MSRB NOTICE 2010-20 (JUNE 30, 2010)

MSRB FILES WITH SEC TO MODIFY THE EMMA CONTINUING DISCLOSURE SERVICE TO REFLECT AMENDMENTS TO SECURITIES EXCHANGE ACT RULE 15C2-12

On June 30, 2010, the Municipal Securities Rulemaking Board (the “MSRB”) filed with the Securities and Exchange Commission (the “SEC”) a proposal to amend the continuing disclosure service of its Electronic Municipal Market Access (“EMMA”) system to reflect recent SEC amendments to Securities Exchange Act Rule 15c2-12 (“Exchange Act Rule 15c2-12”).[1] The MSRB has requested an effective date for the proposal of a date to be announced by the MSRB in a notice published on the MSRB website, which date shall be no later than December 1, 2010 and shall be announced no later than five (5) business days prior to the effective date.

Currently Exchange Act Rule 15c2-12 provides that an underwriter for a primary offering of municipal securities subject to Exchange Act Rule 15c2-12 is prohibited from underwriting the offering unless the underwriter has determined that the issuer or an obligated person for whom financial information or operating data is presented in the final official statement has undertaken in writing to provide certain items of information to the MSRB. Such items include: (A) annual financial information; (B) audited financial statements if available and if not included in the annual financial information; (C) notices of certain events (“Rule 15c2-12 Event Notices”);[2] and (D) notices of failures to provide annual financial information on or before the date specified in the written undertaking. Written undertakings are to provide that all continuing disclosure documents submitted to the MSRB shall be accompanied by identifying information as prescribed by the MSRB. Such submissions are made by issuers, obligated persons and their agents to the MSRB through the EMMA continuing disclosure service and are made available to the public through the EMMA Web site for free and through paid subscriptions.

The SEC has recently amended Exchange Act Rule 15c2-12 to modify several provisions relating to the submission of continuing disclosures to the MSRB (the “Rule 15c2-12 Amendment”).[3] The Rule 15c2-12 Amendment, among other things, (1) removes the exemption from the continuing disclosure provisions of Exchange Act Rule 15c2-12 for demand securities;[4] (2) modifies Exchange Act Rule 15c2-12 to establish a timeliness standard for submission of Rule 15c2-12 Event Notices of ten business days after the occurrence of the event; (3) deletes the general materiality condition for certain of the Rule 15c2-12 Event Notices; (4) modifies the language of the Rule 15c2-12 Event Notice regarding adverse tax events;[5] and (5) adds new Rule 15c2-12 Event Notices.[6]

To permit issuers and obligated persons to meet the provisions of the Rule 15c2-12 Amendment on or prior to the compliance date of December 1, 2010 established under the Rule 15c2-12 Amendment, this proposed rule change would modify the language of the EMMA continuing disclosure service to reflect the materiality standard changes under the Rule 15c2-12 Amendment and would modify the list of voluntary event-based disclosures that may be submitted to the EMMA continuing disclosure service to reflect changes in the list of Rule 15c2-12 Event Notices made by the Rule 15c2-12 Amendment.[7]

Upon this proposed rule change becoming effective, the continuing disclosure service of EMMA would accept submissions of, and make publicly available through EMMA, the following categories of event-based continuing disclosure documents:[8]

Rule 15c2-12 Event Notices

  • principal and interest payment delinquencies
  • non-payment related defaults, if material
  • unscheduled draws on debt service reserves reflecting financial difficulties
  • unscheduled draws on credit enhancements reflecting financial difficulties
  • substitution of credit or liquidity providers or their failure to perform
  • adverse tax opinions, IRS notices or events affecting the tax status of the security[9]
  • modifications to rights of security holders, if material
  • bond calls, if material[10]
  • defeasances
  • release, substitution or sale of property securing repayment of the securities, if material
  • rating changes
  • tender offers[11]
  • bankruptcy, insolvency, receivership or similar event of the obligated person[12]
  • merger, consolidation, or acquisition of the obligated person, if material[13]
  • appointment of a successor or additional trustee, or the change of name of a trustee, if material

Additional/Voluntary Event-Based Disclosures (certain communications from the Internal Revenue Service, tender offers, merger/consolidation/reorganization/insolvency/bankruptcy and change of trustee are no longer reflected as additional/voluntary event-based disclosures).

  • amendment to continuing disclosure undertaking
  • change in obligated person
  • notice to investors pursuant to bond documents
  • certain communications from the Internal Revenue Service
  • secondary market purchases
  • bid for auction rate or other securities
  • capital or other financing plan
  • litigation/enforcement action
  • change of tender agent, remarketing agent, or other on-going party
  • derivative or other similar transaction
  • other event-based disclosures

* * * * * * * * *

Questions on the this proposal and the EMMA continuing disclosure service may be directed to Leslie Carey, Associate General Counsel, or Justin R. Pica, Director, Uniform Practice Policy, at 703-797-6600.

June 30, 2010

TEXT OF AMENDMENT [14]

MUNICIPAL SECURITIES RULEMAKING BOARD
ELECTRONIC MUNICIPAL MARKET ACCESS SYSTEM –
EMMA ®

* * * * * * * * *

EMMA CONTINUING DISCLOSURE SERVICE

No change.

Submissions to the EMMA Continuing Disclosure Service

Designated Electronic Format for Documents . No change.

Method of Submission . No change.

Timing of Submissions . No change.

Document Types . The EMMA continuing disclosure service accepts submissions from issuers, obligated persons, and their agents of (i) the continuing disclosure documents described in Rule 15c2-12, and (ii) other continuing disclosure documents concerning municipal securities not specifically described in Rule 15c2-12.

The continuing disclosure documents described in Rule 15c2-12 consist of the following categories of documents:

  • annual financial information concerning issuers or other obligated persons as described in paragraph (b)(5)(i)(A) of Rule 15c2-12, or other financial information and operating data provided by issuers or other obligated persons as described in paragraph (d)(2)(ii)(A) of Rule 15c2-12;
  • financial statements for issuers or other obligated persons if not included in the annual financial information as described in paragraph (b)(5)(i)(B) of Rule 15c2-12;
  • notices of certain events, if material, as described in paragraph (b)(5)(i)(C) of Rule 15c2-12; and
  • notices of failures to provide annual financial information on or before the date specified in the written undertaking as described in paragraph (b)(5)(i)(D) of Rule 15c2-12.

Categories of other disclosure documents concerning municipal securities not specifically described in Rule 15c2-12 include:

  • other financial or operating data disclosures, including but not limited to quarterly or monthly financial information; interim or additional financial information or operating data; budget documents; investment, debt or financial policies; consultant reports; information provided to rating agencies, credit or liquidity providers or other third parties; changes in accounting standards, fiscal year or timing of annual disclosure; contractual undertaking, for the benefit of bondholders, of an issuer or obligated person to prepare audited financial statements pursuant to generally accepted accounting principles as established by the Governmental Accounting Standards Board (GASB) or the Financial Accounting Standards Board (FASB), as applicable; contractual undertaking, for the benefit of bondholders, of an issuer or obligated person to submit annual financial information to EMMA within 120 calendar days after the end of the applicable fiscal year (provided that the EMMA continuing disclosure service will accept the submission, through December 31, 2013, of an alternative transitional undertaking of an issuer or obligated person to submit annual financial information to EMMA within 150 calendar days after the end of the applicable fiscal year); uniform resource locator (URL) of the issuer’s or obligated person’s Internet-based investor relations or other repository of financial/operating information; and other uncategorized financial or operating data; and
  • other event-based disclosures, including but not limited to amendments to continuing disclosure undertakings; changes in obligated person; notices to investors pursuant to bond documents; certain communications from the Internal Revenue Service; tender offer or secondary market purchase notices; notices of bid for auction rate or other securities; capital or other financing plans; litigation or enforcement action documents; documents relating to mergers, consolidations, reorganizations, insolvency or bankruptcy; changes of trustee, tender agent, remarketing agent, or other on-going party; materials relating to derivative or other similar transactions; and other uncategorized event-based disclosures.

The MSRB may combine two or more categories, may divide any category into two or more new categories or subcategories, or may form additional categories for purposes of indexing documents submitted as uncategorized financial/operating data or event-based disclosures, as appropriate, based on the types of documents received.

In addition, for the categories of continuing disclosures listed below, a submitter may provide, in lieu of or in addition to a continuing disclosure document, a statement of the information indicated below by means of a text/data input field: contractual undertaking of an issuer or obligated person to prepare audited financial statements pursuant to generally accepted accounting principles as established by GASB or FASB, as applicable; contractual undertaking of an issuer or obligated person to submit annual financial information to EMMA within 120 calendar days (or, through December 31, 2013, within 150 calendar days) after the end of the applicable fiscal year; and URL of the issuer’s or obligated person’s Internet-based investor relations or other repository of financial/operating information. Submitters also may indicate any change or rescission of any such contractual undertaking or change or remove any such URL at any time by means of a text/data input field, and any such changes, rescissions or removals will be reflected on the EMMA portal; provided that a contractual undertaking of an issuer or obligated person to submit annual financial information to EMMA within 150 calendar days after the end of the applicable fiscal year will continue to be displayed on the EMMA portal through June 30, 2014, and will automatically cease to be displayed on the EMMA portal after such date, unless the issuer or obligated person has previously changed or rescinded such contractual undertaking and has indicated such change or rescission through the text/data input field.

Information to be Submitted . No change.

Submitters . No change.

Public Availability of Continuing Disclosure Documents

No changes.


[1] File No. SR-MSRB-2010-05. Comments on the filing should be submitted to the SEC and should reference this file number.

[2] Under Exchange Act Rule 15c2-12(b)(5)(i)(C), notices of the following events currently are required to be submitted to the MSRB, if material: principal and interest payment delinquencies; non-payment related defaults; unscheduled draws on debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; adverse tax opinions or events affecting the tax-exempt status of the security; modifications to rights of security holders; bond calls; defeasances; release, substitution, or sale of property securing repayment of the securities; and rating changes.

[3] See Release No. 34-62184A; File No. S7-15-09 (May 26, 2010).

[4] Currently primary offerings for demand securities as described in Rule 15c2-12(d)(1)(iii) are exempt from the requirements of Rule 15c2-12.

[5] The Rule 15c2-12 Amendment expands the current language of such Rule 15c2-12 Event Notice category to include adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security or other material events affecting the tax status of the security.

[6] The Rule 15c2-12 Amendment includes the following new Rule 15c2-12 Event Notices: tender offers; bankruptcy, insolvency, receivership, or similar event of the issuer or obligated person; the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the 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 the appointment of a successor or additional trustee, or the change of name of a trustee, if material.

[7] The existing language of the EMMA continuing disclosure service would incorporate the changed list of Rule 15c2-12 Event Notices made by the Rule 15c2-12 Amendment by reference to the then-current provisions of Exchange Act Rule 15c2-12 and therefore no change in the language of the EMMA continuing disclosure service would be made. In addition, the removal of the exemption for demand securities from the continuing disclosure provisions of Exchange Act Rule 15c2-12 does not require changes to the EMMA continuing disclosure service in order to permit submission of disclosures in connection with demand securities.

[8] This proposed rule change does not modify the existing categories of financial/operating data disclosures available through the EMMA continuing disclosure service.

[9] This category would represent the expansion in the Rule 15c2-12 Amendment of the prior category of “adverse tax opinions or events affecting the tax-exempt status of the security” to “adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.” See amended Exchange Act Rule 15c2-12(b)(5)(i)(C)(6).

[10] The Rule 15c2-12 Amendment expands this category to include tender offers. See amended Exchange Act Rule 15c2-12(b)(5)(i)(C)(8). The EMMA continuing disclosure service currently provides a voluntary event-based notice category of “tender offers/secondary market purchases.” The EMMA continuing disclosure service will continue to utilize “bond call” as a separate category from “tender offer.”

[11] Id. The existing “tender offers/secondary market purchases” category of voluntary event-based notice will be split into a new Rule 15c2-12 Event Notice category of “tender offers” and a voluntary event-based category of “secondary market purchases.”

[12] The existing “merger/consolidation/reorganization/insolvency/bankruptcy” category of voluntary event-based notice will be split into a new Rule 15c2-12 Event Notice category of “bankruptcy, insolvency, receivership or similar event of the issuer or obligated person” and a second Rule 15c2-12 Event Notice category of “merger, consolidation or acquisition of the obligated person.” See amended Exchange Act Rule 15c2-12(b)(5)(i)(C)(12).

[13] Id. The full reference to this category under amended Exchange Act Rule 15c2-12(b)(5)(i)(C)(13) is “the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the normal 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.”

[14] Underlining indicates additions to the existing text of the EMMA continuing disclosure service; strike through indicates deletions from the existing text of the EMMA continuing disclosure service. Certain portions of the existing text of the EMMA continuing disclosure service have been previously approved by the SEC but are not yet effective. See Release No. 34-62182, File No. SR-MSRB-2009-09 (May 26, 2010); Release No. 34-62183, File No. SR-MSRB-2009-10 (May 26, 2010).