By KARA SCANNELL
July 30, 2008; Page D1
Individual investors are among the biggest buyers of municipal-government debt, but information about the bonds has been difficult and costly to track down. Soon, they will have Emma to help them make sense of it all.
The Securities and Exchange Commission is expected Wednesday to propose setting up a free database on municipal bonds -- dubbed Emma, which stands for Electronic Municipal Market Access. The new online system will provide centralized access to trading data and documents, including the last trading price of bonds, credit-rating upgrades and downgrades, and annual reports.
"Anything that improves transparency in this incredibly volatile market is likely to help the borrower community," said Anne Phillips Ogilby, a lawyer with Boston-based Ropes & Gray who represents hospitals and universities, which raise money though the bond market. She said investors "are so distressed about the lack of current information that a transparent and user-friendly interface is going to be a great improvement."
The move is part of a broader effort by SEC Chairman Christopher Cox to shed light on the opaque market. Last summer he called for more expansive disclosures of municipal-bond documents. And this year, he said he remained concerned about "major shortcomings" in accounting rules for municipalities but said that would require Congress to pass a new law.
At an open meeting Wednesday, the SEC is expected to propose selecting the Municipal Securities Rulemaking Board, which writes rules for bond underwriters, as the clearinghouse for municipal-debt filings. Emma, which has been operating in a pilot program on http://emma.msrb.org/ since March, will also provide "real-time" trading data on municipal bonds.
"It's the first real initiative to get retail investors information easily," said Frank Chin, chairman of the MSRB.
The SEC is expected to issue the proposal for public comment before commissioners take a final vote on it. Among regulatory staff, Emma is affectionately known as the little sister to Edgar, the SEC's online clearinghouse for corporate filings.
Individual investors own $1.86 trillion, either directly or though mutual funds, of the $2.65 trillion municipal-bond market. The market has expanded rapidly in recent years, with a record $429 billion in new issuances in 2007, compared with $200 billion in 2000. The figure for the first six months of this year is down slightly from the same period in 2007.
Hospitals, local governments and universities express hope that more information will ease volatility, especially in auction-rate securities that have been battered this year, and provide confidence to investors. Auction-rate securities have interest rates that reset at periodic auctions. This year, several auctions have failed to generate enough interest from investors, triggering interest rates that were at times more than double the initial rate.
The Investment Company Institute, the trade group that represents mutual funds, said Emma is a "much-needed creation" to increase the transparency of municipal securities.
The growth of the market has outstripped advances in information-system development. Currently, investors often get information from brokers at the time they invest in a bond, but there isn't a central, free clearinghouse. Some existing databases require a paid subscription, while others don't include the entire universe of bonds.
While the new system will make information more accessible, the SEC at this stage doesn't plan to alter disclosure requirements for bonds or align the rules more closely with those for corporations. Neither the SEC nor the MSRB, a self-regulatory body, regulate the state and local governments that issue the debt; that authority lies with the states.
Write to Kara Scannell at kara.scannell@wsj.com
