MSRB recommends actions for SEC on disclosure to protect investors

By Jennifer Chiou

New York, Aug. 9 - The Municipal Securities Rulemaking Board announced that it has provided recommendations on municipal market disclosure to the Securities and Exchange Commission, including changes that would provide investors with additional information about municipal securities in both the primary and secondary markets.

According to an MSRB release, the SEC is updating its interpretive guidance on federal laws governing disclosure in the municipal market.

The MSRB specifically recommended removing the exemption for disclosure documents for primary offerings of variable-rate demand obligations. It noted that these types of offerings are currently exempt from the official statement requirements of SEC Rule 15c2-12.

The board also said that it asked the SEC to consider elaborating on the importance of disclosing to investors risk factors associated with a primary offering of municipal securities such as market, credit, liquidity and legal risks as well as risks associated with new products and risk mitigation strategies.

As background, the MSRB's Electronic Municipal Market Access system at emma.msrb.org became the official repository for continuing disclosure documents in 2009.

The release said that some market participants have expressed frustration with the unavailability, due to issuer non-compliance, of audited financial statements within a reasonable timeframe.

One of the board's recommendations is for the SEC to require issuers or obligated persons to make "robust" disclosures of previous breaches of continuing disclosure agreements in official statements for new issues of municipal securities, the release added.

"The MSRB recognizes that the majority of issuers are diligent in complying with their continuing disclosure obligations," MSRB executive director Lynnette Kelly Hotchkiss stated in the release.

"However, we would like to see initiatives that help ensure investors have access to key investment-related information, perhaps including an issuer's continuing disclosure track record."

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