Richard Roberts, speaking to the Municipal Forum of New York in late April, repeated a warning that he has given several times before: "If secondary market disclosure does not improve, at some appropriate time the government will attempt to step in."
Although members of the National Federation of Municipal Analysts did not know this when they began their drive for better disclosure, they know it now. And many in the membership would prefer that the municipal market be self-regulated.
Since 1993 is the tenth anniversary of the federation, it seems appropriate to look back over the organization's involvement with disclosure issues, and then to look to the future.
In April 1983 The Bond Buyer ran an article that began: "Six groups representing almost 700 municipal analysts are holding meetings to consider the formation of a National Federation of Municipal Analysts."
A little more than one year later, the federation devoted most of its quarterly publication, Municipal A nalysts Forum, to the early results of a municipal disclosure survey sponsored by the Government Finance Officers Association and the National Association of Bond Lawyers. The questions were designed to discover the quality of disclosure in both the primary and secondary markets and to identify areas needing improvement.
Less than one year after that, in April 1985, at its second annual meeting, the federation jumped into the disclosure arena by passing a resolution encouraging the Governmental Accounting Standards Board to adopt standards regarding disclosure.
The resolution further encouraged the board to begin educating its members about the lack of adequate disclosure for the newer investment vehicles that state and local governments were starting to use with greater frequency. Soon after, the group undertook its own first survey on disclosure adequacy, publishing the results in its October 1985 Forum.
The concept of adequate disclosure became a leading issue in 1986 when the federation undertook to produce a publication that would define the disclosure needs of municipal securities analysts. The National Federation of Municipal Analysts Disclosure Handbook for Municipal Securities took more than two years and involved nearly a hundred analysts, with the result detailing in outline form what committees of specialists in 1 6 different types of security deemed appropriate information for making primary and secondary market investment decisions.
The next step was to get the information out to issuers and those who prepared their documents. Municipal analysts representing the federation began appearing on panels for annual and local meetings of each of the market groups: GFOA, NABL, the Public Securities Association, the American Bankers Association, the National Association of State Auditors, Comptrollers, and Treasurers. We spoke on disclosure panels in our constituent society meetings. We made phone calls and office visits to trade groups representing health care, higher education, housing and public power. We formed contacts with the Municipal Securities Rulemaking Board and flew to Washington to meet the recently appointed SEC commissioner, Richard Roberts.
And, each time, we stressed voluntary disclosure and distributed Disclosure Handbooks to anyone even vaguely interested.
Those days of having to constantly promote the need for adequate disclosure are over. The market seems to have accepted the idea that disclosure, including ongoing disclosure, may be beneficial. For some, the acceptance has come with the recognition that the cost of issuance could be a factor if continuing disclosure is not provided for by covenant; for others, the rumblings from Washington regarding possible municipal market regulations have driven them into the arena.
The federation responded by refining the avenues of communication it had been building with issuers. In 1992, the federation published its second disclosure volume, Disclosure Handbook for Municipal Securities 1992 Update, expanding the secondary market section for each of the sectors. Also in 1992, the federation's board voted to participate with GFOA on a joint publication regarding exemplary disclosure intended primarily for issuers and those who prepare their documents. The project represents the first formal combined effort of the buy side and the sell side in the market's history.
These two major efforts were compounded -- in work load -- and reinforced -- in the results -- by a second survey of the membership on the adequacy of primary and secondary market disclosure done over the summer and fall of 1992.
The results were surprising at times. with nearly 80% of the respondents saying they would support action by the SEC to force issuers to disclose their intentions regarding periodic reporting, while 73.2% said they would not support municipal regulations similar to those for corporate securities. It was also informative regarding the individual sectors that are still slow to provide ongoing financial data, thus helping the membership to target areas that continue to need considerable work.
The disclosure survey results were also useful for promoting the certificate of recognition program, which at first ran hand-in-hand with a "model language" drive that culminated in a Bond Buyer advertisement listing federation members endorsing continuing disclosure language in offering documents.
The aim of the certificate program is to show issuers that it is in their best interests to make a covenant to provide continuing disclosure to the market. California, the Massachusetts Water Resources Authority, and the Wyoming Community Development Authority received the first certificates, with officers from the federation spreading out across the country to make the simultaneous presentations in January 1992.
The program's size and the interest in it grew so much that in February 1993 the federation hired an administrator for the program to respond to the requests and the follow-up work involved.
And finally, in March 1993. the first of numerous secondary market disclosure forms was made available to help facilitate communication between analysts and issuers. The immediate response was rewarding, with major bond advisers requesting each sector's form as it became available and with NABL and GFOA offering to make the forms available at their annual conventions. As of May, three sectors -- health care, higher education, and water and sewers -- have been made available to issuers, with 12 others in progress.
Much is left to be done. As Richard Roberts' statements regarding possible SEC involvement in the municipal market suggest, Congress is not convinced that a voluntary effort toward sound disclosure, especially in the secondary market, is going to be successful.
The key seems to be that the various market groups -- those representing issuers, buyers, dealers, attorneys, trustees, state controllers and treasurers, hospitals, public power, higher education and housing, among others -- must be able to communicate with one another.
Many of the barriers that existed between the different market participants in the early and mid-1980s no longer exist. This is due to an effort on all of our parts to better understand the positions of other market sectors -- the buy side and the sell side or the attorneys or the trustees, and all of us in relationship to MSRB.
At first, we sat on panels with one another, representing the differing views of the market players. Now we serve on one anothers' advisory boards as ready references on questions that cut across market-sector lines. These communication networks need to continue, including analysts working more closely with accounting advisory boards to better impart the rationale for our requests for certain information in annual audits.
Before the Civil War, people speaking of the United States used the plural form: "the United States of America are." After the war, references were made in the singular: "the United States is." For the municipal market to maintain self-regulation, we must be able to say to the SEC, when issues arise, not that several groups are working on the question, but that the municipal market is taking the issue under consideration. And since we've been dancing together for some time, it's simply a matter of learning a new step.
Katherine R. Bateman is an assistant vice president and sector manager for higher education securities in John Nuveen & Co.'s research department. She has been active in the National Federation of Municipal Analysts since its inception in 1983 and is now the group's chairwoman.