In mid-July, the SEC voted unanimously to propose rule amendments to improve the quality and timeliness of municipal securities disclosure. The enhanced disclosure requirements are designed to provide investors (such as mutual funds) with better notice of adverse events affecting a bond issuer and the bond offering. The amendments would also expand the rule to cover variable rate demand obligations.

Currently, the following events, if material, require notice: 1) principal and interest payment delinquencies; 2) non-payment related defaults; 3) unscheduled draws on debt service reserves reflecting financial difficulties; 4) unscheduled draws on credit enhancements reflecting financial difficulties; 5) substitution of credit or liquidity providers, or their failure to perform; 6) adverse tax opinions or events affecting the tax-exempt status of the security; 7) modifications to rights of security holders; 8) bond calls; 9) defeasances; 10) release, substitution or sale of property securing repayment of the securities; and 11) rating changes.

The SEC proposes amending Rule 15c2-12 under the Exchange Act to include notice of four additional events: 1) tender offers; 2) bankruptcy, insolvency, receivership or similar proceeding of the obligated person; 3) consummation of a merger, consolidation or acquisition involving an obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 4) appointment of a successor or additional trustee, or the change of name of a trustee, if material.

The amendments would also delete the condition in Rule 15c2-12 that requires notice of all of the listed events only “if material.” Instead, the SEC proposes that notice of the following events be given, regardless of a materiality determination, because of their importance to investors: 1) principal and interest payment delinquencies with respect to the securities being offered; 2) unscheduled draws on debt service reserves reflecting financial difficulties; 3) unscheduled draws on credit enhancements reflecting financial difficulties; 4) substitution of credit or liquidity providers, or their failure to perform; 5) defeasances; and 6) rating changes.

A copy of the release is available at http://www.sec.gov/rules/proposed/2009/34-60332.pdf.