Electronic delivery of financial information.

• Author: Becker, Joanne Mays

Issues of technology standardization, security, and market participant coordination for the electronic filing of securities information.

The amendments to Securities and Exchange Commission (SEC) Rule 15c2-12, which became effective in 1995, were designed to expand the amount of disclosure available in the municipal market. The practical effect of the increase in volume of financial and disclosure information, in a market of more than 50,000 issuers and $1.3 trillion in debt, was to create a virtual information tsunami. The rule resulted in a vast and rich resource - databases collectively containing information on the majority of municipal issuers.

The rule also has set the stage for the probable evolution of bottlenecks to the unimpeded transmission of documents via electronic means. In addition to the SEC action, the market's recent conversion to a shortened settlement cycle from five to three days and discussion of further abbreviating the cycle also have focused attention on the demand for the disclosure. It was becoming apparent that market participants would be buried in an avalanche of paper and disclosure documents unless a solution to the obstacles of electronic transmission of financial information could be agreed upon.

The documents filed in accordance with Rule 15c2-12 are composed utilizing a multiplicity of standards, and the format in which they are stored has the direct consequence of constraining access, rapid electronic transmission, and the ability to manipulate the data. All users of this huge resource are restricted to reading the documents in order to extract information. The alternative is to have documents filed in text according to an agreed upon uniform standard. Thus users would be able to utilize computers as a tool to search for defined terms, extract data with which to populate databases, contrast the data of comparable issuers, more fully utilize the data, speed the exchange of documents and information, and improve access. A speedy solution to the inability of market participants to deliver and receive documents via electronic means is sorely needed. To address this problem, the Public Securities Association (PSA) has established the cross-market Task Force on Electronic Information Delivery to establish an electronic standard in order to enable cyberfiling.

Prior to the implementation of amendments to Rule 15c2-12, the extant "system" for collection and distribution of primary disclosure information was fairly simple. Official statements and advance refunding documents were required to be filed and generally were sent via overnight mail to the Municipal Securities Rulemaking Board (MSRB), whose repository scanned the documents as images, stored them in the form of tapes and sold subscriptions mainly to information vendors. A few vendors repackaged the documents, collected data from the documents, entered information into their own databases, and sold the raw documents and the databases in the form of paper documents, microfiche, CD-ROM, data feeds, and other media.

When they became effective in July 1995, the amendments dictated that municipal securities dealers or broker-dealers may not act as underwriters for a primary offering of municipal securities, given certain exemptions, unless it has been reasonably determined that the issuer of the securities has covenanted to provide continuing disclosure. The second phase, which went into effect on January 1, 1996, required dealers to have "systems and procedures in place that provide reasonable assurance that [the dealer! will receive prompt notice of" the events required to be disclosed.

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