A top Securities and Exchange Commission official told an annual roundtable of municipal market groups Tuesday that SEC staff hopes by the end of March to propose changes to Rule 15c2-12 on disclosure to allow for a muni Edgar system. But the official said it could take up to an additional six months for commissioners to vote to approve them in final form.
The remarks by Erik Sirri, the director of the SEC’s division of markets and trading, are important because they provide the first rough blueprint for how long it will take the commission to approve the changes, which would pave the way for the development of a single secondary-market disclosure repository, modeled on the SEC’s Edgar system, that would be hosted by the Municipal Securities Rulemaking Board.
The muni-Edgar would replace the four nationally recognized municipal securities information repositories, as well as the Central Post Office run by the Municipal Advisory Council of Texas. Sirri, accompanied by Martha Mahan Haines, the SEC’s municipal securities chief, spoke at the invitation of the MSRB, which hosted the roundtable at its headquarters in Alexandria, Va. The roundtable was attended by some 10 market groups, sources said.
Sirri could not be reached as of press time and Haines declined to comment, but several market participants who attended the roundtable confirmed Sirri’s remarks.
If the SEC approves the draft changes, the proposal would then be subject to a public comment period of 30 to 60 days and subsequent revision before final approval and implementation.
Under the current rule, dealers cannot underwrite bonds unless the issuer has contractually agreed to send annual financial and operating information to each of the NRMSIRs. Issuers must also agree to send notices of material events either to each of the NRMSIRs or to the MSRB.
Some disclosure experts have said that the rule could be amended to prevent a dealer from underwriting bonds unless the issuer contractually agreed to file with the muni-Edgar all future bond-related annual financial and operating information, related to both the current issue and all outstanding issues that are the subject of a continuing disclosure agreement.
Sirri also said the commission strongly supports the MSRB’s push to boost the transparency of auction-rate securities and variable-rate demand obligations, the sources said. Currently, trades of such securities are reported at par and do not include clearing rates.
For VRDOs, the SEC would like to see reporting of clearing rates. But for auction rate securities, the SEC would like to see additional variables, modeled on what the federal government releases for Treasury bond auctions.
“There may be other elements, like the dollar amount of bids received or which bids were from broker-dealers and which were from customers,” said one source. “It might be good to include some of those variables, and to take a look and think about it.”
MSRB executive director Lynnette Hotchkiss said earlier this week that the board would discuss improving transparency for such securities at its meeting that began yesterday in Orlando. She added that if the board chooses to alter its rules, it could either amend Rule G-14 on reports of sales or purchases or alter Rule G-34 on Cusip numbers and new-issue requirements.
