Government Finance Officers Association
1301 Pennsylvania Avenue, NW Suite 309
Washington, D.C. 20004
202.393.8020 fax: 202.393.0780
March 29, 2012 Mr. Ronald W. Smith Corporate Secretary Municipal Securities Rulemaking Board 1900 Duke Street Alexandria, VA 22314 RE: Public Comment on MSRB’s FY13 Priorities Dear Mr. Smith: Thank you very much for the opportunity to provide input on the MSRB’s Fiscal Year 2013 priorities. The GFOA and members of its Governmental Debt Management Committee have appreciated providing comments to the MSRB on numerous rulemaking and general guidance issues over the past year. Most of our comments today reflect these past letters and conversations we have had with the MSRB leadership and staff. We are particularly pleased that the MSRB is developing rulemaking on using the NRO status related to price reporting. Using the NRO designation, without accompanying yield information, has been a concern of many GFOA members, as it creates opaque pricing information. If approved, this new Rule will help both issuers and investors understand the dynamics of the market related to their bonds. Provided that bond sale yield data is reported by broker‐dealers to the market in a timely manner, this rule change will help to improve market transparency for issuers and investors. We also are pleased with the ongoing development and implementation of rules to protect municipal entities. As we have written in the past, we see the MSRB’s mission to protect issuers to include developing appropriate rules for the broker/dealer and financial advisor communities. We know that this is an ongoing activity and in the coming year there will likely be numerous proposed regulations affecting municipal advisors and broker/dealers that will be of interest to GFOA members. We appreciate MSRB’s work to enhance EMMA and develop useful tools for both issuers and investors. We look forward to additional components to the toolkits, possible enhancements to the EMMA system, and ongoing educational pieces. As one of the primary communities that use EMMA, we hope MSRB will continue reaching out to the GFOA so that we may alert our members and provide feedback on upcoming changes. This may include hosting meetings and/or calls with various types of issuers that may have particular technical questions about the system, as well as smaller governments that may need additional education on using EMMA. We cannot stress enough the importance of continuing dialogue and discussion about the MSRB’s work related to the issuer community. The GFOA, as well as other issuer groups, are constantly providing information to our members about EMMA and other MSRB initiatives. Increased information provided to the public and to various member organizations that have an interest in MSRB’s work will help the market as a whole. Speaking specifically for GFOA, it would create better informed issuers about their obligations related to continuing disclosure and EMMA, as well as MSRB rules that affect the transactions they are entering into. Below are some other issues that the MSRB should consider adding to their work plan. Many of these items have been discussed already but remain of interest to our members. Transparency – MSRB Operations The MSRB has recently indicated that increased information about the work of the MSRB’s board will be forthcoming. We applaud these efforts and hope they will continue. In 2010, we noted the following regarding increased transparency: • Meetings should be open, and allow for outside participation. Meeting agendas should be made available well before schedule meetings and minutes should be published within 10 business days of each meeting. • Regardless of the total number of board members, the number of issuer members should equal that of broker‐dealers, financial advisors, investors and public members. • The board and staff should look for systematic input from advisory groups and other outlets, of various market participants including issuers and investors. These advisory groups would facilitate meaningful input regarding the work of the MSRB. Educational Efforts The development of brochures and web resources for the issuer community has been very helpful to GFOA members. We would appreciate continuing our partnership in this area to revise and develop materials as needed due to system developments, as well as in areas where issuers may need additional information about using EMMA and the submission process. Again, in 2010, we noted the following regarding educational efforts – • Work with GFOA and other groups to develop flyers/brochures/general information about EMMA. • On the investors section of the MSRB web site, create educational material that clarifies that not every municipal bond is an obligation of a government or municipality. Conduit revenue bonds are frequently issued by a government in order to convey tax‐exemption to the borrower, but such bonds are typically not be a financial obligation of, or secured in any manner by, the municipal issuer. Such differences should be clearly explained to the investor community. Fair Pricing In 2010, we suggested that the MSRB work to educate agencies in the federal government, as well as the public at large, about bond pricing. That educational effort is likely ongoing, but pricing and “flipping” issues continue to make headlines, and the IRS’s interest in this issue is not waning. Additionally, the MSRB’s efforts to ensure complete pricing information quickly will help the entire market, investors and issuers alike. The MSRB should look at ways to enhance this transparency, as it develops other rules and possible new rules in the forthcoming year. 2
Derivatives Regulating the derivatives market is a key component of the Dodd‐Frank Act. We believe the MSRB has an appropriate role in developing rules over swap advisors – as they do with all municipal advisors – due to MSRB’s depth of knowledge in the municipal securities area. We do think there are additional areas where the MSRB can be useful in this market in both the short and long term. Some of the items we suggested in 2010 are noted below: • Develop suitability obligations and fair business practices for swap dealers (including disclosure, pricing, profit and risk analysis). • Develop a checklist of items that must be disclosed to issuers regarding swaps. Such a document should be completed by the broker PRIOR to the approval of the deal by an elected board. GFOA’s Derivatives Checklist can be a resource for the types of disclosures that should be made to issuers. • Develop a repository for all interest rate swap deals, by dealer. Such a repository would include terms of the deal, and the pricing when both the deal is executed and on an ongoing basis by posting mark‐to‐market data. EMMA As we commented above, the MSRB has done exceptional work with the EMMA system. We look forward to continuing to work together to enhance the various educational and usage efforts that are underway. We are especially pleased that EMMA has direct feeds from two of the rating agencies. For the sake of the market as a whole, we hope that the remaining vendor will soon submit feeds to the system. GFOA continues to believe that reporting of rating changes to the market should be the obligation of the rating agencies; we hope that when the third major rating agency eventually agrees to feed information to EMMA, issuers will be relieved of that obligation in the list of reportable material events. Our members are also looking to other enhancements in order to upgrade their experience with EMMA. Some of these items have been discussed previously and are noted below. • Provide the opportunity for issuers to receive direct feeds of trade activity on their bonds. • Allow for issuers and others to input multiple CUSIPs at the same time within the system in order to obtain pricing and other information about this bonds. We know this may not be a technical issue, but rather one involving the CUSIP Service Bureau. • Although there currently appears to be constraints, out of MSRB’s control, to develop a reminder system, developing a feature to remind issuers when their submissions are due could greatly assist with ensuring that issuers submit information as they are required to do so according to their continuing disclosure agreement. We believe that creating a reminder system will go a long way to helping those issuers who may not be submitting documents to EMMA as quickly as they are available. • In conjunction with issuer groups, determine other fields within EMMA that would be of value to issuers. • Encourage the greater use of having governments post links to their own web sites where budget and ongoing financial information is available. 3
Bank Loans While there are many issues within the municipal securities sector where the MSRB and other regulatory agencies may be proposing and implementing rules, the MSRB may wish to include bank loans on that to‐do list. The marketplace is working together on various aspects of bank loans, which are growing in popularity. While the community is working to possibly develop a consensus on the type and amount of disclosure that is needed about these financings, and the GFOA will be working on a Best Practice not only addressing the disclosure of bank loans but also helping our members understand the risks and rewards with this financial product, having a clear definition of bank loans in place so that an appropriate regulatory framework can be proposed and implemented, would be helpful. Fees We are interested in the fees that the MSRB has in place over dealers and the likely new fees it will assess on financial advisors. In the recent past, MSRB has commented that some increased fees charged to dealers were due to the costs of running/updating EMMA. We again wish to emphasize that since issuers are one of the main users of EMMA and are mindful of the various fees assessed to and by dealers (as well as financial advisors), an open process for discussing the fee structures and other MSRB program expenditures would be of great value. Sincerely, Susan Gaffney
Director, Federal Liaison Center
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