On December 5, 2008, the U.S. Securities and Exchange Commission (“SEC”) issued a final rule to amend the SEC’s Municipal Securities Disclosure Rule 15c2-12 (the “Rule”). These amendments will take effect on July 1, 2009. The Rule provides for municipal securities disclosure through regulation of each underwriter in a primary offering of municipal securities with an aggregate principal amount of $1 million or more (the “Underwriter”). Prior to amendment, the Rule generally requires any Underwriter to reasonably determine that an issuer or obligated person (in general, anyone who is committed to support payment of the obligations on municipal securities) has agreed at the time of a primary offering of municipal securities to:
- Provide continuing disclosure documents, including certain notices and financial and operating information, to each of the four nationally recognized municipal securities information repositories (“NRMSIR”) and to appropriate state information depositories (“SID”), if any, and, in some instances, to the Municipal Securities Rulemaking Board (the “MSRB”); and
- Include, in a written agreement or contract for the benefit of the holders of the securities, information regarding the continuing disclosure documents and disclosure requirements as specified in the Rule.
The amended Rule will impact Underwriters, municipal securities issuers and obligated persons in several notable ways. The Rule, as amended, still will require the Underwriter to reasonably determine that, at the time of a primary offering of municipal securities, an issuer or obligated person has agreed, in writing, that the issuer or obligated person will provide certain continuing disclosures. However, for continuing disclosure agreements executed on or after July 1, 2009, the Underwriter must reasonably determine that such agreements contain provisions stating that continuing disclosure submissions will be made to the MSRB (instead of to each NRMSIR and appropriate SIDs, if any) in an electronic format accompanied by identifying information as prescribed by the MSRB.
Changes in Underwriter requirements indirectly impact issuers and obligated persons. In order for an Underwriter to participate in a primary offering on or after July 1, 2009, an issuer of municipal securities or an obligated person will need to include such additional provisions in a written agreement or contract for the benefit of the holders of municipal securities issued on or after July 1, 2009. Another change resulting from the Rule’s amendments specifically affects issuers and obligated persons who are eligible for and use the so-called “small issuer exemption.” The small issuer exemption currently allows for limited or no financial or operating data disclosures if certain requirements are met (including no more than $10 million in aggregate amount of outstanding municipal securities). For offerings made on or after July 1, 2009, issuers who are eligible for and use the small issuer exemption will need to agree, in writing, to file such financial information or operating data at least annually with the MSRB in an electronic format as prescribed by the MSRB if such information is customarily prepared and is publicly available.
All continuing disclosure documents submitted to the MSRB will be made through the MSRB’s Electronic Municipal Market Access (“EMMA”) system, which is accessible on the Internet at emma.msrb.org. Through the EMMA portal, issuers, obligated persons, or their agents will be able to submit continuing disclosure documents along with submitter-provided identifying information free of charge. Once submitted, these documents will be available electronically to the general public at no cost or to bulk data users by subscription. The MSRB has established certain features to assist EMMA users and to work toward an improved EMMA portal. The EMMA portal contains a “frequently asked questions” page to answer some common questions about EMMA. The portal also allows EMMA-system users to submit questions or provide comments. In addition, a help desk will be available during MSRB business hours for submission-related questions.
The MSRB has released preliminary specifications for electronic submissions made to the EMMA system. All continuing disclosure documents submitted to the MSRB will need to be made electronically in portable document format (“PDF”) beginning July 1, 2009, and in word-searchable PDF beginning January 1, 2010. Continuing disclosure documents will be submitted to the EMMA system either by automated data-file through EMMA’s computer interface or by Internet-based data entry and document upload through the EMMA website.
Identifying information to accompany continuing disclosure documents submitted to EMMA will have different submission requirements than the documents it accompanies. For an Internet-based document submission, the accompanying identifying information will be submitted either through an on-line form or uploaded as an extensible markup language (“XML”) file. For automated document submission, accompanying identifying information will be uploaded as an XML file.
The MSRB plans to implement a program to educate issuers and other obligated persons regarding the submission of continuing disclosures to the EMMA system and to assist paper filers in the transition to electronic format. The MSRB encourages submitters to familiarize themselves with the submission process before the implementation date of July 1, 2009.
Because continuing disclosure agreement obligations are contractually based, the Rule’s amendments do not change the obligations of outstanding agreements executed prior to July 1, 2009. The SEC has addressed the impact of the Rule’s amendments on these outstanding agreements that reference the NRMSIRs and SIDs. The SEC determined that the MSRB will be the sole NRMSIR as of July 1, 2009. The SEC also directed SEC staff to withdraw on July 1, 2009, all “no action” letters that recognize the existing NRMSIRs. As a result, continuing disclosures that are contractually required to be submitted to the NRMSIRs should be submitted instead to the MSRB in its capacity as the sole NRMSIR beginning July 1, 2009. Until July 1, 2009, issuers and obligated persons should submit continuing disclosures as they have been doing as required by their outstanding continuing disclosure agreements. It should be noted, however, that the amended Rule does not remove an obligation to provide continuing disclosure documents to a SID if required by applicable state law or by outstanding continuing disclosure agreements entered into prior to July 1, 2009.