State and Local Financial Instruments
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State and Local Financial Instruments

Policy Changes and Management

Craig L. Johnson, Martin J. Luby and Tima T. Moldogaziev

The ability of a nation to finance its basic infrastructure is essential to its economic well-being in the 21st century. This book covers the municipal securities market in the United States from the perspective of its primary capital financing role in a fiscal federalist system, where subnational governments are responsible for financing the nation’s essential physical infrastructure.
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Chapter 8: Secondary market disclosure

Craig L. Johnson, Martin J. Luby and Tima T. Moldogaziev


Information disclosure is an important condition for smooth and efficient functioning of any capital market. Information disclosure improves market efficiency by increasing liquidity, matching investors to issuers by risk preferences, and leads to better price discovery. Secondary market continuing disclosure is an attempt by regulators to motivate state and local issuers to provide all the pertinent financial and operating condition information to municipal investors. Due to the segmented and loosely organized nature of the municipal over-the-counter (OTC) market, timely information discovery becomes a key concern for municipal secondary market participants. Certain important events regarding issuers’ fiscal condition or material decisions (such as defaults, ratings changes, or bond calls to name a few) are required to be reported to the Electronic Municipal Market Access (EMMA) of the Municipal Securities Rulemaking Board (MSRB) in a timely manner. There is also a set of voluntary disclosures that are encouraged to be reported to EMMA. Issuers, or financial intermediaries acting on their behalf, may choose to exercise their discretion and disclose additional information as a self-certification or quality signaling tool. In this chapter we describe the US municipal secondary market and how it is different from other bond markets. We then discuss the role of municipal market indices, the link between information disclosure and pricing, and current mechanisms for municipal disclosure. Finally, we assess the link between the secondary and primary markets.

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