On December 8, the Securities and Exchange Commission announced the adoption of a final rule designating the Municipal Securities Rulemaking Board (MSRB) as the sole central repository for all electronic continuing disclosure information provided pursuant to Rule 15c2-12 and establishing a continuing disclosure service of the MSRB’s Electronic Municipal Market Access system (EMMA). The rule will improve the availability of information about municipal securities, creating faster and free access to this information for investors, market professionals, and the public generally, replacing a cumbersome, slow and often costly system of accessing such disclosures at one of the four Nationally Recognized Municipal Securities Information Repositories (NRMSIRs).
Deficiencies in the quality, timing and dissemination of disclosure in the $2.6 trillion municipal securities market have been a serious problem that has been exacerbated by recent liquidity problems of municipal auction rate securities and rating downgrades of municipal bond insurers, which have contributed to the current credit crisis.
Currently, under Rule 15c2-12, participating underwriters are prohibited, subject to certain exemptions, from purchasing or selling municipal securities covered by the Rule in a primary offering, unless the participating underwriter has reasonably determined that an issuer of municipal securities or an obligated person has undertaken in a written agreement or contract for the benefit of holders of such securities (continuing disclosure agreement) to provide specified annual information and event notices to certain information repositories consisting of: (i) certain annual financial and operating information and audited financial statements (annual filings); (ii) notices of the occurrence of any of eleven specific events (material event notices); and (iii) notices of the failure of an issuer or other obligated person to make a submission required by a continuing disclosure agreement (failure to file notices). Rule 15c2-12 also requires the participating underwriter to reasonably determine that an issuer of municipal securities or an obligated person has undertaken in the continuing disclosure agreement to provide: (i) annual filings to NRMSIRs; and (ii) material event notices and failure to file notices either to each NRMSIR or to the MSRB.
The amendments to Rule 15c2-12 require a participating underwriter to reasonably determine that the issuer or obligated person has agreed at the time of a primary offering: (i) to provide the continuing disclosure documents to the MSRB instead of to each NRMSIR and (ii) to provide the continuing disclosure documents in an electronic format and accompanied by identifying information as prescribed by the MSRB.
The MSRB rule change will establish, as a component of EMMA, a continuing disclosure service for the receipt of, and for making available to the public, continuing disclosure documents and related information to be submitted by issuers, obligated persons and their agents pursuant to continuing disclosure undertakings entered into consistent with Rule 15c2-12. The continuing disclosure service will accept submissions of (i) continuing disclosure documents as described in Rule 15c2-12, and (ii) other disclosure documents specified in continuing disclosure undertakings entered into consistent with Rule 15c2-12 but not specifically described in Rule 15c2-12. Submitters will be responsible for the accuracy and completeness of all documents and information submitted to EMMA. With the creation of EMMA, municipal securities investors will have free and instant access to municipal bonds disclosures in a manner that resembles the access that corporate securities investors have to company information through the SEC’s Electronic Data Gathering, Analysis and Retrieval system.
The SEC’s rule amendments and the MSRB’s rule change will be effective on July 1, 2009.