WASHINGTON — The Municipal Securities Rulemaking Board is exploring state public pension laws to see whether there are types of disclosure in common that they could encourage issuers to submit to its Electronic Municipal Market Access site, board officials told reporters on Jan. 31.
The board's initiative came amid unprecedented concern about the viability of public pensions and as no regulator systematically compiles and disseminates information about pensions.
"It gets down to, 'Would an investor want to know the funding status of a pension plan and how it would impact the likelihood of their bonds being paid off or affect the credit quality of bonds that they've bought,' " said MSRB Chairman Michael Bartolotta, the vice chairman of First Southwest Co.
But market participants warned that the board is straying beyond its jurisdiction in considering enhanced pension disclosures.
The Dodd-Frank Wall Street Reform and Consumer Protection Act expanded the board's mission to add issuer protection to its mandate to protect investors.
Under Dodd-Frank, the rulemaking board also can regulate muni advisers, including third-party solicitors and placement agents to public pensions. But the board has no authority over issuers, market participants stressed.
In addition, they noted that, unless Congress amends the securities laws, any plan to promote pension disclosures would have to be voluntary.
That is because the second portion of the two-pronged Tower Amendment bars the MSRB from directly or indirectly requiring issuers to make any filings with it before or after a bond sale. The amendment was added in 1975 to the Securities Exchange Act of 1934. "The issue is whether there's any legal basis here for them to do this," and there isn't, said a bond attorney who asked not to be named.
For their part, MSRB officials said that they are in the early stages of learning more about public pensions, which they discussed both at their quarterly meeting last week in San Diego and at a roundtable meeting with other regulators two weeks ago.
"There's many different types of municipal pensions out there, and some of them have different types of disclosure requirements under state law, so we're trying to figure out if there's a common ground of information that could be disclosed through" the electronic market access site, Bartolotta said. "But that's preliminary discussion at this time."
MSRB Executive Director Lynnette Hotchkiss, who also was on the conference call, said: "We're in the very preliminary stages of learning a lot more about this business. Obviously, to the extent that we can promote disclosures, we want to do that, but we're really at the very first step."
