“This is way before EMMA, back when MSIL was set up – there was actually a lot more opposition then than there was when EMMA got set up, because I think there was some concern in the issuer community that that would be the first step to creating a registration process. When we set up MSIL, we actually had to be very explicit that we weren’t going to do certain things. We were simply a utility, we weren’t going to put obligations on issuers, and we weren’t going to make then available to the public for free. We were just going to be a behind-the-scenes utility, just to keep people comforted that we weren’t going to be an indirect regulator of issuers.”
By the 1990s, a decade’s worth of turmoil had reshaped the municipal market. SEC Rule 15c2-12 and MSRB Rule G-32 had made for limited disclosure in primary offerings. Although disclosure in the secondary market remained non-existent, escrowed to maturity had started the industry on the path to secondary market disclosure as “the catalyst that helped produce the modern, more transparent municipal market.” 27
At the center of that story is the development of the MSRB as an information agency, a process begun after adoption of 15c2-12. In 1990, the MSRB implemented a submission system for official statements and advanced refunding documents, to be updated annually. At the time, only printed materials constituted adequate disclosure by SEC standards, so the new repository took an old-sounding name, the Municipal Securities Information Library (MSIL).
The MSRB understood that, in order to provide accurate and timely information, the repository would have to be digital, and issued a white paper to that effect. Into the 1990s, as the implications of the escrowed to maturity episode unfolded, the problems of paper documentation mounted. A 1993 SEC Staff Report called for better access to information regarding quotes, prices and value of trades. The dismal performance of the municipal market the next year convinced the SEC that the paramount objective should be better price information. Those more attuned to the municipal market believed this emphasis to be misplaced. Most of the SEC’s experience was in the equities market, where trading was high and price discovery was efficient. In the lightly-traded municipal bond market, prices were less certain. Regardless, by regularly raising the possibility of new legislation or additional rulemaking, the SEC encouraged the MSRB to require better reporting. In 1994, broker-dealers accepted the prospect of new rules, provided that the MSRB implement real-time transaction reporting. That November, the SEC approved amendments to Rule 15c2-12.
The 15c2-12 amendments paved the way for continuing municipal disclosure by laying out a set of material events—dubbed “the eleven deadly sins”—required to be reported by broker-dealers. At the same time the MSRB began developing a limited transaction reporting program. Launched in 1995, the system made daily summaries of bond trades available to subscribers on the website of The Bond Market Association. How the information got there was more complicated.
The SEC required broker dealers to file information with “Nationally Recognized Municipal Securities Information Repositories” known as NRMSIRs. The MSRB proposed that it serve as a single NRMSIR on behalf of the industry, but issuers, retaining their long-standing suspicion of the MSRB’s motives, rejected the offer.
Instead, the industry established multiple private repositories (the NRMSIRs) and state repositories (SIDs) that funneled information to the MSRB’s Continuing Disclosure Information system (CDI). The arrangement proved as ungainly as the flurry of abbreviations, but the SEC approved the structure, anticipating that in time issuers would accept a single repository. Broker-dealers only had to file with one repository, and each did things differently. Primary documents were often not linked to continuing disclosure and some materials were misfiled. By 1999, the SEC was convinced that the system had “not resulted in complete and comprehensive disclosure.” 28 In 2000, the MSRB offered to set up an optional system of electronic submissions, but again issuers pushed back.
As its boardroom was not the best place to achieve consensus, the MSRB created a parallel entity in 2001, bringing together representatives of 18 groups covering the entire municipal market. A day and a half of open-ended discussion led to identification of one area where real progress could be made: secondary market disclosure. The group, dubbed the “Muni Council,” continued to meet without the MSRB; “it was the group itself that determined that there might be more open, more free conversation without a regulator in the room.” 29
Everyone realized that technology would be the key to efficient disclosure; during the next few years, the building blocks of an efficient system were put into place. In 2002, the MSRB launched a system named eOS, for electronic official statement submission system, which allowed broker-dealers to submit digital versions of the official statement. The next year, eOS could provide “T+1,” or day after trade information. But there were still two problems with the approach: eOS was not publicly available and the SEC still required hard copy disclosure documents.
In 2004, the SEC approved the streamlining of the NRMSIR system. Under arrangements developed by the Muni Council, the Municipal Advisory Council of Texas agreed to serve as a “Central Post Office” for all information sent to the three remaining (down from nine) NRMSIRs. It was an improvement, but still inadequate. The MSRB tested a better model the next year, putting real-time pricing - within 15 minutes - up on the website of The Bond Market Association, proving the effectiveness of electronic delivery.
Another barrier to a full-fledged electronic system fell in 2006 when the SEC’s “Access Equals Delivery” concept release gave a green light to electronic disclosure. By then, the Muni Council had fully envisioned a centralized electronic disclosure system but could not develop or host it. The MSRB put out a concept release signaling that, once again, it was prepared to take responsibility if the industry was willing to cede it.
(27) Mysack, Encyclopedia of Municipal Bonds, 56.
(28) Hildreth and Zorn, “The Evolution of the State and Local Government Municipal Debt Market,” 146.
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