SEC to Vote on 15c2-12 Changes; MSRB Proposal May Get Nod

The Securities and Exchange Commission plans to vote on proposed changes to its Rule 15c2-12 on disclosure at an open meeting Wednesday and also may direct staff to approve a related Municipal Securities Rulemaking Board proposal the same day.

Ahead of Wednesday’s meeting, the MSRB is likely to file changes with the SEC to its related proposal, which would require issuers to contract with bondholders to make certain improvements in their disclosure practices in order to receive special designation on the board’s Electronic Municipal Market Access site.

Under the current MSRB proposal, issuers would receive special designation on EMMA only if they voluntarily agree to any of four voluntary initiatives. These include filing annual financial information to EMMA within either 120 or 150 days after the end of the their fiscal years, complying with accounting standards set by the Governmental Accounting Standards Board or the Financial Accounting Standards Board, or submitting a web link to their investor relations or other financial and operating information.

But the SEC has asked the MSRB to modify its proposal so that issuers would only receive the special designations if they include them in their continuing disclosure agreements, sources said.

The changes, which are not expected to require another round of public comment, come in response to concerns that there would be no repercussions for issuers that agreed to make the disclosure improvements, but never followed through with any action.

Requiring issuers to include the undertakings in their agreements would allow bondholders to sue the issuers if they are out of compliance, though most market participants do not believe bondholders will ever have the wherewithal to sue issuers for noncompliance. The modified rule change also could dissuade issuers from participating in the voluntary program.

Sources said that the five-member SEC is not expected to approve the MSRB proposal at Wednesday’s open meeting. Staff will probably sign off on the proposal without a public vote.

Meanwhile, market participants said yesterday that they were not expecting major changes to the SEC’s proposed changes to Rule 15c2-12, including a controversial provision that would require issuers to file notices within 10 days of an event’s occurrence, rather than on the current standard of a “timely basis.”

Issuers have complained that is not enough time and asked that the SEC alter the provision to give them 10 days once they are notified of an event to make a filing. But SEC officials have said the time frame is a reasonable middle ground compared to corporate requirements, which generally require disclosures to be made within four days of an event.

SEC officials declined to comment yesterday on the proposal.

The 15c2-12 changes originally were floated in July and would require issuers to agree to disclose more events on a more timely basis in order for dealers to underwrite their bonds.

The categories of event disclosures would expand to 16 from 11, and most of the events, such as tender offers and unscheduled draws on credit enhancement, would have to be disclosed whenever they occur, without regard to “materiality.”

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