Providers of municipal-bond indexes and benchmarks have been asked to meet with the organization that sets rules for the $3.7 trillion market as it seeks to improve disclosure about how the financial tools are prepared.
The Municipal Securities Rulemaking Board, which guides dealers and underwriters of debt issued by state and local governments, set the meeting for Aug. 16 at its Alexandria, Virginia, headquarters, according to a copy of the invitation obtained by Bloomberg News.
“Growing market concerns about the integrity of financial market indices and transparency” prompted the move, according to the letter signed by Alan Polsky, the board’s chairman.
The request follows a board announcement July 30 that it would study how municipal indexes are put together after U.K. investigators found that bankers rigged the process used to set the London interbank offered rate, or Libor, a credit benchmark used globally. The MSRB said it had no indication that municipal indexes may be manipulated. It said the review seeks to help investors understand the indexes that are used to compare and set yields on municipal bonds.
“We believe there is a need for greater transparency in this regard,” Citigroup Inc. analysts led by George Friedlander, senior municipal strategist, said today in a report. “It will be beneficial to the entire industry for all participants to be given a better understanding of these variables.”
The U.S. Securities and Exchange Commission said July 31 that it is seeking the power to require better disclosure by borrowers in the municipal-bond market, which is governed by less restrictive disclosure rules than corporate debt.
Polsky, a senior vice president of Dougherty & Co., an investment banking firm in Minneapolis, referred a request for comment to Jennifer Galloway, a board spokeswoman.
“The MSRB looks forward to working with the industry’s index providers to promote transparency in the municipal market,” Galloway said in a prepared statement.
In describing the meeting, Polsky’s letter said it was sought to “discuss ways to increase market participants’ understanding of indices’ methodologies and mechanics.” Other goals include finding areas of “mutual interest” and exploring ways to improve “market transparency” with the MSRB’s Electronic Municipal Market Access, or Emma, website.
The invitees include the Bond Buyer, Interactive Data Corp., Markit, Municipal Market Data, Municipal Market Advisors, Standard & Poor’s, the Securities Industry and Financial Markets Association, Thomson Reuters Corp. and Bloomberg LP, parent of Bloomberg News.
The Bond Buyer, a municipal-bond industry newspaper, which has the Bond Buyer 20 index of yields and four other indices, is glad to discuss its indexes and answer questions at the meeting, Gavin Murphy, the editor in chief, said by telephone.
“The Bond Buyer indexes have been around for a long time and widely used for decades,” Murphy said.
Tom Doe, chief executive officer of Concord, Massachusetts-based Municipal Market Advisors, said “I am glad to be included in the meeting.” The company produces the daily Municipal Consensus Yield Curve, among other products.
“Our own municipal benchmark indices are transparent and we welcome the efforts of the MSRB and SEC to continue to promote more disclosure in this market,” Ben Macdonald, Bloomberg LP’s head of fixed income, said in a statement.
Brian Willinksy of Interactive Data declined to comment.
“We’re looking forward to the dialogue with the MSRB and other index sponsors about the issues the MSRB has raised,” Michael Decker, co-head of SIFMA’s municipal securities division, said by e-mail.
Officials of the other invitees didn’t immediately respond to e-mailed requests for comment.