Investors to issuers: don't fear FDTA

Cities and states dreading the implementation of standardized data under the Financial Data Transparency Act may end up enjoying market benefits like lower borrowing costs and elevated profiles among bond buyers who are increasingly looking for choice and customization.

That's the prediction from panelists participating Wednesday in a webinar hosted by XBRL US on how investors view the controversial Financial Data Transparency Act.

"A lot of small issuers many times get looked over by large institutional buyers" because of the time it takes to review financial data in PDFs, said Justin Land, CEO of municipal fintech platform AG Analytics LLC. "It's my belief that if you can digitize this, if you can use software to analyze small issuers with very little or low touch by human beings, you're going to get a lot more competition from bigger investment shops," Land said. "If more people are putting in for a deal, borrowing costs go down."

Signed into law in 2022, the FDTA requires issuers to report their financial data in a digitized, machine-readable format, as is currently required in corporate disclosure.

Cities and states have pushed back against the law, saying it will be costly, complicated and is "a solution in search of a problem."

But the task may be easier and more beneficial than issuers think, the panelists said.

Many issuers are duplicating their reporting efforts now, so moving to one type of data will "save them a fair amount of time and money," said Triet Nguyen, vice president of strategic data operations at DPC DATA. And no one is expecting to see one standard, Nguyen said. "Given the nature of our market, it's not realistic to think we're going to end up with just one taxonomy," Nguyen said, noting that DPC develops separate data templates for every sector. "And I think that's okay — as long as the data is in digital format we can deal with that."

Using structured data for budgeting documents could offer a tool for local governments to improve the budgeting process, Nguyen said.

Institutional buyers like Fidelity Investments, which has a large muni research team, still don't have enough time to examine all the issuers who come to market in a given week, said Jamie Richardson, Fidelity's managing director of research of municipals.

"One of the great opportunities here is for issuers to be able to really get that attention and receive credit for the things they're doing well," Richardson said. "One of the trends we're seeing is increased investor choice and customization. And along with that there's a lot of demand," he said.

Structured data may help local governments learn from each other if they're able to more easily compare data — and even win more state and federal money, said Barnet Sherman, senior managing partner at Tenbar Capital.

"A lot of municipalities and even smaller local districts are reporting on other financial matters through the states and up to the federal government," Sherman said. Using structured data "improves the reporting not just to the financial markets but for grants, grant applications and funding from states and the federal government."

Increasing data transparency and accessibility will only improve market liquidity, Land said.

"The more data are out there the more liquid" the market is, Land said. "Munis are just 25 years behind the equity market and now the equity market is about as liquid a market as you can get."

The five-year implementation timeline calls for the Securities and Exchange Commission to come up with joint standards along with other Financial Stability Oversight Committee members such as Treasury, the Federal Reserve and other banking regulators by December 2024. Specific rulemaking on the municipal standards will be filed by December 2026, per the act. The effective data for municipal market data standards is 2027.