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Bond Disclosure Before Debt Sales Considered by U.S. Regulators

U.S. regulators are considering whether to require underwriters to make bond documents available to the public ahead of municipal-debt sales in the $3.7 trillion market.

The Municipal Securities Rulemaking Board, which crafts regulations for the market, said it is evaluating a requirement to post so-called preliminary official statements on its Internet repository for bond documents. Those documents are sent to prospective investors and sometimes voluntarily posted, though they aren’t widely available on a centralized site.

The shift would push disclosure rules in the municipal-bond market closer to those that apply to businesses, which must file documents with the Securities and Exchange Commission before selling stocks and bonds. Nearly half of all municipal debt is owned directly by individuals, who don’t have the same access to information as professionals such as mutual funds.

“In terms of protecting investors, we want to make sure they have access to information as soon as possible,” Lynnette Kelly, executive director of the Alexandria, Virginia-based board, said in an interview.

A board proposal would have to be approved by the SEC.

U.S. regulators have been moving to improve the information provided to investors in the municipal bond market, a source of money for states and cities, as well as borrowers such as real-estate developers.

Offering Documents

Regulators are barred from requiring municipal borrowers to file offering documents ahead of sales as a result of securities laws passed in the 1970s. The SEC imposes disclosure regulations in the municipal market indirectly, through its power over firms that underwrite securities.

The board said it is considering requiring underwriters to file the preliminary bond offering documents on the same day they receive them. The documents provide detailed descriptions of a borrower’s finances and plans to repay the debt.

The MSRB said it’s considering giving borrowers the right to prevent underwriters from filing the documents. That would prevent the rule from running afoul of laws that keep regulators from requiring local governments to make such filings.

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