The Municipal Securities Information Library system.
Since 1989, the Municipal Securities Rulemaking Board (MSRB) has been developing its Municipal Securities Information Library |TM~ (MSIL) system.(1) It consists of two subsystems:
* the Official Statement/Advance Refunding (OS/ARD) subsystem and
* the Continuing Disclosure Information (CDI) Pilot.
The main purpose of the MSIL system is to create a central collection of certain information about municipal securities--official statements, advance refunding documents and continuing disclosure information. This information is available to subscribers to the MSIL system, anyone who visits the MSIL system's Public Access Facility and, in the OS/ARD subsystem, by the sale of paper copies of documents.
The MSRB was created by Congress in 1975 to make rules regulating the municipal securities activities of brokers, dealers and municipal securities dealers. It does not have authority over market participants, such as issuers and corporate trustees, that are not dealers. The board is composed of 15 members who are divided into three equal categories--persons representing bank dealers, securities firms and the public. One public member must represent issuers and one investors.
MSRB rules require that dealers disclose all the material facts of a particular municipal security before selling it to a customer. The features of many municipal securities, however, have become quite complex. For example, there are a variety of call provisions that operate under specified conditions. Put provisions often contain preconditions which the holder must satisfy before exercising the put. And the credit structures of revenue and conduit bonds also can be complicated. The official statement is the only source for most of this information.
Since, under Securities and Exchange Commission (SEC) rule 15c2-12 underwriters are required to prepare an official statement for most municipal securities issued, the MSRB decided to require underwriters to file two copies of these documents with it for inclusion in the MSIL system. The MSIL system then makes this and other information available to the market.
Processing Issuance Documents
MSRB rules require underwriters to submit it the following documents soon after they receive them: two copies of most final official statements for primary offerings of municipal securities and two copies of escrow agreements for advance refundings in which a new issue of municipal securities is issued to refund outstanding securities. The rule applies to all securities sold to underwriters after December 31, 1989. Underwriters also must attach to each document a completed form that contains certain information, such as issue descriptions and Committee on Uniform Securities Identification Procedures (CUSIP) numbers, about the municipal securities described in the document.
In the OS/ARD subsystem, when a document is received MSIL system staff review it for acceptability. Unacceptable documents, such as preliminary official statements or documents accompanied by incomplete forms, are returned to the underwriter for correction. If a document is acceptable it is assigned a unique document number, and information about it is entered into the OS/ARD database, called MSILDex. Supervisors check the database information against the document, making any necessary corrections, then one copy of the document and its form is filed in the Public Access Facility. There are currently about 35,000 documents in the MSIL system.
The OS/ARD subsystem, which operates on the days that the MSRB's offices are open, usually receives from 25 to 80 acceptable documents per day. The MSIL system's goal is to have these documents processed by 3 p.m. on the day they are received, and staff are rarely unable to meet this deadline.
At 3 p.m. each day, the MSIL system staff print a list describing the documents received that day, and every Friday they print a listing of all the documents in the subsystem. Copies of these lists are kept in the MSIL system's Public Access Facility, where anyone may review them, request listed documents and photocopy them, if desired.
At 4 p.m. each day, documents are sent to a document management company in London, Kentucky; these include 1) one original copy of the documents, 2) their accompanying forms and 3) a computer diskette containing the document number and issue descriptions for each document generated from the database. The document management company converts each page of each document into a computer file through the use of optical imaging, working through the night imaging all the documents received in the daily shipment. Exhibit 1 depicts this process.
Each document is converted into high-resolution (400 dots per inch) images and the quality of each image is checked. Generally the imaged pages are as good as, if not better than, the original pages. Every imaged document is accompanied by a computer file that includes information about the document contained on the computer diskette and other data, such as the number of pages in the document and information about pages that were difficult to image.
The next day, the imaged documents from the daily shipment are copied onto a digital audio tape (DAT), which can easily hold all of the documents imaged in one day. A daily DAT is sent to the MSIL system and one to each OS/ARD subsystem subscriber.
Two information vendors currently subscribe to the OS/ARD subsystem. A subscription currently costs $12,000 for one year's collection plus shipping costs, and anyone may subscribe. Subscribers are free to manipulate the images and data contained on the DATs from the MSIL system and to create their own products in any way they wish.
The MSIL system also receives periodically from the document management company a magneto-optical (MO) disk containing imaged documents in a write-once, read-many (WORM) format. These disks are used to store imaged documents permanently in the OS/ARD subsystem.
MSIL system staff review every WORM MO examining each document header for accuracy and spot checking imaged pages within the documents. Any errors found are reported to the image processors and corrected. Corrected WORM MOs are sent to the MSIL system, where staff can use them to print paper copies of documents for sale to the public. All such corrections are included on the next DAT sent to each subscriber that received the previous imaged document. A printed report describing the correction is included with that DAT.
OS/ARD subsystem imaging for current documents began on April 20, 1992. The backlog of documents collected in 1990 and 1991 are currently in the process of imaging. The OS/ARD subsystem must maintain paper copies of all documents for one year from the date of receipt. Once these backlogged documents are successfully imaged, the paper copies in the MSIL system may be discarded. Exhibit 2 illustrates the imaging process.
The Continuing Disclosure Pilot
The MSRB brought the CDI Pilot on line on January 21, 1993. This subsystem accepts short, time-sensitive disclosure documents that affect municipal securities in the secondary market. The documents, which may be no longer than three 8 1/2 x 11-inch pages, are submitted to the CDI Pilot by computer modem, facsimile transmission or on paper. Modem submissions have the highest priority, facsimile the next highest, and paper the lowest. The MSIL system staff make every effort to process all submissions the day they are received.
Acceptable submissions are made available to subscribers and in the Public Access Facility. The MSIL system staff contact the submitter of a document not accepted to discuss why it could not be accepted and to explore remedial action that the submitter may take.
The CDI Pilot is designed to process up to 100 submissions a day and to simultaneously broadcast them to 20 subscribers. It accepts submissions from 9 a.m. to 4 p.m. eastern time on days that the securities markets are open. The Securities and Exchange Commission has approved the CDI Pilot for operation through October 6, 1993. The MSRB anticipates that it will seek an extension of the pilot at least through July 1994, when the pilot will be reviewed to determine if and how it may be improved.
Enrolling in the Pilot. During the first six months, the CDI Pilot is open to corporate trustees only. After that, the MSRB plans to open the CDI Pilot to issuers as well. It is voluntary for trustees or issuers to submit documents, and there is no charge to those who do so.
Anyone who wants to submit documents to the CDI Pilot first must enroll in it by sending a signed copy of the CDI Pilot enrollment form to the MSIL system. The submitter supplies the names and telephone numbers of no more than two designated responsible persons (DRPs) who are authorized to submit documents to the pilot on its behalf. Blank CDI Pilot enrollment forms and more detailed information about the pilot are available from MSRB offices in Washington, D.C.
Once a submitter has successfully enrolled in the pilot, the MSIL system staff send that submitter a letter containing the submitter's identification number and personal identification number. These numbers are kept confidential and are used by submitters to ensure that only authorized persons provide disclosure documents to the CDI Pilot.
Submissions by Computer Modem. MSIL system staff provide to those submitters who request it a copy of the CDI Pilot modem submission software and installation instructions. To use the software, a submitter needs an IBM PC or compatible with a Hayes-compatible modem.
When sending a document to the CDI Pilot via modem, the submitter provides specified document identification information and then enters the name of the computer file he or she wishes to submit. The software checks that file to ensure that it is no longer than three pages and that it is written in an acceptable format--ASCII or DOS. The software does not allow submissions that do not pass these checks to be sent to the CDI Pilot.
When the CDI Pilot receives a submission by modem, the submitter is called back by modem; if the submitter returns the call and approves the submission, the submission is placed in a queue for simultaneous broadcast by modem to subscribers and the Public Access Facility. If there is no verification after a reasonable amount of time, MSIL system staff call the submitter.
Submissions by Facsimile and Paper. A submitter also may send disclosure documents to the CDI Pilot by facsimile machine. To do so, it needs to include a completed copy of the two-page CDI Cover Sheet, which provides the required submitter and document identification. Paper submissions not exceeding three pages and their cover sheets are scanned into the CDI Pilot computer system in facsimile format. Submissions exceeding that length are not accepted.
Documents in the computer system are reviewed to ensure that the necessary information is complete, that the submitter identification is verified and that the document is legible. If a submission passes these checks, it is placed in the queue for facsimile broadcast to CDI Pilot subscribers. A copy of the original submission with both the first page of the cover sheet and the processed submission is saved in the computer system.
Subscribing to the CDI Pilot. Anyone may subscribe to the CDI Pilot. A subscription costs $16,000 per year plus telephone charges for broadcasts. Subscribers receive broadcasts simultaneously. For purposes of the pilot, simultaneity means that the computer system begins dialing to all subscribers within one second of each other. An additional document is not broadcast until all subscribers have received the previous one. MSIL system staff can suspend a subscriber if it becomes impossible to send documents to it.
The modem and the facsimile parts of the CDI Pilot are separate so that they may run concurrently. To help guarantee simultaneity and avoid bottlenecks, a subscriber needs to have two IBM PC-ATs or compatibles to receive modem and fax transmissions. In addition, it needs to install a particular fax/modem software and hardware package in each computer. Finally, it needs to install at least two telephone lines, one for each computer, that will be used for receiving pilot broadcasts only.
Future Developments. The CDI Pilot is limited only by the speed of transmitting a document. It can be expanded to take lengthier documents provided that those documents are submitted by modem only, due to the fact that modem transmission can be much faster than fax. This would mean that trustees and issuers possibly could send quarterly reports or annual statements outlining their financial condition without being limited to three pages. In addition, future developments may make it possible to expand the CDI Pilot to accept submissions in common word processing and spreadsheet files. Such files could convey information much more effectively than ASCII or DOS files.
The MSIL system is still young. The OS/ARD subsystem has been operating for less than a year and the CDI Pilot only a few weeks. But new products already have been introduced by subscribers to the OS/ARD subsystem. One subscriber now provides official statements and advance refunding documents to its users free of charge and the other sells a CD-ROM service containing OS/ARD documents. As the MSIL system matures more information products should appear that address the needs of issuers, dealers and investors.
Readers wishing additional information about the MSIL system or about submitting documents to the MSIL system are advised to contact Thomas A. Hutton at the Municipal Securities Rulemaking Board, 1818 N Street, N.W., Suite 800, Washington, DC 20036-2491 (202/223-9347; FAX: 202/872-0347).
1 Municipal Securities Information Library and MSIL are trademarks of the Municipal Securities Rulemaking Board.
WHAT THE MSIL SYSTEM MEANS FOR ISSUERS
GFOA has supported the creation of repositories for disclosure documents for many years and was even instrumental in helping to create the first national repository in the late 1970s. For many years, GFOA's efforts centered on the content of disclosure documents through the preparation of disclosure guidelines for new offerings and continuing disclosure documents. More recently, GFOA has encouraged its members to support efforts to enhance the timeliness of distribution and general availability of information in both the primary and secondary markets for municipal securities.
Several private repositories have and continue to collect disclosure documents from issuers and other sources. Currently there are three such repositories that have been designated as Nationally Recognized Municipal Securities Information Repositories (NRMSIRs) by the Securities and Exchange Commission (SEC). The designation indicates that the repository meets certain standards. These repositories currently accept official statements, annual financial reports and other disclosure documents.
The MSIL system's Official Statement/Advance Refunding subsystem, described in this article, is intended to complement and supplement the system of private repositories by ensuring that all official statements, with certain permitted exceptions, are collected in a single, perpetual repository. The MSRB anticipates that information vendors will purchase the MSIL system tapes in order to obtain complete collections for 1990 and years thereafter. It is important to remember that documents may only be submitted to the MSIL system by underwriters as part of the requirements of SEC Rule 15c2-12.
The Continuing Disclosure Information (CDI) Pilot of the MSIL system is currently accepting information from issuers' trustees. The information may be submitted electronically or in a paper format. In the second phase of development, issuers will be able to submit information to the CDI Pilot. This subsystem is intended to provide a means to disseminate time-sensitive information and current financial information to the market. The CDI Pilot has page-limit restrictions, therefore it is not currently possible to submit a government's comprehensive annual financial report. However, it would be possible to announce the availability of such a report on the system.
GFOA and the National Federation of Municipal Analysts are working to develop secondary market disclosure forms to expedite the process of ongoing disclosure and facilitate issuer submissions to the CDI Pilot. These forms are intended to cover information deemed necessary by municipal securities analysts for continuing credit analysis on a sector-by-sector basis and are expected to be a suitable response for most requests for information received by an issuer from analysts and others. These same forms could be sent to the private repositories.
GFOA members with questions about the MSIL system and other options for disseminating disclosure information are encouraged to call MSRB staff or the GFOA Federal Liaison Center for assistance. A comprehensive listing of Disclosure Reference Sources was published in the "Federal Focus" section of the August 1992 Government Finance Review. That listing contains information about the MSRB programs, NRMSIRs and other ongoing disclosure projects.
CHRISTOPHER A. TAYLOR has been executive director of the Municipal Securities Rulemaking Board since 1978. Before joining the board, he was an economist at the Federal Reserve Board for five years. Taylor holds a Ph.D. in economics from Princeton University. He is also a Chartered Financial Analyst. THOMAS A. HUTTON has been director of the MSIL system for the MSRB for two and one-half years. Prior to that he ran the MSRB's arbitration program for five and one-half years. Hutton received a B.A. from The American University.
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|Title Annotation:||includes related article; information retrieval system of the Municipal Securities Rulemaking Board|
|Author:||Taylor, Christopher A.; Hutton, Thomas A.; Spain, Cathy|
|Publication:||Government Finance Review|
|Date:||Apr 1, 1993|
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