WASHINGTON -- The Municipal Securities Rulemaking Board has decided to move ahead and develop a program to improve secondary market disclosure, but has not decided exactly what format to use, MSRB Chairman David Hartley said yesterday.
"We are going to do something. The board is absolutely committed to that," Mr. Hartley said in an interview following the board's quarterly meeting late last week in Jackson Hole, Wyo. "But we have no official position" on the "final format," he said.
The board's two-day meeting was the first since the Securities and Exchange Commission on June 6 tabled the MSRB's proposed electronic system for providing continuing disclosure information about municipal bonds, its so-called Continuing Disclosure Information/Electronic Submission, or CDI/ES system. The SEC said it wanted a system that would accept market sensitive information not only electronically, but also on paper.
"We have a lot more homework to do," Mr. Hartley said. "The whole matter of paper is something that is necessary in the eyes of the SEC chairman and something we won't disagree with," he said, referring to strong statements by SEC Chairman Richard Breeden at the June meeting in favor of paper submission.
"It's complicated," said Mr. Hartley, who is managing partner of Stone & Youngberg in San Francisco. "It needs a lot of responsible thinking. We're trying to decide how best we can move in the direction to please the SEC and the market and do it efficiently and effectively [with] cost benefits."
"At this point there is no [intention] on the board to avoid the situation," he said. "We still feel strongly about continuing and working toward that end at as fast a pace as responsibly can be undertaken."
Mr. Hartley said he could not say when the board will announce its plans for a continuing disclosure system, which could range from a pilot program testing the release of only certain information to the market to a full-scale revised proposal of CDI/ES. Any system is likely to take months of development, market experts say.
The CDI/ES electronic system originally proposed by the MRSB would have provided notices of events affecting bonds, such as draws on reserve funds, as well as periodic financial reports of issuers. But board staff warn that taking in vast amounts of varied information from issuers on paper and trying to convert it to electronic form could be costly and very complicated.
Meanwhile, bank trustees are moving ahead with plans to launch a system for secondary market disclosure in September, despite their disappointment that the MSRB's CDI/ES system will not be in place.
Representatives of the American Bankers Association and three private repositories convened last week to begin writing standard procedures for the market to use when the bankers association's corporate trust committee releases final guidelines for trustee disclosure next month.
The question of whether to proceed with CDI/ES was only one item on a long list of key issues that the MSRB was expected to address at its two-day quarterly meeting. Among other issues were whether the board should encourage the public disclosure of political contributions by underwriters to issuers as well as the dissemination of bond prices on a broader scale to the retail market.
The board also was expected to discuss the impacts on the municipal market of the recent failures of insurers Mutual Benefit Life Insurance Co. and Executive Life Insurance Co.
