Association for Public Policy Analysis & Management

Over the past few years, the quality of municipalities’ disclosure has become a major policy issue in the municipal securities market. Despite the continuous improvements the market regulators have been pursuing in municipal market, market participants continue to raise concerns regarding the adequacy and quality of financial disclosures in the municipal market (SEC, 2012). Questions remain whether the current regulatory regime in the municipal market is adequate in providing transparency.

This paper addresses the ongoing concern of whether the regulatory framework provided by Rule 15c2-12 has enhanced transparency in the municipal market. As a start, this paper addresses the state of continuing disclosure after the establishment of Electronic Municipal Market Access (EMMA). In 2009 the Municipal Securities Rulemaking Board (MSRB) formed EMMA as the central information depository for municipal securities disclosures. This new system is expected to give market participants greater access to municipal disclosure and bring greater transparency to the market. This paper will then provide evidence regarding the effectiveness of the new system by measuring the quantity and quality of disclosure provided by municipal issuers through EMMA.

Next, this paper identifies factors that might affect municipalities’ decisions to provide continuing disclosure. A Government Accountability Office’s study on the quality of the current regulatory requirements for municipal securities disclosure found that the current regulatory requirements have been lacking in the enforceability of regulations (GAO, 2012). To measure how enforceability of regulations affects continuing disclosure practices, this paper utilizes the SEC’s Municipalities Continuing Disclosure Cooperation (MCDC) initiative in 2014.  The initiative provided issuers and underwriters the opportunity to self-report materially inaccurate statements relating to their continuing disclosure obligations specified in SEC Rule 15c2-12. Those who participated in the in the MCDC were eligible for standardized settlement terms with the SEC. Since the initiative conveyed SEC’s intention to exercise more stringent monitoring of municipalities’ disclosure practices, this paper addresses whether there are changes in the continuing disclosure compliance level after the MCDC initiative.

This paper contributes to the literature that examines the quality of municipal securities market disclosure. Although some studies have reported continuing disclosure delinquencies and market concerns (SEC 2012, GAO 2012), there have not been any academic studies that use continuing disclosure compliance to measure disclosure quality. Moreover, the impact of the SEC’s MCDC initiatives in 2014 is still widely unknown. This paper thus provides a valuable perspective on the current state of continuing disclosure practices and how the regulation shapes current practices.