Improved muni supermarket coming

May 9, 2011

Shopping for municipal bonds is tough.

Investors generally don’t know if the issuer is financially healthy or spiraling down to default. The media does not have useful data.

But the information is out there.

Towns and states, that issue municipal debt, are responsible to create thorough, audited documents such as annual financial statements and offering documents for new debt issues.

The Municipal Securities Rulemaking Board (MSRB) has a nice surprise coming for retail investors. It’s an expansion of the EMMA document repository system. And it will make bond shopping much easier.

EMMA, by the way,  is the little cousin to the SEC’s Edgar public company disclosure system.

When the EMMA system was launched it radically improved the scope of information available to investors. It was formally proposed in July, 2008 and here is how it was described:

SEC Chairman Christopher Cox said “retail investors — who own two-thirds of municipal securities — will soon have the same one-stop, cost-free, instant electronic access to disclosure documents about municipal bonds that they’ve long had for corporate stocks and bonds. This is a giant step forward for municipal bond investors.”

MSRB Chair Frank Chin added, “The centralized collection and dissemination by the MSRB of ongoing financial documents will allow fair and equal access to information about municipal issuers and their bonds. EMMA will give investors an efficient and easy way to get key data about issuers as soon as it becomes available.”

Phase one, which the MSRB spent two years perfecting, made searching documents for existing issues very simple. Plug in the name of a muni issuer and you are presented with a big list of documents.

EMMA will grow up a little more at the end of this month.

The MSRB announced in a webinar on Thursday, May 5th a whole new set of capabilities for EMMA which will give retail investors even more information.

The two big upgrades will be:

  • Offering documents for new issues being brought to market can be voluntarily posted on EMMA. For example, as California prepares to bring a big muni offering this summer they can post the offering document and advertising on EMMA for all interested investors. I think that savvy broker-dealers will post the CA offering document on their sites too to solicit retail orders. California wants to pay the lowest interest rate possible so they need as many investors as they can get.
  • The MSRB also announced that they are near agreement with the three major credit rating agencies to post the ratings of issuers on EMMA. This is a huge step forward as it saves the investor the time of going to each raters website and pulling the ratings. Big, big win.

It’s been a fascinating to see muni market information to become more accessible.

For years it was an opaque market unfriendly to self-directed investors. All the darkness also helped  shelter derivative and bid-rigging abuses.

Supreme Court Justice Louis Brandeis wrote in a 1913 Harper’s Weekly article, entitled “What Publicity Can Do this famous quote which forms the theoritical basis for the regulation of securites:

If the broad light of day could be let in upon men’s actions, it would purify them as the sun disinfects.

Often it takes a long time for unpleasant facts to be brought to light. And many investors can suffer along the way.

Transparency in securities markets creates confidence. And confident people will invest.

These actions by the MSRB will strengthen the shaky muni market.

I commend the MSRB for the continued improvements being made to EMMA. Investors need all the tools they can get.

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