[Federal Register Volume 85, Number 36 (Monday, February 24, 2020)]
[Notices]
[Pages 10487-10491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03531]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88225; File No. SR-MSRB-2019-13]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of a Proposed Rule Change To Amend the
Information Facility of the MSRB's Electronic Municipal Market Access
(EMMA) System
February 18, 2020.
I. Introduction
On November 19, 2019, the Municipal Securities Rulemaking Board
(the ``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ a proposed rule change to amend the information
facility of the MSRB's Electronic Municipal Market Access (``EMMA'')
\3\ system (the ``EMMA IF'') to provide for (1) the automated
calculation and static display of the number of days between
[[Page 10488]]
(i) the annual fiscal period end date for an issuer or obligated person
and (ii) the date an annual financial disclosure is submitted to the
EMMA system for such annual fiscal period (the ``Submission
Calculator'') and (2) the reconfiguration of certain information shown
on the EMMA public website (emma.msrb.org) (the ``EMMA Portal'') to
more prominently display an issuer's or obligated person's annual
financial disclosures and related information (the ``proposed rule
change''). The proposed rule change was published for comment in the
Federal Register on November 27, 2019.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ EMMA is a registered trademark of the MSRB.
\4\ Securities Exchange Act Release No. 87583 (Nov. 21, 2019)
(the ``Notice of Filing''), 84 FR 65436 (Nov. 27, 2019).
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The Commission received five comment letters on the proposed rule
change.\5\ On February 6, 2020, the MSRB responded to those
comments.\6\ This order approves the proposed rule change.
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\5\ See Letter to Secretary, Commission, from Scott Andreson,
Chair, National Federation of Municipal Analysts (``NFMA''), dated
December 13, 2019 (the ``NFMA Letter''); Letter to Secretary,
Commission, from Emily Swenson Brock, Director, Federal Liaison
Center, Government Finance Officers Association (``GFOA''), dated
December 18, 2019 (the ``GFOA Letter''); Letter to Secretary,
Commission, from Chuck Samuels, General Counsel, National
Association of Health and Educational Facilities Finance Authorities
(``NAHEFFA''), dated December 18, 2019 (the ``NAHEFFA Letter'');
Letter to Secretary, Commission, from Kenton Tsoodle, Assistant City
Manager, Oklahoma City, GFOA Representative, David Erdman, Capital
Finance Director, State of Wisconsin--Department of Administration,
GFOA Representative, Cynthia Evangelisti, Treasurer, Chicago Park
District, GFOA Representative, The Honorable Fiona Ma, Treasurer,
State of California, National Association of State Treasurers
Representative, Dennis Reilly, Executive Director, Wisconsin Health
& Educational Facilities Authority, NAHEFFA Representative, Staci
Henshaw, Deputy Auditor, Virginia Auditor of Public Accounts,
National Association of State Auditors, Comptrollers and Treasurers
Representative, Christine Crowley, Municipal Advisor, Fiscal
Advisors & Marketing, Inc., National Association of Municipal
Advisors (``NAMA'') Representative, Brian Reilly, Senior Municipal
Advisor, Ehlers, Inc., NAMA Representative, Stacey Lewis, Partner,
Pacifica Law Group LLP, National Association of Bond Lawyers
(``NABL'') Representative, Bradley Patterson, Shareholder, Gilmore &
Bell, P.C., NABL Representative, and Teri Guarnaccia, Partner,
Ballard Spahr LLP, NABL Representative (collectively, the ``Issuer
Representatives Workgroup''), dated December 18, 2019 (the ``Issuer
Representatives Workgroup Letter''); and Letter to Secretary,
Commission, from Vicki Hellenbrand, President, Baker Tilly Municipal
Advisors, LLC (``Baker Tilly''), dated December 19, 2019 (the
``Baker Tilly Letter'').
\6\ See Letter to Secretary, Commission, from Gail Marshall,
Chief Compliance Officer, Municipal Securities Rulemaking Board
(``MSRB''), dated February 6, 2020 (the ``MSRB Response Letter'').
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II. Description of Proposed Rule Change
As described further below and in the Notice of Filing, the MSRB
proposes to amend the EMMA IF to provide for (1) the Submission
Calculator and (2) the reconfiguration of certain information shown on
the EMMA Portal to more prominently display an issuer's or obligated
person's annual financial disclosures and related information.\7\ The
MSRB has stated that it believes the proposed rule change would further
promote transparency and efficiency in the municipal securities market
without imposing significant additional burdens on brokers, dealers,
and municipal securities dealers (collectively, ``dealers''), municipal
issuers, or obligated persons.\8\
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\7\ See Notice of Filing, 84 FR at 65437.
\8\ Id. at 65439.
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A. Submission Calculator
The proposed rule change would amend the EMMA IF to provide for the
Submission Calculator. The MSRB states that the Submission Calculator
would automatically calculate and statically display the elapsed number
of days between (1) the end date of the annual fiscal period covered by
an annual financial disclosure (the ``Fiscal Period End Date'') for an
issuer or obligated person, as such date is entered by a submitter
through the process of publishing an annual financial disclosure on the
EMMA Portal, and (2) the time and date of the submission of the annual
financial disclosure to the EMMA system (the ``Posted Date'') of an
annual financial disclosure submitted to the EMMA system for such
annual fiscal period, both of which dates are currently visible on the
EMMA Portal.\9\ The MSRB notes that the Submission Calculator would be
based on the existing information required to be provided by a
submitter, calculating the number of days elapsed based solely on the
entry of the Fiscal Period End Date and the Posted Date for an annual
financial disclosure.\10\ The day of the Posted Date would be included
in the calculation, as further described in the Notice of Filing, and
this number of days elapsed would be displayed on the EMMA Portal at
the individual security details level.\11\ Importantly, the MSRB notes
that it would not evaluate the substantive content of the documents and
information submitted, and the Submission Calculator would not analyze
the relevant content to evaluate an issuer's or obligated person's
compliance with the terms of an applicable continuing disclosure
agreement or any applicable law, regulation, or other legal
obligation.\12\ The MSRB states that, consistent with the EMMA system's
current functionality, if a submitter enters an erroneous Fiscal Period
End Date for an annual financial disclosure, the Submission Calculator
would perform its calculation based on the erroneous Fiscal Period End
Date entered by the submitter.\13\
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\9\ Id.
\10\ Id.
\11\ The EMMA Portal's security details pages enable users to
access documents and information associated with a particular
municipal security, such as an official statement, continuing
disclosure document, and/or trade report.
\12\ See Notice of Filing, 84 FR at 65439.
\13\ Id.
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To illustrate how the Submission Calculator would operate, the MSRB
provided several examples in the Notice of Filing, including a single
submission of annual financial information, a multi-year series of
submissions of annual financial information, sequential submissions of
portions of an issuer's annual financial information for a single
fiscal period, and sequential submissions of annual financial
information for a single issue of municipal securities with multiple
obligated persons.\14\
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\14\ Id. at 65440.
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B. Changes to the EMMA Display
The proposed rule change would amend the EMMA IF to reconfigure
certain information shown on the EMMA Portal to more prominently
display an issuer's or obligated person's annual financial disclosures
and related information.\15\ More specifically, the MSRB states that
the revised EMMA Portal would more prominently display the information
reported about an annual financial disclosure for a municipal security,
including the Fiscal Period End Date, the Posted Date, and the results
of the Submission Calculator.\16\ The MSRB states that the proposed
rule change also would increase the prominence of the links provided by
any issuer through its customized homepage to other websites containing
relevant information.\17\ With these changes to the EMMA Portal and the
implementation of the Submission Calculator, the MSRB notes that the
security details page for a municipal security generally would provide
the information shown in Figure 1 below, which is shown as processed
with the hypothetical facts and resulting calculation from the first
example provided in the Notice of Filing.\18\
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\15\ Id. at 65441.
\16\ Id.
\17\ Id.
\18\ Id.
[[Page 10489]]
Figure 1
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Timing of Annual Financial Disclosure
Fiscal Period End Date: 06/30/2020
Posted Date: 12/23/2020
Timing of Disclosure: 176 Days
Hyperlink to Disclosure Document PDF(s)
Hyperlink(s) to Other Website(s) if Provided
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The MSRB states that, although each of these data points, other
than the Submission Calculator results shown as the Timing of
Disclosure in Figure 1, are currently available on the EMMA Portal, the
proposed rule change is intended to improve users' awareness of this
information, and that nothing about this proposed display would be
evaluative of an issuer's or obligated person's compliance with the
applicable terms of a continuing disclosure agreement.\19\ The MSRB
further states that proposed rule change would not modify how
submitters provide this information to the EMMA system, nor require
submitters to input any new data, but it would augment the display of
information reported to the EMMA system to make it more apparent to
users.\20\
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\19\ Id.
\20\ Id.
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C. Proposed Changes to Text of EMMA IF
The proposed rule change would amend the text of the EMMA IF to
provide for the development and otherwise describe the operation of the
Submission Calculator. More specifically, the MSRB states that the
proposed rule change would amend the EMMA IF to define the term ``EMMA
metrics'' to mean the calculations, data, and metrics derived from
municipal securities disclosure documents and related information
submitted to the EMMA system, thereby including the calculations, data,
and metrics generated by the Submission Calculator would be in the
definition.\21\ The MSRB notes that this revised definition is intended
to provide greater clarity regarding the various types of information
that may be disseminated by the EMMA system in light of the Submission
Calculator's new functionality, including more precisely delineating
the distinctions between disclosure documents, related information,
indexing information, and EMMA metrics.\22\
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\21\ Id.
\22\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments
As noted previously, the Commission received five comment letters
on the proposed rule change, as well as the MSRB Response Letter.
A. Stakeholder Consultation and Education
Four commenters expressed concerns that, prior to filing the
proposed rule change with the Commission, the MSRB did not formally
invite market participants to provide input through a public request
for comment or through other MSRB-organized stakeholder consultation,
such as beta-testing and user focus groups,\23\ with three of such
commenters recommending that the proposed rule change be withdrawn
until such consultation could occur.\24\ The MSRB stated that although
it believes that engaging in such stakeholder outreach can be valuable,
the legal standard under the Act for Commission approval of a proposed
rule change does not require such engagement prior to the filing of a
proposed rule change with the Commission, and therefore the lack of any
such engagement should not be a basis for disapproval by the Commission
of the proposed rule change.\25\
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\23\ See GFOA Letter, NAHEFFA Letter, Issuer Representatives
Workgroup Letter, Baker Tilly Letter.
\24\ See GFOA Letter, NAHEFFA Letter, Issuer Representatives
Workgroup Letter.
\25\ See MSRB Response Letter.
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The MSRB stated that it appreciates the willingness of commenters
to provide constructive feedback on the proposed rule change, and that
it would value the opportunity for stakeholders to preview the proposed
changes to the EMMA Portal contemplated by the proposed rule change in
advance of the date such changes would become visible to the public, as
well as for stakeholders to provide input on possible future MSRB
education initiatives and market transparency enhancements.\26\
Further, the MSRB stated that, subject to the Commission's approval of
the proposed rule change, the MSRB believes that it can, and intends
to, provide the sort of stakeholder consultation requested by the
commenters during the period between the publication of the
Commission's approval order and the date the proposed enhancements
become visible to the public on the EMMA Portal.\27\
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\26\ Id.
\27\ Id.
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B. Potential for Erroneous Submissions
Five commenters raised concerns about the potential for erroneous
submissions to EMMA to result in erroneous displays of information in
the Submission Calculator.\28\ For example, one such commenter stated,
``submission errors, including classification errors and incorrect
dates, that are frequent in today's EMMA system, pose a high risk that
a meaningful number of calculations will be based on inaccurate
information.'' \29\ Another commenter expressed concerns that the
Submission Calculator could itself generate errors.\30\
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\28\ See GFOA Letter, NAHEFFA Letter, Issuer Representatives
Workgroup Letter, Baker Tilly Letter, NFMA Letter.
\29\ See NFMA Letter.
\30\ See Baker Tilly Letter.
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The MSRB stated that it appreciates commenters' concerns about
improving the accuracy and completeness of information displayed on the
EMMA Portal. The MSRB noted that, as stated in the Notice of Filing,
the changes to the EMMA Portal contemplated by the proposed rule change
would not alter the process for users to submit annual financial
disclosures to EMMA nor change the type of information collected in the
publication of such disclosures.\31\ The MSRB further noted that the
information that would be used in the proposed changes--including the
calculation generated by the Submission Calculator--is presently being
input by users and published for public view on the EMMA Portal.\32\ In
this sense, the MSRB stated that it believes that commenters'
assertions about the inevitability and frequency of submission errors
are more aptly characterized as market behaviors that would be expected
to persist regardless of the proposed rule change, rather than outcomes
that will specifically result from the proposed rule change.\33\
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\31\ See MSRB Response Letter.
\32\ Id.
\33\ Id.
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Consequently, to the degree that the Submission Calculator and the
other proposed enhancements would provide new prominence to the
information submitted, the MSRB stated that it believes that submitters
would have an additional incentive to properly categorize and describe
annual financial disclosures, and the incidences of submissions with
erroneous information would be expected to marginally decline from
current rates.\34\ Similarly, to the degree that submitters exert
greater diligence in completing the disclosure submission process in
response to the proposed rule change, the MSRB stated that it believes
that any additional burden created by this change in market behavior is
exceeded by the benefits of greater market transparency through the
improved
[[Page 10490]]
availability and understanding of market information displayed on the
EMMA Portal.\35\ Accordingly, the MSRB concluded, commenters'
assertions about the consequences of erroneous submissions do not
change the MSRB's determinations about the overall benefits of the
Submission Calculator.\36\
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\34\ Id.
\35\ Id.
\36\ Id.
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With respect to comments that the MSRB undertake ``greater
oversight of the submission process'' \37\ or otherwise prevent
``inconsistent and unclear data,'' \38\ the MSRB stated that it
believes that submitters should retain ultimate responsibility for the
accuracy and completeness of the content they submit for publication on
the EMMA Portal, including identification of the applicable disclosure
category (or categories) of an annual financial disclosure, and
comments about the need for improved data quality and greater MSRB
oversight of information input by disclosure submitters do not alter
the MSRB's determinations in this regard.\39\
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\37\ See NFMA Letter.
\38\ See Issuer Representatives Workgroup Letter.
\39\ See MSRB Response Letter.
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With respect to the potential for the Submission Calculator to
malfunction and display incorrect calculations, the MSRB stated that it
has established policies and procedures to maintain the performance of
the EMMA system.\40\
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\40\ Id.
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C. Correction of Submission Mistakes
Two commenters sought clarity regarding whether disclosure
submitters will be able to correct submission mistakes.\41\ The MSRB
stated that the EMMA system currently provides issuers and obligated
persons the ability to modify prior continuing disclosure submissions,
including by selecting different categories, adding or replacing
submitted files, editing dates and descriptive information, adding or
removing securities associated with a submission, and changing the
contact information for the submission.\42\ The MSRB noted that it is
already pursuing several user interface and functionality improvements
to EMMA independent of the proposed rule change.\43\ The MSRB further
noted that one commenter had requested several additional technological
improvements to EMMA that are unrelated to the Submission
Calculator,\44\ which the MSRB believes are outside the scope of the
proposed rule change.\45\
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\41\ See GFOA Letter, NAHEFFA Letter.
\42\ See MSRB Response Letter.
\43\ Id.
\44\ See NFMA Letter.
\45\ See MSRB Response Letter.
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D. Potential for Investor Confusion
Four commenters expressed concerns about how investors might use
the information provided by the Submission Calculator, including
whether it could be used erroneously to compare the timing of
disclosures for different types of municipal securities or municipal
issuers.\46\ One commenter stated that, ``[t]here is no apples to
apples comparison between issuers that can be represented by this
calculator,'' and that ``some issuers could be unfairly judged by
investors that information may not be `timely' when in fact it is
submitted as quickly as possible--and within the timeframe noted in a
[continuing disclosure agreement]--pending the completion of audited
financials.'' \47\ Another commenter similarly expressed a concern
about pooled financings and other municipal securities with multiple
obligated persons, stating, ``we do not understand how such financings
with borrowers who may have different fiscal periods will be handled
without providing significantly misleading information.'' \48\ Another
commenter stated its view that the Submission Calculator should only
perform a calculation on filings marked as audited financial filings,
not for unaudited annual financial filings, because there would be an
``opportunity for manipulation'' of the calculation, and also expressed
concern about investors being misled by the display of a calculation
based on out-of-date annual financial disclosures.\49\ Another
commenter suggested that the proposed rule change could alter market
behavior by encouraging quick but ``inadequate'' filings.\50\
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\46\ See GFOA Letter, NAHEFFA Letter, NFMA Letter, Baker Tilly
Letter.
\47\ See GFOA Letter.
\48\ See NAHEFFA Letter.
\49\ See NFMA Letter.
\50\ See Baker Tilly Letter.
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The MSRB stated that although it does not disagree with the
observations underlying many of these comments, it believes that the
comments do not necessarily demonstrate flaws unique to the proposed
rule change, but are more generally representative of the variation and
complexity of disclosure practices in the municipal securities
market.\51\ The MSRB further stated its belief that it can, and intends
to, mitigate some potential investor confusion by making various
investor education resources available on the EMMA Portal in
conjunction with the proposed rule change.\52\ Moreover, the MSRB
stated, it continues to believe that the design of the Submission
Calculator adequately accounts for the broad variety of common
disclosure practices in the municipal securities market and promotes
greater transparency, including by making financial information more
readily apparent to investors, market professionals, and the general
public through the EMMA Portal.\53\
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\51\ See MSRB Response Letter.
\52\ Id.
\53\ Id.
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The MSRB further noted that, as described in the Notice of
Filing,\54\ the Board evaluated various alternatives to and iterations
of the Submission Calculator.\55\ After significant deliberation and
review of the data currently reported to the EMMA system, the MSRB
determined that the Submission Calculator would be superior to other
alternatives because it could account for the lack of common uniformity
in the reporting of financial information characteristic to the
municipal securities market, while also creating no new burdens on
issuers and obligated persons submitting information to the EMMA
Portal.\56\ Nevertheless, in consideration of the comments to the
proposed rule change, the MSRB emphasized that it is committed to work
with stakeholders on future enhancements to the EMMA Portal.\57\
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\54\ See Notice of Filing, 84 FR at 65442.
\55\ See MSRB Response Letter.
\56\ Id.
\57\ Id.
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IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change,
the comment letters received, and the MSRB Response Letter. The
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the MSRB.
The Commission believes that the proposed rule change is consistent
with Section 15B(b)(2)(C) of the Act, which provides in part that the
MSRB's rules shall:
be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial
[[Page 10491]]
products, and, in general, to protect investors, municipal entities,
obligated persons, and the public interest.\58\
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\58\ 15 U.S.C. 78o-4(b)(2)(C).
For the reasons set forth below, the Commission believes that the
proposed rule change would promote the protection of investors and the
public interest, and prevent fraudulent and manipulative acts and
practices, and is therefore consistent with Section 15B(b)(2)(C) of the
Act.
The Commission has long been concerned with disclosure in both the
primary and secondary markets for municipal securities, and has
regularly encouraged municipal issuers to provide timely and accurate
information to investors and the trading markets.\59\ For example, in
the 1994 Interpretive Release, the Commission observed that ``[t]he
timeliness of financial information is a major factor in its
usefulness.'' \60\ In the 2008 Adopting Release, through which the
Commission designated EMMA as the sole repository for issuer and
obligated person continuing disclosures, the Commission noted that its
``objective of encouraging greater availability of municipal securities
information remains unchanged.'' \61\ More recently, the Commission has
noted that, among other things, timeliness of disclosures is a major
challenge in the secondary market for municipal securities.\62\
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\59\ See Exchange Act Release No. 34961 (November 10, 1994), 59
FR 59590 (November 17, 1994); Exchange Act Release No. 33741 (March
9, 1994), 59 FR 12748 (March 17, 1994) (the ``1994 Interpretive
Release''); Exchange Act Release No. 59062 (December 5, 2008), 73 FR
76104, 76108 (December 15, 2008) (``2008 Adopting Release'');
Securities and Exchange Commission, Report on the Municipal
Securities Market (July 31, 2012) (``2012 Report''), available at
https://www.sec.gov/news/studies/2012/munireport073112.pdf; Exchange
Act Release No. 83885 (August 20, 2018), 83 FR 44700 (August 31,
2018).
\60\ See 1994 Interpretive Release, 59 FR at 12753.
\61\ See 2008 Adopting Release, 73 FR at 76108.
\62\ See 2012 Report at 74.
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The Commission believes that the changes to the EMMA Portal
contemplated by the proposed rule change would promote the protection
of investors and the public interest by increasing their awareness and
understanding of the type and timing of financial information available
in the municipal securities market, which could enable investors to
make more informed investment decisions. The Commission believes that
the changes to the EMMA Portal contemplated by the proposed rule change
also would enable investors and others to more readily locate and
access the financial information available on the EMMA Portal and
provide investors and others with additional tools to evaluate an
issuer's disclosure practices.
The Commission further believes that the proposed rule change would
promote the prevention of fraudulent and manipulative acts and
practices by fostering a better understanding among investors and other
market participants of the type and timing of annual financial
information available in the municipal securities market by making the
type and timing of financial information more readily apparent on the
EMMA Portal. In the Commission's view, the proposed rule change could
mitigate certain information asymmetries that may exist in the market
and thereby enable investors to make more informed investment decisions
and protect themselves from fraud.
In approving the proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation.\63\ Section 15B(b)(2)(C) of the Act
\64\ requires that MSRB rules not be designed to impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. The Commission does not believe that the proposed rule
change would impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act, because it would
not require issuers and other submitters of information to EMMA to
provide any additional information in their submissions. Furthermore,
the Commission believes that the potential for increased transparency
and awareness regarding the timing of financial information available
on the EMMA Portal could improve competition by assisting investors in
their analysis of a municipal security's financial information by
clearly and prominently displaying a measure of the timing of that
information.
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\63\ 15 U.S.C. 78c(f).
\64\ 15 U.S.C. 78o-4(b)(2)(C).
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The Commission has reviewed the record for the proposed rule change
and notes that the record does not contain any information to indicate
that the proposed rule change would have a negative effect on capital
formation. The Commission believes that the proposed rule change
includes provisions that help promote efficiency. By promoting
transparency and awareness of the timing of annual financial
information, the proposed rule change could enable more efficient
analysis by investors and others of the age of the financial
information available about an issuer and its securities.
As noted above, the Commission received five comment letters on the
filing. The Commission believes that the MSRB, through its responses,
has addressed commenters' concerns. For the reasons noted above, the
Commission believes that the proposed rule change is consistent with
the Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\65\ that the proposed rule change (SR-MSRB-2019-13) be, and hereby
is, approved.
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\65\ 15 U.S.C. 78s(b)(2).
For the Commission, pursuant to delegated authority.\66\
Jill M. Peterson,
Assistant Secretary.
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\66\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2020-03531 Filed 2-21-20; 8:45 am]
BILLING CODE 8011-01-P