June 19, 2000
Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Proposed Interpretive Guidance on Use of Electronic Media
File Number S7-11-00; Release Nos. 33-7856, 34-42728 and IC-24426
Dear Mr. Secretary:
The National Council of State Housing Agencies (NCSHA) is a national, nonprofit organization created in 1970 to assist its members in advancing the interests of lower income and underserved people through the financing, development, and preservation of affordable housing. NCSHA's members are Housing Finance Agencies (HFAs) with statewide authority. NCSHA's member agencies operate in every state and the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
NCSHA has long been on record in support of measures to promote full and prompt disclosure, in both the primary and secondary market. In fact, the Securities and Exchange Commission (SEC) has on many occasions lauded our pioneering efforts in the area of secondary market disclosure, including our recent electronic disclosure pilot program through the auspices of the Municipal Securities Rulemaking Board.
We believe the use of electronic media presents a unique opportunity to disseminate disclosure information, both in the primary and secondary market, on a more timely and complete basis than ever before. In that spirit, we offer the following comments on your May 1, 2000 interpretive guidance concerning electronic disclosure.
We fully endorse the use of electronic media for more accessible and convenient disclosure. The use of electronic media is pervasive in our society. HFAs not only put housing program eligibility information on their web sites-and it is accessed constantly-but also increasingly use the Internet to originate loans on a virtually paperless basis. When HFAs sell bonds to fund their programs, investors increasingly request that disclosure documents be posted on agency Internet sites or emailed to them instead of delivering hard copies, and financial analysts seem to clearly prefer that method of delivery.
Many HFAs post quarterly single family portfolio information on their web sites, a practice widely requested and applauded by financial analysts to increase market transparency. The feedback from the analysts has been quite positive, underscored by reports from HFAs that the calls from analysts have decreased markedly because the needed information is available electronically. Once the decision has been made to provide information to analysts in electronic form, analysts generally agree that it is best to post the information on the issuer web site to make it generally available to the investing public.
With the one major exception detailed below, we support the positions taken in the guidance. In particular:
Access to Historical Information.
In Part II D, "Technology Concepts," the SEC requests comments on certain aspects of the use of electronic media. In Section 5, "Access to Historical Information," you request comment on how to facilitate the availability of historical information on the Internet consistent with the federal securities laws and how to help minimize investor confusion. Although the guidance appears to be careful not to endorse the issues raised by the footnoted commentators with respect to potential "republication" through Internet access to issuer information, the guidance does state that "a statement [on a web site] may be considered to be `republished' each time that it is accessed by an investor or, for that matter, each day that it appears on the web site." (Part II.D.5, first paragraph.)
We are disappointed to see this issue raised in the guidance. As the guidance notes, a written release speaks as of its date of release, and if received days later by an investor, still speaks as of its (dated) release date. This concept has been well understood by the industry and was embodied in the 1991 GFOA Disclosure Guidelines for State and Local Investors in Procedural Statement No. 8.
In 1994, the SEC stated in its Interpretive Release that:
"The current process by which municipal issuers and their officials release information to market participants does not address the risk of misleading investors, because there is no mechanism for disseminating information about the municipal issuer to the market as a whole. To the contrary, in the municipal market, information released publicly frequently is disseminated only to a narrow segment of the marketplace." (SEC Interpretive Release No. 3307049 at IV.A..)
In response to this concern, the SEC created the NRMSIR-based disclosure requirement, while acknowledging that, "The repositories would supplement, not substitute for, the existing access bondholders may have to issuers to obtain current information." (SEC Interpretive Release No. 3307049 at IV.B.3.)
HFA responses to investor requests for better secondary market disclosure were well underway at the time of the 1994 SEC Interpretive Release. In recent years, HFAs have responded to repeated investor complaints about the NRMSIR system and requests for more cost effective dissemination of information by making information available on HFA web sites as well as the MSRB pilot program. We fail to understand why a dated release on a web site should not be treated the same as a written release-the only difference is the delivery medium.
The statement in the guidance would purport to apply to web statements a standard virtually incapable of being met; at least in the written release context, a grace period is provided to permit correction or updating. The guidance would provide none for web statements.
A number of HFAs are very concerned about this position and have discussed removing any financial or operating information from their web sites if it were in effect. We find it difficult to believe that the SEC would consciously endorse a position that creates an impossible updating standard, which results in less timely and complete disclosure. This statement in the guidance belies the SEC's constantly reiterated statement of encouraging more timely and complete disclosure, and we strongly urge that you clarify your position to treat dated web site statements the same as (dated) written releases.
If you have any question regarding possible investor confusion, we encourage you to visit any of the HFA web sites which include investor information. We encourage you to do this for two reasons. First, we believe that you will find that concerns about investor confusion are unwarranted. Second, we want to make sure that the SEC does not make any statements in its final release that would cause issuers to conform to a set framework for presentation of historical information. A review of the following sites will demonstrate that there are a wide variety of approaches that can be taken for making clear presentations of information on issuer web sites.
For a sampling of HFA sites, please visit:
In conclusion, we compliment the SEC on the practical approach it has taken in the guidance on the use of electronic media in a disclosure context. We encourage you to take that same approach to dated releases on web sites by applying the same well-developed and practical rules applicable to written disclosures.
John T. McEvoy