A letter sent to the Securities and Exchange Commission by a group representing municipal analysts highlighted a divide between the group and the issuer community, and elicited strong responses from members of the Government Finance Officers Association’s Committee on Governmental Debt Management.
GFOA members said during the debt committee’s Saturday meeting that they were taken aback and in some cases upset about the tone of the letter, which the National Federation of Municipal Analysts sent to federal regulators two weeks ago. NFMA media industry and media liaison William Oliver gave a brief presentation about the letter to the committee, members of which pushed back.
“The tone of this letter is not very collaborative,” said Jonas Biery, business services manager for the City of Portland, Oregon Bureau of Environmental Services.
In its letter, NFMA said lapses in issuer financial disclosures in the secondary market are unacceptable and are inconsistent with more timely and robust disclosures investors are accustomed to in equity and corporate bond markets. NFMA asked for the SEC to provide guidance about the types of information it would consider valuable to improving disclosure, noting that the SEC last provided significant interpretive guidance some 25 years ago.
Biery told Oliver he was upset by the letter’s accusatory tone, and said he didn't think it would be helpful in advancing the discussion.
“Our whole point is that the SEC needs to communicate better,” Oliver said. “It’s not an indictment of anything you’re doing. It’s just the way the market has evolved.”
Marion Gee, finance director of the Metropolitan St. Louis Sewer District, said he was disappointed that NFMA sent the letter out without first having a discussion with the GFOA.
“It would have helped to have a dialogue before this letter went out,” Gee said.
Other members of the committee nodded agreement that they felt NFMA’s letter unfairly accused them of dragging their feet on disclosure, and that it was unfair to compare practices in the corporate bond and equities markets to those in the muni market.
The committee members seemed incensed by passages of the letter that seem to state that issuers resist providing information in a timely manner.
“Many issuers continue to file financial reports long after the close of their fiscal years and resist making timely continuing disclosures affecting publicly-issued debt because of concerns about the costs and potential liability relating to such disclosure,” NFMA said.
“The implication is that you have a set of issuers that are intentionally not complying,” said one committee member.
Another debt committee member told Oliver that some of the issuer reaction was more hostile than what was expressed by committee members.
“I think a lot a lot of things have evolved, and the status quo has prevented things from happening, and that’s where we are,” Oliver said. “We’re not the only group that’s ever called for interpretive guidance.”
SEC Chair Jay Clayton has said he wants the MSRB to work with the SEC’s Office of Municipal Securities to help at least improve the transparency around the timeliness of issuer disclosures, so that investors could at least be more acutely aware that the financial information available on EMMA might be stale.
Mark Kim, the MSRB’s executive vice president and chief operating officer also visited with the committee Saturday and discussed some of those efforts, including some preliminary discussion of possibly adding a “counter” to EMMA to indicate how often an issuer is updating its financial information.
