Amendments to SEC Rule 15c2-12
Disclosure has become even more critical in this ever-changing regulatory environment. As an industry leader, FirstSouthwest is committed and prepared to assist our disclosure clients with their continuing disclosure requirements. On May 26, 2010, the Securities Exchange Commission (“SEC”) amended SEC Rule 15c2-12 (the “Rule”). To keep our clients abreast of today’s changing regulatory landscape, FirstSouthwest has prepared the following summary of the amendments.
The amendments include changes to continuing disclosure requirements for municipal bond issuers and underwriters, including:
- Greater penalty for a pattern of non-compliance
- Expanded and clarified material event filings and establishment of a 10-day deadline on filings
- Voluntarily shortening from 180 days to 120 days the length of time to file annual reports
Click here to download the full text of the SEC Rule amendments.
Summary of Amendments
The following Rule amendments will apply to primary offerings that occur on or after December 1, 2010.
Regulations are more stringent.
The Rule and interpretations under the antifraud provisions of the federal securities laws prohibit underwriters from buying an issuer’s bonds if said issuer does not fulfill their continuing disclosure obligation. The SEC has reaffirmed underwriters’ responsibilities to have a reasonable basis for recommending any municipal securities. The amendment further states that it is very difficult for an underwriter to reasonably recommend a security of an issuer that has a history of persistent non-compliance.
All notices of events must be disclosed within 10 business days after occurrence of the event.
Prior to the amendments, the Rule required notices to be filed “in a timely manner,” and did not specify a specific deadline. The materiality determination was removed for certain events. Prior to the new amendments, notices of events were required to be filed with the appropriate repositories, if deemed material. The new Rule now requires notice of the following events to be filed, regardless of materiality:
- Failure to pay principal and interest
- Unscheduled payments out of 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
- Rating changes
The materiality determination will be retained for the following events:
- Non-payment related defaults
- Modifications to rights of security holders
- Bond calls
- Release, substitution or sale of property securing repayment of the securities
New events have been added.
Under the new Rule, the following new events have been added. 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 securities
- Tender offers
- Bankruptcy, insolvency, receivership or similar proceeding
- Mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated person or their termination, if material
- Appointment of a successor or additional trustee or the change of the name of a trustee, if material
The Rule has been expanded to include additional types of municipal securities.
Variable Rate Demand Obligations (“VRDOs”) previously were exempt from continuing disclosure requirements. As of December 1, 2010, all new VRDO primary offerings will be subject to the disclosure provisions of the Rule, as amended.
In addition to the Rule changes, the SEC has approved the following proposals to become effective within the next year.
Secondary market disclosure information.
Underwriters shall indicate on the Electronic Municipal Market Access system (“EMMA”) whether the issuer has agreed to provide secondary market disclosure information, when it will be provided, and the name of the obligated entity.
Annual financial information.
The MSRB shall indicate on EMMA the issuers that voluntarily agree to provide annual financial information within 120 days (150 days until December 31, 2013) after their fiscal year ends; an issuer’s undertaking to prepare audited financial statements in compliance with accounting standards established by the Governmental Accounting Standards Board; and the issuer’s website link to their financial information.
If you have any questions, or for a more detailed analysis or copy of the Rule, please contact us.