The Municipal Securities Rulemaking Board is considering rule changes modernizing disclosure duties for brokers, electronic delivery methods and disclosure timing to boost transparency and standardize practices for municipal fund securities.
"We welcome the MSRB's concept release on municipal fund securities and the Board's consideration of updating the way these securities are regulated," said Michael Decker, senior vice president of federal policy and research at the Bond Dealers of America. "BDA will review the release and comment as appropriate."
The board is focused on fine tuning Rules G-17, G-32, and G-47. The
Rule G-32 requires underwriters of municipal fund securities, such as 529 plans, to deliver the official statement to the customer by "no later than the settlement date of the transaction."
In 2009 the rule was amended to allow electronic delivery, but discrepancies exist between disclosure delivery methods for different types of securities which can result in multiple physical deliveries of key documents.
"SIFMA appreciates the MSRB's concept release proposing initiatives to modernize the disclosure duties of broker-dealers in connection with municipal fund securities," said Leslie Norwood, managing director & associate general counsel, Municipal Securities, Securities Industry and Financial Markets Association.
"Municipal fund securities are pooled investment entities and are covered by the same rule set as municipal debt securities, although the products have critical and fundamental differences."
The board is justifying the idea of going all electronic by providing statistics from the Pew Research Center showing the 90% of all Americans go online daily and have a smartphone.
The Rule 32 amendments are designed to eliminate the need for physical paper disclosure by replacing them with postings on EMMA.
The board proposes two solutions: its "Access Equals Delivery Alternative," which would make the process totally electronic or its "Supplemental-Layered Disclosure Alternative, which would maintain the requirement for physical delivery with respect to an initial sale to a customer of a municipal fund security, with a default to electronic access through EMMA.
Per the notice, "In particular, the MSRB is interested in receiving any quantitative or qualitative analysis relevant to customer behavior and use of disclosure information."
The board lists nine specific questions regarding the nuances of electronic disclosures including a query about which alternative the industry prefers while also asking for any other alternatives.
The board also wants to know, "which delivery alternative best supports investors' ease of access to information and would heighten their sense of awareness of the importance of an official statement?"
"Would investors, dealers, or issuers experience any new burdens under either of the two alternatives identified above?"
And "are there alternative disclosure delivery standards, for an official statement that would improve investors' comprehension of disclosures and access to information while reducing dealers' cost burdens related to paper-only disclosure delivery?"
Disclosure is a hot topic in the muni industry as the implementation of the Financial Data Transparency Act is also receiving comments and pushback from the industry filtering up to
Enacted in December 2022, the FDTA requires that municipal securities disclosures be converted into a machine-readable format and could alter how the industry interacts with EMMA.
The basic premise of Rule G-47 deals with disclosure obligations that were originally imposed by the MSRB through Rule G-17 on fair dealing and relates to "all material information known about the transaction and material information about the security that is reasonably accessible to the market."
The MSRB is specifically focused on the "conduct of municipal securities and municipal advisory activities, with respect to dealers that act in the capacity of underwriters for municipal fund securities and those that sell interests in municipal fund securities to customers."
"We support the MSRB's goals to make the rule set more efficient and effective, and to reduce the burdens on broker-dealers," said Norwood.
"SIFMA will be reviewing the notice with its members prior to submitting comments to the MSRB.
