This article is the fourth of a six-part series on investor disclosure in the municipal bond market.
For decades, the issues surrounding disclosure in this $3.9 trillion market have vexed municipal bond borrowers and investors alike. Now, with both governments and nonprofits reeling from the adverse financial effects of Covid-19, municipal bond disclosure is back on the front burner. The public health crisis may prove the tipping point needed to finally resolve the market’s disclosure issues.
The previous article, Muni Bond Market: In Dogged Pursuit Of A Disclosure Framework, covered the unflagging efforts of the Securities and Exchange Commission (SEC) and the Municipal Securities Regulatory Board (MSRB) to sometimes guide and sometimes impose disclosure rules and standards in that market.
This article discusses how other market stakeholders and standard setters have shaped municipal bond disclosure—and continue to actively work to improve it.
Thoughts From Standard-Setters and Stakeholders
If you want to know what municipal bond market stakeholders think about disclosure, just ask. There are plenty of them. The National Association of Bond Lawyers, National Association of State Treasurers, National Federation of Municipal Bond Analysts—these are just a few of the stakeholders who help shape the municipal bond market. Each has very strong views on disclosure and very vocal constituencies.
Moreover, many have offered disclosure frameworks and guidance. For example, the National Federation of Municipal Analysts (NFMA) has been focused on the disclosure issue in the market since the late 1990s. The NFMA has a keen interest in this. Its members have a serious stake as stakeholders. Literally a multibillion-dollar stake. The NFMA is composed of investment professionals at mutual funds, insurance companies, bank trust departments, and wealth and investment managers overseeing portfolios totaling multi-billions of dollars of investor’s municipal bond holdings.
Over the years, the NFMA has published and updated numerous best practice recommendations for nearly all sectors of the municipal bond market. From private colleges and universities to solid waste to general obligations, the catalogue is both thorough and extensive. And publicly available as a resource for any borrower or investor.
Lisa Washburn, NFMA Industry & Media Liaison, offers the context for the organization’s ongoing efforts to improve disclosure. “Timely, complete, and ongoing disclosure is critical, and really the only way that investors can value bond holdings and make informed investment decisions.” To those who contend that, since municipal bonds rarely default, such extensive disclosure isn’t all that important, she responds that such views are based on a “very narrow and inaccurate” understanding of the various facets of investing affected by disclosure. When and what is disclosed—or not disclosed—can impact a bond in terms of trading price, evaluations, and liquidity. This happens, she explains, when there are changes in the “financial or other credit factors of the issuer or its rating.” As overseers of their clients’ investments, prudent analysts apply their financial skills to assess what the effects will be on those holdings.
Can’t We All Get Along?
But even with such extensive existing disclosure frameworks, things get murky when it comes to finding industrywide agreement on disclosure standards. J. Ben Watkin, the director of the State of Florida Division of Bond Financing, thinks that’s unfortunate. If anyone could speak with both credibility and authority on this, it’s Watkin. Over the course of his career, he’s chaired the Committee on Government Debt for the 9,000-member Government Finance Officers Association in addition to acting as vice chairman and board member of the Municipal Securities Rulemaking Board.
Watkin points out that municipal bond market stakeholders, including bond issuers and bond investors, agree on the importance of relevant and timely disclosure. He goes on to note that, in his experience, these stakeholders and many others are also in general agreement on 95% of what should be disclosed. It’s his observation that people often spend too much time getting hung up on the 5% they aren’t in agreement on.