In the Internet age, it's easy for investors to get information about publicly traded companies, thanks to the Securities and Exchange Commission's widely available EDGAR database.
Much harder to obtain are data on not-for-profit hospitals and other organizations that issue municipal bonds, which are not directly regulated by the SEC.
But factors such as heightened volatility in healthcare have boosted the appetite for hospital financial data. At the same time, individual investors are responsible for a growing portion of municipal trades, signaling a push toward a more active public market.
An increasing number of market observers are asking why municipal securities shouldn't be as easy to track and trade as stocks. This year several Web-based initiatives are under way to make that a reality.
"Changes in technology have made it easier for people to be entrepreneurial and find ways to make data accessible to investors," says Paul Maco, chief of the SEC's Office of Municipal Securities.
Financial reports from municipal bond issuers such as hospitals typically are available to investors only through an obscure system of privately operated databanks, known as Nationally Recognized Municipal Securities Repositories, or NRMSRs (pronounced "nerm-sirs"). The SEC established the NRMSR system in 1994 under the agency's authority to regulate securities dealers. At the time, the SEC was instituting minimum reporting requirements for new bond issues sold by brokers.
The repositories have become the linchpin of the public reporting system for municipal issuers. Typically, hospitals file official statements, annual audited financial reports, notices of material events and sometimes quarterly statements with each of the four repositories now operating (See chart, p. 55).
Altogether, 1,100 organizations representing 3,500 hospitals file such documents, according to DPC Data, one of the repositories.
But investors haven't been satisfied with the system.
While data on public companies is available for free through EDGAR (the SEC's Electronic Data Gathering, Analysis and Retrieval system) and many private online sources, the repositories charge $20 to $25 to investors for each financial report. Further, in the past it has taken days or weeks from the time an organization files a report until it reaches the hands of investors, although the Internet has expedited access somewhat.
Institutional investors that track hundreds or thousands of credits say the costs add up. Sometimes they try to circumvent the repositories by requesting data directly from hospitals, which creates problems for hospital staff if a large number of investors call at once.
"We're not big fans of the NRMSRs because we don't think they work too well," says Dina Kennedy, chairwoman of the National Federation of Municipal Analysts, based in Pittsburgh. "We think all the information should be immediately available and free. You should be able to monitor your investment."
Both the federation and the SEC's Maco have encouraged issuers to post financial reports on the Web as well as filing with repositories, yet few do. Hospitals typically use their Web sites for marketing, not disseminating data to investors. Further, the securities industry is still working to reach a consensus on standards for accurately posting and updating financial reports on the Web.
On the hospital side, however, NRMSRs have been a blessing. Lawyers say it frees hospitals from the obligation of responding to information requests from multitudes of bondholders and would-be investors and allows hospitals to treat all market players equitably.
Steven Kite, a partner at the law firm Gardner, Carton & Douglas in Chicago, says $20 for a quarterly or annual report "isn't a big deal" for institutional investors that hold most municipal bonds.
"I don't want my clients to have the responsibility for sending information out to the marketplace parties. Their time is much better used in running the hospital," Kite says.
The repositories say they must charge high fees to investors to offset costs, since the issuers pay no filing fees. Four companies have stopped serving as repositories since the system started, and those still operating have other revenue sources, such as rating agency Standard & Poor's and financial media conglomerate Bloomberg.
"Being a NRMSR in and of itself is a guaranteed money-losing proposition," says Peter Schmitt, president and chief executive officer of DPC Data. "You have to develop fairly sophisticated data systems so you can sell enough documents to cover the cost of being a NRMSR."
He says costs could be reduced if more hospitals filed electronically, as public companies are required to do.
At least two of the repositories are involved in ventures to develop online trading systems for municipal bonds.
Schmitt's Fort Lee, N.J.-based company recently launched an Internet subscription service called MuniCredit Analytics, which promises to speed access to municipal financial statements and offer volume discounts. It also has an agreement to provide data to users of ValueBond.com, an Atlanta-based start-up that has announced plans to develop an electronic market for municipal bonds.
Another bond trading platform, MuniBEX.com, was announced earlier this year but is still under development, according to its Web site.
Last spring, Bloomberg launched a trading system for municipal bonds and other fixed-income securities via its subscriber terminals. Bloomberg also offers a free online service that posts new municipal offerings.
In addition, the New York-based Bond Market Association, which represents dealers, earlier this year began providing official statements for free on its Web site, tradinginbonds.com. The association is working on recommendations for electronic filing and online reporting for municipal issuers.