January 21, 2009

Amendments to Continuing Disclosure Requirements Under Rule 15c2-12: Are You Prepared?

Holland & Knight Alert
Michael L. Wiener

As initially adopted, Rule 15c2-121 (the “Rule”), promulgated by the Securities and Exchange Commission (SEC), was intended to improve the quality and timeliness of disclosure by imposing requirements on underwriters2 to obtain and distribute official statements to their clients and to review an official statement “deemed final” by the issuer, subject to certain permitted omissions, before offering the securities. In 1995, the SEC amended the Rule to indirectly impose continuing disclosure obligations on issuers and other obligated persons3 (e.g., conduit borrowers, who are the real parties in interest under conduit financing structures) by prohibiting underwriters from purchasing and selling securities unless they reasonably determine that an issuer or its designated agent (e.g., a conduit borrower) has undertaken in a written agreement for the benefit of the bondholders to provide specified information.1 Under the Rule, governmental issuers must agree in writing to provide: (a) annual financial information4 concerning obligated persons;5 (b) audited financial statements for obligated persons if available and if not included in the annual financial information;6 (c) notices of certain events, if material;7 and (d) notices of failures to provide annual financial information on or before the date specified in the written undertaking (collectively referred to herein as “disclosure documents”).8
Since the adoption of the Rule in 1989 there have been significant technological advances, including the use of the Internet, to quickly and inexpensively disseminate information. However, until now, the Rule has not been amended to keep pace with such advances. The most notable improvement prior to the changes discussed below, permitted disclosure documents to be filed with a Central Post Office, which would then forward such information to the information repositories designated by the SEC. Although the Central Post Office has simplified the filing process for issuers, the filed documents cannot be viewed or accessed through the Central Post Office’s website and instead investors and market participants generally must request documents, for a fee, from the designated repositories.
In December 2008, among certain other changes described below, the SEC amended the Rule, effective July 1, 2009, to simplify the process of filing disclosure documents and to improve market access to such documents through a free Internet Web site or a paid real-time data stream subscription service.

Filing of Information with MSRB

The most significant change to the Rule is the designation of the Municipal Securities Rule Making Board as the single repository for information required to be filed pursuant to an issuer’s continuing disclosure obligation.9 Currently, the Rule requires issuers to agree pursuant to their continuing disclosure agreements to file information with each of the nationally recognized municipal securities information repositories (NRMSIRs)10 and state information repositories (SIDs),11 if any1. A series of recent interpretive letters by the SEC also permitted disclosure documents to be sent to the Central Post Office created by the Municipal Advisory Council of Texas at the Web site www.DisclosureUSA.org, which would then forward the information to the NRMSIRs and appropriate SID,12 if any. The amendments to the Rule will require, effective July 1, 2009, that an underwriter determine that the issuer or obligated person has agreed to provide the disclosure documents covered by the written agreement to the MSRB, instead of to the NRMSIRs and SID, if any.9

MSRB’s Electronic Municipal Market Access
Disclosure documents will be required to be provided to the MSRB through its Electronic Municipal Market Access (referred to as EMMA). The MSRB’s continuing disclosure service is scheduled to begin operating on July 1, 2009, simultaneously with the effective date of the related amendments to the Rule. The MSRB’s continuing disclosure service would receive electronic submissions of, and would make publicly available on the Internet through the EMMA Web site at www.emma.msrb.org (the “EMMA portal”), continuing disclosure documents and related information from issuers, obligated persons and their agents. Id. The EMMA portal would be similar to the SEC’s EDGAR system for corporate disclosure. Currently the MSRB already provides through its website free public access to historical official statements and advance refunding documents filed with the MSRB with respect to new issue municipal securities since 1990. Id. The MSRB Web site also provides free public access to real-time transaction price information reported by dealers to the MSRB’s Real-Time Transaction Reporting System for current transactions and historical price data for transactions since January 31, 2005. Id.
Users of the EMMA portal will have a choice of making submissions of disclosure documents free of charge, either through a Web-based electronic submission interface or through electronic computer-to-computer data connections.13 All submissions to the continuing disclosure service will be made through password protected accounts by: (i) issuers, which may submit any documents with respect to their municipal securities; (ii) obligated persons, which may submit any documents with respect to any municipal securities for which they are obligated; and (iii) designated agents, which may be designated by issuers or obligated persons to make submissions on their behalf. Id. Issuers and obligated persons will be permitted to designate agents to submit documents and information on their behalf, and would be able to revoke the designation of any such agents through the EMMA portal. Id. A trustee, or any other party identified in a continuing disclosure undertaking as a dissemination agent or other party responsible for disseminating continuing disclosure documents on behalf of an issuer or obligated person, will be permitted to act as a designated agent for such issuer or obligated person, without a designation being made by the issuer or obligated person upon certification by such party of its authority. Id.

Format of Information
Disclosure information filed through the EMMA portal must be made in a PDF file configured to permit documents to be saved, viewed, printed and retransmitted by electronic means.13 If the submitted disclosure document is a reproduction of the original document, the submitted file must maintain the graphical and textual integrity of the original document. Id. In addition, starting January 1, 2010, PDF files must be word-searchable, provided that diagrams, images and other non-textual elements would not be required to be word-searchable. Id. The requirement that documents be filed only in PDF and the future requirement that it be word searchable has received some criticism that it may be difficult and expensive for small issuers to comply with.9 Holland & Knight attorneys are prepared to assist issuers in creating and transmitting their disclosure requirements in formats that comply with the Rule.

Public Access
The EMMA portal is expected to fulfill the SEC’s goal of making municipal securities disclosure documents “more readily and more promptly available to the public … [so] that all investors should have better access to important market information that may affect the price of a municipal security, such as information in financial statements and notices regarding defaults and changes in ratings, credit enhancement provider, and tax status.”9 Currently, the NRMSIRs generally charge a fee for copies of disclosure documents filed by issuers.14 The NRMSIRs also currently offer fee-based subscription services to obtain filed documents. Public access to the documents and information filed through the EMMA portal will be available to users through the Internet at no charge as well as through a paid real-time data stream subscription service.13 The EMMA portal will also provide online search functions allowing users to search and access disclosure documents. Id.

Continuing Disclosure Obligations Entered Into Before the Effective Date of Amendments
Issuers with existing continuing disclosure obligations are contractually obligated to provide their disclosure documents to the NRMSIRs and SIDs and, in certain instances, to the MSRB. Currently, the EMMA portal is not a designated NRMSIR to which issuers can file disclosure documents in compliance with the Rule. To address this issue, the SEC has proposed withdrawing the “no action” letters provided to the current NRMSIRs and designating the MSRB as the sole NRMSIR.9 This change will generally allow issuers to file their disclosure documents through the EMMA portal without any amendment to their continuing disclosure agreements. Issuers and obligated persons may consider having disclosure counsel or bond counsel, such as Holland & Knight, review their existing continuing disclosure obligations to ensure they comply with the amendments to the Rule.

State Information Repositories
Currently, there are only three SIDs, which are located in Texas, Michigan and Ohio. “The amendments will not affect the legal obligation of issuers and obligated persons to provide continuing disclosure documents, along with any other submissions, to the appropriate SID, if any, as required under the appropriate state law.”9 “In addition, the amendments will have no effect on the obligations of issuers and obligated persons under outstanding continuing disclosure agreements entered into prior to the effective date of the amendments to the Rule to submit continuing disclosure documents to the appropriate SID, if any, as stated in their existing continuing disclosure agreements, nor on their obligation to make any other submissions that may be required under the appropriate state law.” Id. The EMMA portal, as currently proposed, will not file disclosure documents filed with the MSRB to any SID. Id. Thus, issuers and obligated persons of states that have established SIDs may be required under state law and/or pursuant to their current continuing disclosure agreements to make separate filings of disclosure documents to the appropriate SID.

Amendment to Small Issuer Exception

Currently, certain small issuers are exempt from providing disclosure documents to the NRMSIRs. The small issuer exception applied to an issuer or obligated person with $10 million or less of debt outstanding who had undertaken in a written agreement or contract to provide (a) disclosure documents upon request to any person or at least annually to the appropriate SID and (b) material event notices to each NRMSIR or the MSRB, as well as the appropriate SID.15 Pursuant to the amendment to the Rule, an underwriter will be exempt from its obligations under paragraph (b)(5) of the Rule if an issuer or obligated person has agreed in its limited undertaking to provide financial information, operating data and material event notices to the MSRB in an electronic format as prescribed by the MSRB, and the exemption’s other conditions are met.9 Thus, effective July 1, 2009, continuing disclosure agreements of such small issuers must provide that annual financial information or operating data, if customarily prepared and publicly available, will be submitted to the MSRB, rather than being supplied only upon request to any person or at least annually to the appropriate SID, if any. Id.


The amendments to the Rule are expected to simplify the process for filing disclosure documents by issuers and obligated persons and to improve access to such information to investors and other market participants. Issuers and obligated persons must ensure that their continuing disclosure obligations are satisfied by filing annual disclosure information and material event notices with the proper repository and in the proper format. For new issues of municipal bonds underwriters must ensure that continuing disclosure obligations entered into by issuers and obligated persons satisfy the Rule, including the amendments for filing requirements of small issuers.
Holland & Knight’s public finance attorneys have extensive experience assisting issuers with their continuing disclosure requirements to help ensure that each component of the Rule is satisfied. Our attorneys are also available to assist issuers and other obligated persons in filing their disclosure documents or in establishing accounts on the EMMA portal to make their own disclosure filings.



1 17 CFR 240.15c2-12

2 Rule 15c2-12(f)(8) defines “underwriter” as any person who has purchased from an issuer of municipal securities with a view to, or offers or sells for an issuer of municipal securities in connection with, the offering of any municipal security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; except, that such term shall not include a person whose interest is limited to a commission, concession, or allowance from an underwriter, broker, dealer, or municipal securities dealer not in excess of the usual and customary distributors’ or sellers’ commission, concession, or allowance.

3 Rule 15c2-12(f)(10) defines “obligated person” as any person, including an issuer of municipal securities, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the municipal securities to be sold in a primary offering (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities).

4 Rule 15c2-12(f)(9) defines “annual financial information” as financial information or operating data, provided at least annually, of the type included in the final official statement with respect to an obligated person, or in the case where no financial information or operating data was provided in the final official statement with respect to such obligated person, of the type included in the final official statement with respect to those obligated persons that meet the objective criteria applied to select the persons for which financial information or operating data will be provided on an annual basis.

5 Rule 15c2-12(b)(5)(i)(A)

6 Rule 15c2-12(b)(5)(i)(B)

7 Rule 15c2-12(b)(5)(i)(C)

8 Rule 15c2-12(b)(5)(i)(D)

9 Securities and Exchange Commission Release No. 34-59062 (December 5, 2008).

10 The current NRMSIRs are: Bloomberg Municipal Repository, DPC Data Inc., FT Interactive Data and Standard & Poor’s Securities Evaluations Inc.

11 The current SIDS are: Municipal Advisory Council of Texas, Municipal Advisory Counsel of Michigan and the Ohio Municipal Advisory Council.

12 Letter dated September 7, 2004, from Martha Haines, Chief of the Office of Municipal Securities, Division of Market Regulation, to W. David Holland, Chairman, Texas Municipal Advisory Council and John M. McNalley, Hawkins Delafield & Wood LLP; as reaffirmed in a letter dated October 3, 2007, from Martha Haines, Chief of the Office of Municipal Securities, Division of Market Regulation, to Laura Slaughter, Executive Director, Municipal Advisory Council of Texas.

13 MSRB Notice 2008-47 (December 8, 2008).

14 FT Interactive Data provides material events notices at no cost.

15 Rule 15c2-12(d)(2)

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