SEC and MSRB are the primary entities that have authority at the federal level with respect to disclosure to investors in municipal securities. In the context of municipal securities, SEC interprets and enforces the federal securities laws, including by adopting rules and enforcing antifraud provisions; maintaining regimes for the registration, compliance, inspection, and education of broker-dealers, investment advisers, and municipal advisors; and providing general educational materials for investors about investing in municipal securities. SEC also oversees MSRB and FINRA. MSRB maintains an online repository of information (that is, EMMA) to promote market transparency, for example, by providing access to primary market and continuing disclosures and information about trade pricing. MSRB also provides educational materials to investors and issuers of municipal securities. MSRB regulates brokers, dealers, municipal securities dealers, and municipal advisors in the municipal securities market by adopting rules governing their conduct, which are subject to SEC approval. However, MSRB does not have authority to enforce these rules or examine entities for compliance with these rules. Rather, SEC, FINRA, and bank regulators enforce MSRB rules and conduct compliance examinations. The Tower Amendment prohibits SEC and MSRB from directly requiring state and local governments to submit information to them prior to sale. Specifically, SEC and MSRB cannot require issuers to file any information with them prior to any sale, and MSRB also cannot require issuers to provide them or investors with any information either pre- or postsale. Furthermore, the Securities Act of 1933 exempts the securities that state and local governments issue from registration with SEC. Securities of state and local governments also are exempt from the periodic disclosure requirements of the Exchange Act of 1934. According to a 1975 Senate report, congressional reasons for the decision to continue to limit direct regulation of issuers when the 1975 amendments to the securities acts were enacted included respect for the rights of state governments to access the capital markets, concerns about the costs of regulation for state and local government issuers, and the perceived lack of abuses in the municipal market that would justify such an incursion on the states’ prerogatives. While federal regulators are prohibited from directly requiring issuers to file presale information on municipal securities, SEC has adopted rules— applicable to broker-dealers acting as underwriters—that relate to primary More specifically, using its authority market and continuing disclosures. over broker-dealers and its broad authority to prevent fraud in connection with the offer, purchase, or sale of securities, SEC adopted Rule 15c2-12 in 1989. The rule established disclosure requirements related to municipal securities in response to the need SEC found for increased transparency.underwriters of municipal securities to obtain and review issuers’ official statements (typically prepared by issuers or their advisors) and provide This rule and accompanying guidance obligates them to investors.underwriters to reasonably determine that issuers have entered into a written continuing disclosure agreement for the benefit of municipal securities holders to provide (1) annual financial information and operating data of the type included in the official statement and when and if available, audited financial statements, and (2) notices of certain material events. Beginning in 2009, issuers have been obligated by the agreement to provide the continuing disclosure information and data to EMMA (either directly or by engaging a third-party dissemination agent to submit such information and data on their behalf). For a comparison of key federal disclosure requirements for publicly offered municipal and corporate securities, see appendix II. EMMA may be accessed at http://emma.msrb.org. insolvency, receivership and similar events.voluntarily submit to EMMA on a continuing basis any other types of financial, operating, or event-based information, including (but not limited to) information about bank loans, quarterly or monthly financial information, consultant reports, and capital or other financing plans. According to MSRB, users may conduct searches of issuances on EMMA using one or more of the following parameters: Committee on Uniform Security Identification Procedures (CUSIP) number, issuer name, issue description, obligated person name, state, maturity date, date of issuance, interest rate, and ratings. EMMA provides additional parameters to search for continuing disclosure documents and other information available through EMMA, including trade information. Many market participants told us that primary market disclosure for municipal securities investors is generally useful. However, investors and market participants with whom we spoke frequently cited limitations to continuing disclosure, including the timeliness of annual financial information, the frequency with which information is provided, and incomplete information. Our analysis found that current regulatory requirements for municipal securities disclosure broadly reflect the seven principles of effective disclosure that were developed by the International Organization of Securities Commissions and certain plain English principles developed by SEC. However, regulators and market participants indicated that, in practice, limitations exist in the current regulatory scheme. Further, the effect on individual investors of limitations to disclosure is largely unknown. Many market participants told us primary market disclosure is generally useful for investors and EMMA has improved investor and market participants’ ability to access disclosure documents, but investors and market participants have identified limitations to disclosure. According to MSRB officials, participants in the municipal securities market generally acknowledge that primary market disclosure—official statements— contains the material facts an investor needs to know about an issuer and a security. Investors and market participants such as groups representing investment companies, bond lawyers, and broker-dealers also have indicated that the information provided at the time of issuance is comprehensive. Additionally, most market participant groups with whom we spoke said that MSRB’s EMMA website has greatly improved public access to disclosure compared with the prior system for obtaining disclosure documents.central repository for disclosure documents has made finding information easier and more efficient. In addition, one market participant noted that EMMA increased access to information by allowing investors to receive disclosures for free. Several market participants said that having a However, investors and other market participants cited limitations to the information provided in continuing disclosures. The most frequently cited limitations to the usefulness of this information were: the timeliness of annual financial information, the frequency with which issuers and other obligated persons provided information, and the completeness of the information provided in accordance with the continuing disclosure agreement. Individual investors also frequently cited the readability of disclosures as a limitation. Timeliness—According to investors and other market participants, issuers release annual financial information too long after the end of their fiscal years for the information to be useful in making investment decisions. A Governmental Accounting Standards Board (GASB) study of audited annual financial reports prepared in accordance with generally accepted accounting principles (GAAP) for state and local governments provided for fiscal years ending in 2006, 2007, and 2008 found that the average time frame for issuing the reports varied by type and size of government. For example, issuance time frames averaged from 126 days after the end of the fiscal year for large special districts to 244 days for small counties. Similarly, according to National Association of State Comptrollers data, in fiscal year 2010 states took an average of 198 days to complete their comprehensive annual financial reports. Also, in our case study of disclosures for 14 securities in EMMA that were issued in 2009, our analysis found that the number of days after the end of the fiscal year in which issuers or obligated persons provided annual financial information to EMMA varied. Annual financial information for a nonprofit hospital system was provided 55 days after the end of a fiscal year, while annual financial information for a general obligation security issued by a school district was provided 257 days after the end of a fiscal year. Several investors and market participants said that filings provided well after the end of the fiscal year limit the information’s usefulness. The GASB study found similar sentiments: less than 9 percent of survey respondents—who represented a range of users of financial information—considered information received 6 months after the end of the fiscal year to be very useful. Three market participants further indicated that untimely information was particularly worrisome for investors at a time when state and local governments have been facing credit stress. Moreover, evidence indicates that issuers have not always met the time frames by which they agreed to provide annual information. For example, a study by the California Debt and Investment Advisory Commission of certain securities issued in California from 2005 to 2009 found 11 percent filed more than 30 days after the agreed-upon date. Frequency—Investors and other market participants also said that receiving financial information annually was not sufficient to monitor the financial condition of an issuer. An individual investor with whom we spoke and a professional analyst both noted that because disclosures generally are provided annually, investors often must learn important information about the current financial condition of an issuer from external sources such as newspaper articles. For instance, the individual investor told us that he may read in the newspaper that a town that issued securities was having budget problems; however, this information would not be disclosed to investors until the financial statements for the fiscal year were released at some point during the following year. A few market participants indicated that obtaining information more frequently was especially important for investors during times of economic stress. Information that investors and other market participants indicated would be useful to receive between annual financial statements included unaudited quarterly financial reports, cash-flow reports, year- to-date budget updates, and tax revenue information. This type of information is not routinely submitted to EMMA on a voluntary basis. According to MSRB data, in 2011 EMMA received 8,290 submissions categorized as quarterly or monthly financial information (which represents 6 percent of all continuing disclosure documents submitted) and 358 submissions categorized as interim, additional financial information, or operating data. Similarly, quarterly or monthly financial information was available in EMMA for 5 of the 14 securities in our case study.