September 18, 2008
DPC DATA Inc. (DPC DATA) is pleased to have this opportunity to offer comments and views regarding the proposed rule change that would terminate the existence of the Securities and Exchange Commission (SEC) designated Nationally Recognized Municipal Securities Information Repositories (NRMSIRs) and instead designate the Municipal Securities Rulemaking Board (MSRB), created by Act of Congress and over which the SEC has ultimate control through its rule-making authority, as the single municipal securities secondary market disclosure repository.
DPC DATA has served the market as a NRMSIR since 1997, and has operated the only comprehensive municipal disclosure archive on the Web since 1999. This Web site, www.MuniFilings.com, has from the beginning been available for unrestricted general public access, and all documents in this online archive have been available for download in PDF format since the site's inauguration. It has been used extensively for nearly a decade by retail investors, securities dealers, buy-side institutions, analysts, attorneys, educational institutions, issuers and obligated persons, financial advisors, market regulators, other data vendors, and the public at large. We do charge nominal fees, pursuant to SEC Rule 15c2-12, for downloading disclosure documents, but only because processing filings under the strict requirements of the Rule is a costly business activity and NRMSIRs receive no subsidy from any governmental body for providing this service to the market. The SEC directs anyone who visits their site seeking municipal disclosure documents at http://www.sec.gov/info/municipal/nrmsir.htm to our online archive, and for many years has provided the hyperlink.
We observe several problems with the proposed rule change.
First, the proposed rule change blithely, and without comment or explanation, ignores the fact that the proposal clearly violates the Tower Amendment to the Securities Exchange Act of 1934. That Amendment prohibits federal regulation of state issuers. As the Commission is well aware, the proposal places de facto regulatory power in the hands of a federal regulatory body. To make matters worse, the body in whose hands regulatory power is placed is a group constituted of those who stand to profit from underwriting of state-issued securities. The Commission is whistling past the graveyard by ignoring this salient, and unavoidable, conflict.
Second, the proposed rule change mandating the end of the independent SEC-designated repositories in favor of the MSRB acting as the single disclosure clearinghouse for the municipal market does nothing to improve the overall continuing disclosure regime, except to make the filing materials available free of charge to the public. Many problems with municipal continuing disclosure identified by SEC officials in the press over the past one and one-half years remain unaddressed in the proposed rule change, as do other publicly described and measured problems such as the significant level of municipal continuing disclosure delinquency. In this context, the proposed rule change has no substantive benefit to offer.
Third, the proposed rule change would allow the MSRB to impose restrictions on municipal issuers and obligated persons by limiting the filings to a single, electronic format. This is contrary to the current SEC requirement that NRMSIRs impose no limitations of any kind on submitters, including format or choice of technology for filings. This significant change appears to be for the ease and comfort of the MSRB at the expense of the state and local government filing entities, and provides no benefit not already enjoyed by the market through the existing NRMSIR system, which already makes all disclosure documents available to the market in PDF format under the same time constraints that the MSRB proposes for EMMA. Therefore, in operation, the MSRB's plan appears to be little more than a simple replacement of the existing Central Post Office (CPO) filing facility currently maintained since 2004 with the consent and approval of the SEC at www.DisclosureUSA.org.
Fourth, if the proposed rule change is authorized and the MSRB carries out its plan, it will place itself in direct competition with commercial vendors who have served the market as practical implementers of Rule 15c2-12 without any subsidy for more than a decade. The companies that have performed this service, such as DPC DATA, have done so at their own expense and have continued to invest significant amounts of capital in these efforts based not only on the specific requirements of SEC Rule 15c2-12, but also in reliance on the policies and statements articulated by the SEC and the MSRB over many years that gave comfort that the MSRB would not directly compete with them. Both the SEC and the MSRB have recently acknowledged that the proposed rule change will inflict harm on existing data vendors. We respectfully disagree with previous SEC and MSRB statements that this harm will be inflicted evenly.
The MSRB is already engaging in unfair practices that interfere with commercial vendors with regard to the way they discriminate against them by making final official statements available on their own EMMA site immediately for free, and by not making them available until the next day to the vendors who pay the MSRB a fee for the documents. This unfair practice has persisted for six months since EMMA became available to the public in March 2008. In the proposed rule change, the MSRB merely mentions their vague intention to provide contemporaneous feeds to vendors and others for a fee in the future without disclosing the timing, fee structure or terms. By their current actions, we are led to conclude that their intention is to inflict commercial harm on vendors by conditioning the market to use the EMMA site for official statements and all secondary market disclosures for an extended period of time before they allow vendors to serve their own customers through contemporaneous data feeds of the same content. We view the MSRB's vaguely stated intention to provide fee-based data feeds sometime in the indefinite future as abusive and anticompetitive behavior by this Self Regulatory Organization (SRO), which was established by Act of Congress in 1975 and acts under the rule-making authority of the SEC, without an indisputable public benefit to offset or justify their actions.
Finally, in promoting the proposed rule change, both the SEC and the MSRB have intentionally misled the public by misstating important attributes of the current SEC-designed and implemented municipal disclosure regime. To wit, the official press release located on the SEC's Web site at http://www.sec.gov/news/press/2008/2008-159.htm makes statements that would be grounds for legal action under Federal law if made by one commercial entity against another due to their distortion of fact and misrepresentation with the intent to do economic harm. While the oversimplified message this SEC press release and other public statements from both the SEC and MSRB officials in recent months stoutly promote the proposed rule change, they do so in an inaccurate and unfair way that is beneath the dignity of a Federal regulatory body. It appears to be a railroad job aimed at taking the public's attention away from the true disclosure problems the industry faces, and also away from the near total absence of enforcement on the part of both the SEC and the MSRB over the last decade that could have spared investors many problems they now face with municipal securities disclosure.
In summary, DPC DATA is not in favor of the rule change sought by the MSRB and advises caution in pursuing this ill-conceived and poorly formed plan. The effort and money consumed to make EMMA the single repository for the market would be better spent on activities that would have a true impact on municipal secondary market disclosure, such as enforcement of existing provisions of SEC Rule 15c2-12 and MSRB Rules G-17, G-19 and G-30, which affirmatively acknowledge that continuing disclosure filings are material to investors. If the SEC also wants to establish free access to disclosure documents for the general public, there are simpler, safer and less expensive ways to proceed by working with the existing disclosure document clearinghouse system.
Peter J. Schmitt
DPC DATA Inc.