anything is better than where we are now." He said he believes secondary market disclosure "has gone backwards" in the past year as lawyers have counseled trustee banks and issuers not to disclose information upon request because of concerns that this could lead to market manipulation and charges of insider trading.
A diverse group of market participants -- including George Brakatselos, a vice president of the PSA; Mary Jo Ochson, chairman of the National Federation of Municipal Analysts; and John Gunyou, chairman of the debt committee of the Government Finance Officers Association and commissioner of the Minnesota Department of Finance -- said they understood the need for a pilot program to gauge the needs and costs of such a system.
And trustee bank officials said the proposal will work under the disclosure guidelines that the American Bankers Association's corporate trust committee plans to release in two weeks. "It fits right in with what we're doing," said Jeff Powell, a vice president of the First National Bank of Chicago and a member of the bank association's corporate trust committee's disclosure task force.
But Mr. Powell and some GFOA officials said also that by limiting information submissions to three pages, the MSRB will not get some key documents relating to defaults and issuers' finances.
Catherine Spain, director of GFOA's federal liaison center said annual financial statements are the primary source of secondary market disclosure for most issuers. "If they're going to force everyone into [submitting] documents of three pages or less that's going to be a problem," she said. Stressing that she had not completed her review of the MSRB proposal, Ms. Spain said such a requirement would mean issuers would have to prepare special reports to go to the MSRB. She questioned why they would do that when private vendors already are accepting their full financial statements.
Mr. Powell agreed. "That's a concern because I think the market-place is going to want that information. And the private vendors are already accepting that now," he said. Press releases on defaults and related documents can also run more than three pages, he added.
But Mr. Taylor said issuers and trustees can use the MSRB system to notify market participants that such information is available.
Another concern was that the MSRB proposal would put trustee banks and issuers submitting, information through a series of hoops that they are not required to go through by private vendors such as J.J. Kenny Co., Bloomberg Financial Markets, and The Bond Buyer.
Under the MSRB pilot program, trustees and issuers submitting information would have to supply the MSRB with the names of people responsible for submissions, addresses, and telephone numbers. A "submitter file" would be established for them and they would be given a confidential "personal identification number." They would have to follow certain procedures when submitting the information, such as supplying a description of the data.
"They seem to have a lot of procedures that are going to become onerous. I don't think that these are things the trustee banks are going to want to do," said one industry official who did not want to be identified.
Mr. Taylor said the board came up with these procedures to ensure any information it receives is valid. "We're very concerned about making sure we know who is submitting information because it can effect the pricing of securities. We don't want to be a party to false information getting into the market," he said.
Several industry officials said the MSRB's proposed system, which will charge subscribes $10,000 to $15,000 per year, will be more expensive than the secondary market disclosure systems of the three private vendors. But private vendor officials declined to confirm that or comment in detail on the MSRB proposal.
Another complaint was that the MSRB, in developing its proposal, never sought input from the advisory committees that it established more than a year ago. "I am surprised and disappointed," said Paul Maco, a lawyer with the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, who is on one of the advisory committees. "I had expected that they would have activated us. It's been over a year." Mr. Maco had sent the MSRB a letter last week, urging the advisory committees be consulted before any proposal was sent to the SEC.
