Monday, October 12, 2015

EMMA: Time to Grow Up and Be Like Your Big Brother, EDGAR

In 2009, the Municipal Securities Rulemaking Board (MSRB) launched its Electronic Municipal Market Access (EMMA) system: the place to go for all things muni. EMMA contains information about all publicly traded municipal bonds and their issuers including offering documents, trade activity, ratings, issuer financial statements and event notices (such as those required when an issuer misses a payment or calls its bonds).

As a frequent user, I’m impressed not only by the wealth of information available on EMMA, but also with the system’s usability, reliability and ongoing feature improvements. That said, EMMA has very serious limitations that are inconsistent with both open government and a liquid municipal bond market.

In a 2014 open letter to the MSRB, the Sunlight Foundation pointed out that restrictions on downloading and the fact that much of EMMA’s data is still in PDF form greatly limit the system’s transparency. In these respects, it is worth comparing EMMA with the SEC’s system for collecting and presenting company financial filings, which is known as EDGAR (Electronic Data Gathering, Analysis and Retrieval).

Unlike EMMA, EDGAR provides free FTP and RSS access, allowing users to consume as much content as they wish. EMMA only offers bulk downloads as a high cost subscription option and specifically forbids using automated techniques to quickly capture (or “scrape”) site content. It also limits the number of records that can be returned in “Advanced Searches”, hampering the ability of market participants and academic researchers to gather and analyze the big data EMMA contains.

EDGAR further facilitates analysis by providing key company disclosures – most notably quarterly (10-Q) and annual financial statements (10-k) – in machine readable format. Municipal financial statements on EMMA typically appear only in PDF form, requiring laborious parsing or re-keying to obtain usable data.

Recent legislation proposed by Congressman Darrell Issa (R-CA) and co-sponsored by 26 other representatives from both parties would require MSRB to implement machine-readable disclosures on EMMA. The Financial Transparency Act of 2015 (HR 2477) mandates the use of standards based, machine readable disclosures by all financial regulatory agencies and self-regulatory bodies deriving their powers from federal regulators. This includes the MSRB whose power to oversee the municipal securities market is delegated by the Securities and Exchange Commission (SEC).

The SEC also operates EDGAR, which – as we have seen – is far more open than EMMA. But the SEC has not always been an exemplar of open data. It took a combination of outside pressure and bureaucratic innovation to make corporate financial disclosure fully open.

As late as the early-1990s, the primary method of reporting corporate financial results to the public was through printed annual reports and paper regulatory filings. Even after the SEC received company filings electronically, it proved unable to share this machine readable data with the general public.

This situation changed by virtue of work done by Carl Malamud, a northern California open government advocate. Malamud obtained SEC disclosures and began posting them on a web site he built with a National Science Foundation grant. Seeing the success of Malamud’s efforts, the SEC was shamed into providing this service itself. More recently, Malamud, through this work at Public.Resource.Org, has made a similar breakthrough with not-for-profit organization disclosures submitted to the IRS –Form 990. Malamud’s group began putting these forms on line at no charge a few years ago, and recently won a court judgment against the IRS requiring the agency to provide the Form 990 disclosures in machine readable format.

Meanwhile, the SEC has continued to improve EDGAR data. When it began publishing corporate disclosures in the late 1990s, the data appeared in SGML format (SGML is a close relative of HTML). SGML is more easily parsed than PDFs, so the SEC was way ahead of the MSRB and the IRS from the start. But the SGML disclosures were not self-describing: the data files were not tagged in such a way as to provide consistency across files. In the mid-2000s, the SEC began to embrace eXtensible Business Reporting Language (XBRL) which is self-describing. Beginning in 2009, the SEC began to mandate that corporate filers use XBRL – starting with the largest companies and working down to smaller ones. Now EDGAR users can click an “Interactive Data” button next to each disclosure to see the XBRL rendered as an interactive web page.

To this author, it seems odd that private companies and now private, not-for-profit entities have more accessible financial filings than do state and local governments. Many private organizations affect relatively small number of stakeholders – perhaps just a few hundred customers, employees and shareholders. But governments large enough to issue bonds touch the lives of thousands of taxpayers, service users, beneficiaries and other parties: their financial affairs are much more a matter of public interest.

EMMA could serve that public interest if its content were more open – but a number of factors prevent this. For example, MSRB’s board contains members employed by firms in the municipal bond industry whose revenue might be reduced by greater industry transparency.

Some of the content on EMMA is proprietary. This restricted data includes CUSIP numbers that identify each bond, as well as credit ratings. CUSIPs are owned by the American Bankers Association and administered by McGraw Hill Financial; they normally cannot be displayed on a web page without a costly CUSIP license. Although individual bond ratings may be freely reproduced, rating agencies take measures to prevent the bulk redistribution of credit ratings, because they sell ratings feeds to large financial industry customers. Finally, the MSRB also realizes revenue from selling EMMA content in bulk:  users are offered subscriptions to EMMA data feeds that includes various portions of the primary market and continuing disclosures available on the system.  If this material could be bulk downloaded at no charge, MSRB would lose subscription revenue.

While these institutional factors may preclude free bulk access to EMMA content, it is less clear why MSRB has not mandated filings in XBRL or some other open, standardized format – rather than PDFs. This idea appeared on an MSRB road map in 2012, but there does not seem to be momentum toward implementing it.

That situation would change if the Financial Transparency Act of 2015 (HR 2477) becomes law. Once PDFs are replaced by structured data, the cost of creating municipal finance data sets will greatly decline and their availability will greatly increase. The ultimate results should be better value for municipal bond investors and substantial cost savings for cities, counties, school districts and other issuers.


Spencer said...

More importantly would be getting municipal disclosure on a more timely basis. We get timely corporate results on a quarterly basis and municipal disclosure is extremely late and frequently unaudited.

Marc Joffe said...

Thanks, Spencer. This is a good point. One challenge that governments have is that they operate on a cash basis but need to report their financial statements on an accrual or modified accrual basis. It would be helpful if governments reported their cash-based results in a consistent format on a quarterly basis.

Anonymous said...

Wouldn't a change to XBRL be very costly for cities and states?

Marc Joffe said...

Thanks for the question about cost. It depends on how the XBRL mandate is implemented by MSRB. I recommend limiting the XBRL disclosure to a relatively small number of key fields as opposed to including everything from the Comprehensive Annual Financial Report. Also, on the technology side, a newer flavor of XBRL - called "Inline XBRL" - is easier to generate and consume.

Anonymous said...

Does the MSRB have the authority to require issuers to do this? I thought the Tower Amendment prevented to MSRB from doing something like this?

Anonymous said...

"Does the MSRB have the authority to require issuers to do this? I thought the Tower Amendment prevented to MSRB from doing something like this?"


There have been several voluntary initiatives to establish XBRL taxonomies/protocols for CAFRs, but none of them ever seem to make it to the finish line. It is doable, and it could be done in stages, but it is not a simple task and would need to be done in a cooperative manner . . . or by Congressional mandate.

Marc Joffe said...

Well, that's the point of HR 2477. It would be a Congressional mandate that would require the use of XBRL or some other open format.

Anonymous said...

But HR 2477 neither overrides the existing prohibition that prevents the muni regulator from requiring issuers to do anything nor creates a new mandate directly on issuers. As written, HR 2477 directly conflicts with the Tower Amendment and does nothing to resolve that conflict.

Anonymous said...

So basically we can have all the rules and regulations imaginable to provide timely and full disclosure by municipal issuers but they will have absolutely no effect on the municipalities as they have no jurisdiction over them.

Marc Joffe said...

Actually, it is not true that the Tower Amendment contradicts HR 2477. Although the SEC and MSRB may be prevented from directly regulating municipal disclosure filers, they can still regulate the filings themselves. A template for this is the SEC's Municipal Continuing Disclosure Cooperation initiative in which municipal bond underwriters were held accountable for a lack of complete and timely disclosure by their local government clients.

Anonymous said...

So, the SEC could make this happen now? Without HR 2477?

Marc Joffe said...

The MSRB could make this happen now and the SEC could then enforce it. But, as I point out in the post, the MSRB has discussed doing it but hasn't taken action. HR 2477 would require MSRB to move forward.

If you wish to discuss further, please email me at marc[at]publicsectorcredit[dot]org. Thanks.