Untangling municipal securities with the LEI

Posted on July 26, 2024 by Editor

Earlier this month Campbell Pryde, President and CEO of XBRL US, addressed the complexities of identifying obligors in the municipal bond market. He highlighted how leveraging the Legal Entity Identifier (LEI) within the Municipal Securities Rulemaking Board's (MSRB) Electronic Municipal Markets Access (EMMA) system can streamline data searches.

Municipal bonds often involve multiple securities and obligors, with issuers and obligors sometimes being different entities. The Financial Data Transparency Act (FDTA) offers an opportunity to enhance search capabilities using entity identifiers and data standardisation. XBRL tagging, combined with LEIs, can accurately identify issuers and obligors for specific securities, linking pertinent facts about the security-obligor relationship.

Pryde's investigation involved four common scenarios in the municipal marketplace, ranging from situations where issuers and obligors are the same legal entity, to cases involving multiple distinct obligors or obligors that are enterprise funds. XBRL's unique linking features can effectively establish relationships between governments, proprietary funds, and pledged revenue streams, clarifying the intricate web of municipal debt issuance.

This approach, already used by public companies for over a decade, is shown to improve efficiency, offering investors and analysts better access to information - and eventually, reducing the apparent complexities of municipal bond markets.

To delve deeper into these scenarios and the proposed solutions, read the full article here.