WASHINGTON – The Securities and Exchange Commission's Office of Municipal Securities may propose changes to Rule 15c2-12 that would amend the list of event notices dealers must ensure issuers are disclosing.
The information was published on an Office of Information and Regulatory Affairs webpage that said OMS is considering making such recommendations to the SEC, which already has 14 material events listed under the rule. The Office of Information and Regulatory Affairs operates within the Office of Management and Budget. There are no further details about what the amendments might specifically address and the SEC declined to comment.
One market participant familiar with the rulemaking process said the information is from a document the SEC has to publish on a periodic basis to theoretically allow small businesses to anticipate future possible regulatory changes. The source added that including the 15c2-12 language in the document gives the SEC flexibility to act in that area.
Market groups and others have for several years been asking for a variety of changes to Rule 15c2-12 and the SEC has paid even more attention to the rule since announcing its Municipalities Continuing Disclosure Cooperation initiative. MCDC promised underwriters and issuers would receive lenient settlement terms if they self-reported instances over the last five years where issuers falsely stated in offering documents that they were in compliance with their continuing disclosure agreements. The initiative led to settlements with 71 issuers, as well as 72 underwriters, to date.
Jessica Kane, the director of OMS, said in a congressional hearing on Sept. 22 that "the federal securities law violations reported by underwriters and issuers pursuant to the MCDC initiative have provided OMS with valuable information as to how Rule 15c2-12 is working, which in turn will help us determine where to best channel our efforts going forward."
One possible area the SEC could focus on in amending 15c2-12 would be the disclosure of bank loans and private placements in the muni market. Bank loans and other financings have become popular for issuers because they can be used as a cheaper and less regulated alternative to municipal bonds. However, there is no requirement that issuers disclose such financings and any disclosure that does occur is done on a voluntary basis.
The Municipal Securities Rulemaking Board had circulated a concept release in March to see whether it should require municipal advisors to disclose information about their issuer clients' bank loans. It said it worried that a lack of disclosure on its EMMA system hindered an investor's ability to fully understand the risks of an investment. It has since taken steps to make filing bank loans on EMMA an easier.
While market groups largely rejected the MSRB's concept release, they generally agreed that a better way to increase bank loan and private placement disclosure would be to have the SEC, through an amendment to 15c2-12, include bank loans and private placements as a material event.
Another area outside of the material events part of 15c2-12 that market groups have focused on is requesting SEC guidance that would help create a streamlined process for issuers to amend their continuing disclosure agreements (CDAs) without running afoul of the rule. The Government Finance Officers Association, Bond Dealers of America, the National Association of Bond Lawyers, and the Securities Industry and Financial Markets Association wrote a joint letter to Kane on Aug. 9. The letter drew on discoveries the groups' members had made while reviewing CDAs that many of the issuers' agreements had ambiguities and inconsistencies that often resulted in overlapping, varying, and outdated information in the required disclosures. The groups attributed the findings to the flexibility the SEC has given issuers in drafting CDAs and the fact that under current guidance, there isn't a simple way to amend and fix CDAs.
SIFMA also sent a letter to the SEC in June that listed a number of further changes it would like to see to 15c2-12. The dealer group recommended that the commission eliminate the requirement that issuers file event notices for rating changes since those are now posted on the EMMA. It also asked that the SEC require that municipal advisors share due diligence responsibilities for reviewing official statements when they help prepare them and that issuers set an actual date as the due date for their disclosures of annual financial and operating information instead of giving a vaguer timeframe.
