DPC DATA Issues New Study on Transparency in the Municipal Bond Market

Finding: Missing disclosures and stale financial statements massively affect market transparency.

Fort Lee, NJ (USA) – February 3, 2011 –

Failure to file annual financial disclosure documents appears to be rising among issuers and obligors of municipal bonds, according to findings in a new research study published today by DPC DATA Inc. With the additional impact of annual financial statements filed too late to be of practical use in credit risk analysis, the deterioration in market transparency now appears to extend to 60-70 percent of municipal bonds with filing obligations, the study indicated.

Following two previous DPC DATA studies related to municipal bond disclosures, the new report entitled “Recent Trends in Municipal Continuing Disclosure Activities” details the examination of filing behaviors of issuers/obligors of municipal bonds. The main part of the study examined whether disclosures were filed, and if they were filed, how much time elapsed between the end of the financial year and the official filing. The sample for the study included more than 17,000 bonds issued from 1996 through 2003 that were reasonably expected to file disclosures for all the fiscal years of 2005 through 2009.

“Our objective in this study was to find evidence of how easy or difficult it might be for investors to find timely information about municipal bonds they hold or are considering for purchase,” said Peter J. Schmitt, CEO of DPC DATA and author of the report.

“This was our most intensive study to date in terms of tracking issuer/obligor behavior. The findings indicated that, in any given year, it would be impossible to analyze credit risk or find any warning of default from officially filed disclosure data on significantly more than half the issues studied. The disclosures either were not filed or they were filed too late to provide timely and therefore useful information. For people attempting to make good investment decisions or protect themselves from potential default, this is not good news.”

Some of the key findings of the report included the following:

For any of the five years, at least a third of the expected disclosures were never filed in the designated official repositories. In 2008 and 2009, the nondisclosure behavior rose to 36 percent and 40 percent respectively.

For the period of study, 56 percent of issuers/obligors did not file annual disclosures for one or more years; 19 percent did not file for any of those years.

Financial transparency existed for slightly more than one quarter of the sample studied by the closure of the study on December 31, 2010. The combination of missing financial statements and statements filed too late to be considered timely (more than 180 days after the close of the fiscal year) totaled 72 percent.

In an auxiliary study, DPC DATA found that issuers and obligors are granting themselves more time to file their continuing disclosures in the disclosure covenants of their offering statements. For issues that came to market in 2010, the average time for promised disclosure had grown to 228 days, compared to 214 days in 2008. In another auxiliary study of recent monetary defaults among municipal bonds, DPC DATA found that filing behavior was not a predictor of default.

“We see no correlation between failure to file or late filing and the eventuality of default,” noted Schmitt. “So it appears that there is no way around the fundamental need for timely financial statements to obtain critical information that can warn investors of impending problems. Unfortunately, in the municipal market, the likelihood of finding timely information in the official filings is relatively slim, according to our research. For the financial years of 2008 and 2009, fewer than six percent of our sample filed their annual disclosures within 90 days, which is the disclosure standard in the regulated markets.”

The full report of the study is free and available now at www.DPCDATA.com. with registration to the site.


DPC DATA Inc., founded in 1992, is the leading provider of disclosure-related data products and specialized data services to the municipal industry. Its customers include more than 600 financial institutions and information intermediaries. DPC DATA is a privately held firm, headquartered in Roseland, NJ. For more information please visit www.DPCDATA.com or e-mail us at sales@dpcdata.com.

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