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Disclosure is an issuer responsibility.

The title of this editorial is not controversial, it is a statement of fact. Despite the,efforts of some of cloud the issue, disclosure is an issuer responsibility. And always has been.

Issuers and the buyers and sellers of their debt come together in one place - the municipal bond market - every day to raise capital for projects that are essential to each community and to the nation as a whole. As participants in these transactions, finance officers have a special responsibility to the marketplace - the responsibility to disclose important information about their government and its securities, both at the time the debt is sold and while it is outstanding.

Fortunately, municipal issuers are not subject to the same complicated financial disclosure requirements that are imposed by the federal securities laws on corporations and enforced by the Securities and Exchange Commission (SEC). They rely on a self-regulatory system for which the GFOA Disclosure Guidelines for State and Local Government Securities is a central component. For almost two decades the GFOA Guidelines have provided the basic substantive recommendations as to the content of disclosure documents

In recent years, other issuer groups and professional organizations have developed additional guidance which also is helpful to issuers in fulfilling their responsibilities. The level of cooperation and coordination in improving municipal disclosure has never been greater, and it is growing with each new effort.

Why all the activity surrounding disclosure? It is fair to say that issuers and the buyers and sellers of their debt are not completely happy with the current voluntary system. But perhaps more importantly, Congress and the SEC have indicated that they are not happy. Highly publicized municipal defaults have caught the attention of federal lawmakers. And, the SEC has been under increasing pressures from Representative John Dingell, chairman of the House Committee on Energy and Commerce, to ensure that investors in municipal securities are adequately protected.

In addition to all of the advances over the past several years related to disclosure, there have been significant achievements in financial reporting by state and local governments. Consider the growth of the GFOA Certificate of Achievement for Excellence in Financial Reporting Program: 889 submissions in 1985 and 1,665 in 1990. Nevertheless, the issuer community is getting a bum rap because of the faults and defaults of a small number of issuers, many of whom issue what should be called "non-municipal municipal bonds" because of their private conduit character. In an October 14, 1991, editorial, the Bond Buyer said that the failure to provide secondary-market disclosure has become the Achilles' heel of the municipal bond market. A Public Securities Association official is quoted as saying, "anything is better than where we are now ... secondary-market disclosure has gone backward in the past year as lawyers have advised trustees and issuers not to disclose information upon request because of fear that it could lead to market manipulation and charges of insider trading."

Nothing could be further from the truth. In fact, there have been substantial advances in secondary-market disclosure in terms of content, availability and willingness of issuers to provide information.

There have even been unconfirmed reports that some of the professionals who work for issuers have taken the attitude that the GFOA Disclosure Guidelines should not be actively consulted or used at all. If true, this advice is short-sighted and inconsistent with sound practice. Not only are issuers at risk of further regulatory or legislative intrusion but the market may make price differentials between issuers that provide adequate disclosure and those that do not.

Although some bond attorneys correctly state that there is no absolute legal obligation for issuers to provide secondary-market information, issuers must distinguish between rigid legal requirements and their responsibilities to the marketplace. Issuers are certainly not precluded by law from providing information to the secondary market. The most prudent advice for professionals who work for issuers to give - advice which most responsible bond counsel are, in fact, providing - is that issuers should provide timely information to investors on a continuing basis, not that they must provide that information.

The municipal market provides a stark example of the fact that voluntary self-regulation can and does work. What should finance officers do to foster improvements in disclosure and preserve this voluntary and flexible system today? * Consult the GFOA Disclosure Guidelines

and the National Federation of

Municipal Analyst's Disclosure

Handbook. Also, if appropriate, they

should be familiar with the American

Bankers Associates' Disclosure

Guidelines for Corporate Trustees, and

the National Council of State Housing

Agencies' recommended quarterly

reporting formats for single-family

housing issues. * Send or provide for their underwriters to

send copies of official statements to the

three central repositories recognized by

the SEC. KENNY ALERT Disclosure

Service, Bloomberg Financial Markets

and MUNIFACTS Secondary Market

Disclosure Service. Copies of official

statements are also being sent to the

Municipal Securities Information Library

by underwriters as required by the

Municipal Securities Rulemaking Board's

Rule G-36. * Send copies of comprehensive annual

financial reports and other continuing

disclosure information, including time-sensitive

information describing events

that have a major effect on a

government's finances, to the central

repositories. In this connection,

announce in the official statements that

information will be provided and tell the

underwriters at information meetings

and in other appropriate forums that

because this is being done, a price

advantage is expected on these bonds. * Include a requirement in requests for

proposals that outside professionals

working on disclosure documents follow

the GFOA Disclosure Guidelines. * Stay on top of new developments in

disclosure such as GFOA's on-going

information programs and the

forthcoming guidance from the

Association of Local Housing Finance

Agencies and the National Council of

Health Facilities Finance Authorities.

Although there have been significant improvements in disclosure practices in recent years, the task of improving disclosure has not been fully completed. Issuers, working with their advisers, must take responsibility for more and better disclosure.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Green, Jeffrey S.
Publication:Government Finance Review
Article Type:Editorial
Date:Dec 1, 1991
Words:977
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