Who Is Filing Your Secondary Market Disclosure?

by Matthew D. Jessup on March 16, 2011

This is the time of year when each calendar-year municipality is finalizing its audited financial statements for the year ending December 31, 2010 and adopting its budget for 2011. The focus is generally on the finishing touches for the audit, as well as working with the Division of Local Government Services to fine-tune the revenue and expenditure numbers in the budget.

Let me add one very important step to this process that is often forgotten or overlooked, and yet is now more important than ever. Someone needs to file the completed audit and the adopted budget with the Municipal Securities Rulemaking Board (MSRB) through the MSRB’s Electronic Municipal Market Access Dataport (www.emma.msrb.org) to ensure compliance with your municipality’s secondary market disclosure requirements.

That last sentence may have made your head spin, but the filing of secondary market information needs to be a priority for any municipality that has issued municipal bonds. In order for a purchaser of municipal bonds to comply with certain Securities Exchange Commission (SEC) and MSRB requirements, the purchaser must receive a written promise from the issuer of the municipal bonds that the issuer will (1) provide annually its updated financial information, including the audit, the budget and certain demographic and other economic data originally included in the Official Statement that was used to sell the municipal bonds; and (2) provide notice of the occurrence of certain “material events” if they occur. This promise is written into every Official Statement distributed in connection with the issuance of municipal bonds. Without it, there would be no buyers of those bonds.

The SEC and the MSRB are more focused than ever on enforcing the written promise made by municipalities. In fact, the SEC Chairwoman reported to the House of Representatives yesterday that the SEC would like the ability to pursue municipal issuers directly, versus having to enforce disclosure obligations indirectly through the purchasers of municipal bonds, the way it does currently.

It has been my experience that all too often, municipalities forget to file their secondary market information with the MSRB. The municipality thinks the auditor, bond counsel or financial advisor automatically completes the filing, and the same professionals think the municipality completes the filing. The deadline for filing secondary market information varies by issuer and is contained within the form and sale resolution authorizing the bonds.

So, please allow this to serve as a reminder. Contact your auditor, bond counsel and financial advisor and make sure everyone has the same understanding of who is filing this information. Hire one of your professionals to undertake this responsibility if need be. Any fees associated with this work are well worth preserving your municipality’s access to the municipal bond market and will pale in comparison to the fines and penalties the SEC may one day have a right to collect from your municipality.

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