[Federal Register Volume 59, Number 52 (Thursday, March 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5922]
[[Page Unknown]]
[Federal Register: March 17, 1994]
_______________________________________________________________________
Part V
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Parts 211, 231, and 241
Municipal Securities Issuers and Others; Statement of the Commission
Regarding Disclosure Obligations; Final Rule
17 CFR Part 240
Municipal Securities Disclosure and Confirmation of Transactions;
Proposed Rules
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 211, 231, and 241
[Release No. 33-7049; 34-33741; FR-42; FILE NO. S7-4-94]
Statement of the Commission Regarding Disclosure Obligations of
Municipal Securities Issuers and Others
AGENCY: Securities and Exchange Commission.
ACTION: Interpretation; Solicitation of comments.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing its views with respect to the disclosure obligations of
participants in the municipal securities markets under the antifraud
provisions of the federal securities laws, both in connection with
primary offerings and on a continuing basis with respect to the
secondary market. This interpretive guidance is intended to assist
municipal securities issuers, brokers, dealers and municipal securities
dealers in meeting their obligations under the antifraud provisions.
The Commission is seeking comment on issues discussed in this release
and possible future agency action.
DATES: This Interpretation is effective March 9, 1994.
Comments should be received on or before July 15, 1994.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW., Stop 6-9, Washington, DC 20549. Comment letters should refer to
File No. S7-4-94. All comments received will be available for public
inspection and copying at the Commission's Public Reference Room, 450
Fifth Street, NW., Washington, DC 20549.
FOR FURTHER INFORMATION CONTACT: Ann D. Wallace ((202) 272-7282), Amy
Meltzer Starr ((202) 272-3654), Vincent W. Mathis ((202) 272-3968),
Division of Corporation Finance; Janet W. Russell-Hunter (with respect
to Sections III.C.6. and V.) ((202) 504-2418), Division of Market
Regulation, U.S. Securities and Exchange Commission, 450 Fifth Street,
NW., Washington, DC 20549.
SUPPLEMENTARY INFORMATION: In a companion release, the Commission is
proposing rule amendments that prohibit a broker, dealer or municipal
securities dealer from underwriting a municipal issue unless the issuer
agrees to disseminate information to the secondary market and from
recommending the purchase of a municipal security without reviewing
such information.
I. Executive Summary
The recent high volume of municipal securities offerings, as well
as the growing ownership of municipal securities by individual
investors, has highlighted the need for improved disclosure practices
in the municipal securities market, particularly in the secondary
market. To encourage and expedite the ongoing efforts by market
participants to improve disclosure practices, and to assist market
participants in meeting their obligations under the antifraud
provisions, the Commission is publishing its views with respect to
disclosures under the federal securities laws in the municipal market.
This interpretive release addresses the following:
(1) With respect to primary offering disclosure, despite the
significant improvement in disclosure practices in recent years as a
result of voluntary initiatives, increased attention needs to be
directed at
Disclosure of potential conflicts of interest and
material financial relationships among issuers, advisers and
underwriters, including those arising from political contributions;
Disclosure regarding the terms and risks of securities
being offered;
Disclosure of the issuer's or obligor's financial
condition, results of operations, and cash flows. This information
should include audited financial statements (or disclosure that the
financial statements were not subject to audit) and an explanation
of the accounting principles followed in the preparation of the
financial statements, unless the statements were prepared in
accordance with generally accepted accounting principles (``GAAP'')
or accompanied by a quantified explanation of any deviation from
GAAP;
Disclosure of the issuer's plans regarding the
provision of information to the secondary market; and
Timely delivery of preliminary official statements to
underwriters and potential investors.
(2) The Commission is renewing its recommendation for
legislation to repeal the exemption for corporate obligations
underlying certain conduit securities from the registration and
reporting requirements of the federal securities laws.
(3) Particularly because of their public nature, issuers in the
municipal market routinely make public statements and issue reports
that can affect the market for their securities; without a mechanism
for providing ongoing disclosures to investors, these disclosures
may cause the issuer to violate the antifraud provisions.
Basic mechanisms to address potential antifraud liability
include:
Publication of financial information, including audited
financial statements and other financial and operating information,
on at least an annual basis;
Timely reporting of material events reflecting upon the
creditworthiness of the issuer or the obligor and the terms of its
securities, including material defaults, draws on reserves, adverse
rating changes and receipt of an adverse tax opinion; and
Submission of such information to an information
repository.
(4) Underwriters and municipal securities dealers are key
players in maintaining the quality of disclosure in the municipal
securities markets. The underwriter has a duty to review the
issuer's disclosure documents before offering, selling or bidding
for the securities and to have a reasonable basis for its belief as
to the accuracy and completeness of the representations in the
documents. Municipal dealers must have a reasonable basis for
recommending the purchase of securities.
In a companion release,1 the Commission is proposing for
comment two related rule amendments, the first proposing to prohibit
a broker, dealer or municipal securities dealer from underwriting a
municipal issue unless the issuer makes a commitment to provide
annual and event-related secondary market information to a
designated repository; and the second proposing to prohibit a
broker, dealer, or municipal securities dealer from recommending
purchases of such issues in the secondary market if it does not
review such information.
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\1\Exchange Act Release No. 33742 (March 9, 1994) (``Companion
Release'').
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II. Introduction
A. The Municipal Securities Market
As detailed in the recent Staff Report on the Municipal Securities
Market, the market for municipal securities is characterized by great
diversity and high volume. Issuers, estimated to number approximately
50,000, include state governments, cities, towns, counties, and special
subdivisions, such as special purpose districts and public authorities.
It is estimated that there currently are 1.3 million municipal issues
outstanding, representing approximately $1.2 trillion in
securities.2 In 1993, a record level of over $335 billion in
municipal securities was sold, representing over 17,000 issues. This
record financing was heavily influenced by refundings. Nevertheless,
the level of long term new money financings, representing 49% of
financings for the year, reflected continued growth. In 1993, there
were $142 billion of new money long term financings, compared to $81
billion in 1988, a 75% increase.3
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\2\See Division of Market Regulation, Securities and Exchange
Commission, Staff Report on the Municipal Securities Market (``Staff
Report'') (Sept. 1993) at 1.
\3\``A Decade of Municipal Finance,'' The Bond Buyer (Jan. 6,
1994) at 24.
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In recent years, the forms of securities used to meet the financing
needs of these issuers have become increasingly diverse and complex.
For example, conduit bonds, certificates of participation, and a
variety of derivative products have joined traditional general
obligation and revenue bonds as prevalent forms of municipal
financing.4
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\4\Staff Report at 1-2.
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In addition, there has been a change in the investor profile in the
municipal securities market. By 1992, individual investors, including
those holding through mutual funds, held 75% of the municipal debt
outstanding, compared to 44% in 1983.5
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\5\The Bond Buyer 1993 Yearbook (``Bond Buyer 1993 Yearbook'')
at 61-63.
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Along with the changing investor profile, there has been a change
in investor strategy. Traditionally, municipal bondholders have been
buy and hold investors; however, this strategy has changed
significantly with the growth and development of municipal bond funds.
Many of these funds actively trade their portfolio securities to take
advantage of market conditions or to meet redemption needs.
B. SEC Oversight of the Municipal Securities Market
As the agency charged with administering the federal securities
laws and overseeing this nation's securities markets, the Commission
has an obligation to protect investors in the municipal markets from
fraud, including misleading disclosures. As the New York City report
stated nearly two decades ago:
By virtue of the large dollar volume of municipal securities
issued and outstanding each year, such securities are a major factor
in the Nation's economy and the national securities markets. In
light of the national scope of the municipal securities markets,
there is an overriding federal interest in assuring that there is
adequate disclosure of all material information by issuers of
municipal securities.
Although municipalities have certain unique attributes by virtue
of their political nature, insofar as they are issuers of
securities, they are subject to the proscription against false and
misleading disclosures.6
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\6\Staff Report on Transactions in Securities of the City of New
York (``NY City Report'') (Aug. 1977) Chapter III, at 1-2.
The burgeoning volume and complexity of municipal securities
offerings, as well as the retail nature of the market, heighten the
need for market participants to seek to prevent fraud through the
timely provision of material information concerning municipal issuers
and securities.
While Congress exempted offerings of municipal securities from the
registration requirements and civil liability provisions of the
Securities Act of 1933,7 and a mandated system of periodic
reporting under the Securities Exchange Act of 1934,8 it did not
exempt transactions in municipal securities from the coverage of the
antifraud provisions of section 17(a) of the Securities Act,9
section 10(b) of the Exchange Act, and Rule 10b-5 promulgated
thereunder.10 These antifraud provisions prohibit any person,
including municipal issuers and brokers, dealers and municipal
securities dealers, from making a false or misleading statement of
material fact, or omitting any material facts necessary to make
statements made by that person not misleading, in connection with the
offer, purchase or sale of any security. In addition, brokers, dealers
and municipal securities dealers are subject to regulations adopted by
the Commission, including those regulations adopted to define and
prevent fraud.11 Municipal securities dealers are also subject to
rules promulgated by the Municipal Securities Rulemaking Board
(``MSRB'').12
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\7\See section 3(a)(2) of the Securities Act (15 U.S.C.
77c(a)(2)).
\8\See section 3(a)(29) of the Exchange Act (15 U.S.C.
78c(a)(29)).
\9\15 U.S.C. 77q(a).
\1\015 U.S.C. 78j(b); 17 CFR 240.10b-5.
\1\1Sections 15(c) (1) and (2) of the Exchange Act (15 U.S.C.
78o(c) (1) and (2)).
\1\2See MSRB Manual (CCH).
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C. Disclosure Practices and Calls for Enhanced Disclosure
In the absence of a statutory scheme for municipal securities
registration and reporting, disclosure by municipal issuers has been
governed by the demands of market participants and antifraud
strictures. Spurred by the New York City fiscal crisis in 1975 and the
Washington Public Power Supply System defaults,13 participants in
the municipal securities market have developed extensive guidance to
improve the level and quality of disclosure in primary offerings of
municipal securities, and to a more limited extent, continuing
disclosure in the secondary market.
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\1\3See Securities and Exchange Commission, Report of the
Securities and Exchange Commission on Regulation of Municipal
Securities (1988); Securities and Exchange Commission, Staff Report
on the Investigation in the Matter of Transactions in the Washington
Public Power Supply System Securities (1988); Securities Act Release
No. 6021, Final Report in the Matter of Transactions in the
Securities of the City of New York (Feb. 5, 1979); NY City Report.
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In 1989, the Commission adopted Rule 15c2-12 under the Exchange
Act14 to enhance the quality and timeliness of disclosure to
investors in municipal securities.15 The rule requires that
underwriters (both bank and non-bank) of primary offerings of municipal
securities with an aggregate principal amount of $1,000,000 or more
obtain and distribute to their customers the issuers' official
statements for the offerings. This mechanism provides underwriters an
opportunity to review the issuer's disclosure documents before
commencing sales to investors.16
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\1\417 CFR 240.15c2-12; see Municipal Securities Disclosure,
Securities Exchange Act Release No. 26100 (Sept. 28, 1988), 53 FR
37778 (``Proposing Release''); Municipal Securities Disclosure,
Securities Exchange Act Release No. 26985 (July 10, 1989), 54 FR
28799 (``Adopting Release'').
\1\5Proposing Release, 53 FR at 37779-37782; Staff Report at 25.
\1\6Adopting Release, 54 FR at 28800.
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There is a consensus that, over the last two decades, these market
and regulatory efforts have improved significantly the quality of
primary offering disclosure in the municipal securities markets.17
Nonetheless, there continue to be concerns with the adequacy of
municipal offering disclosure, particularly with respect to offerings
of non-general obligation bonds and smaller issues.18
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\1\7National Federation of Municipal Analysts, Membership Survey
Results Fall 1992 Disclosure Survey (``NFMA Survey''); Public
Securities Association, Municipal Securities Disclosure Task Force,
Report: Initial Analysis of Current Disclosure Practices in the
Municipal Securities Market (June 1988) (``PSA Survey'') (content
and completeness of primary disclosure documents and sufficiency of
financial information rated satisfactory to excellent by 94% and 93%
of firms responding, respectively).
\1\8See Letter to Chairman Levitt from Charles Mires, Allstate
Insurance Company (Nov. 4, 1993, as updated Jan. 19, 1994)
(``Allstate Letter'') (primary market disclosure by conduits found
inadequate in 43.8% of rated issues reviewed); NFMA Survey (local
housing, special district, hospitals, long term healthcare and
industrial development issues were found to provide the least
disclosure); PSA Survey (small issue industrial development bonds
received a low rating; issues of $10 million or less received a low
rating).
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Secondary market disclosure practices present greater concerns.
Recent highly publicized defaults19 and refundings,20 as well
as the tremendous level of issuances during the past two years, have
heightened interest in municipal secondary market disclosure.21
The PSA has testified that today ``secondary market information is
difficult to come by even for professional municipal credit analysts,
to say nothing of retail investors.''22 Substantial issuer
information, in the form of official statements, state-required
reports, and other public documents, is available from the
approximately 20% of municipal issuers that come to market frequently,
accounting for 80% of the dollar volume of municipal securities
issued.23 However, the remaining issuers, representing 20% in
dollar volume but 80% in number, which come to the market much less
frequently, provide substantially less continuing information. Many of
these issues are health care issues, housing issues, industrial
development bonds, and other conduit financings,24 financing
sectors which have had the greatest incidence of defaults, both
monetary and technical.25 In addition, information often is
unavailable for smaller issues of securities of general purpose units
of government and the securities of special purpose districts and
authorities.26
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\1\9Examples include the defaults engendered by the failures of
Mutual Benefit Life, Executive Life and Tucson Electric Power, and
the bankruptcies arising out of the Colorado Special Districts. See,
e.g., Hinden, ``Mutual Benefit Life's Collapse Shows Fragility of
Bond Guarantees,'' The Washington Post (Jul. 22, 1991) at F 27;
Levinson, ``No Coverage Against Junk,'' Newsweek (Apr. 22, 1991) at
46; Stamas, ``Rep. Dingell Asks SEC to Investigate Defaults by
Special Assessment Districts in Colorado,'' The Bond Buyer (Jan. 25,
1991) at 1.
\2\0See Gasparino, ``Balancing Budgets Through Lease Deals May
Pose Credit Risks, Rating Agency Warns,'' The Bond Buyer (Jan. 25,
1993) at 1; Herman, ``Municipal-Bond Holders: Watch Out for `Call'
Shock,'' The Wall Street Journal (Aug. 29, 1992) at C1; Hume,
``Dealer Threatens Suit Over Proposed Call for Escrowed Bonds,'' The
Bond Buyer (Nov. 8, 1993) at 4; Hume, ``Issuer in Louisiana May Run
Afoul of Law if Escrowed Bonds Are Called Next Month,'' The Bond
Buyer (Apr. 22, 1993) at 1; Hume, ``Rise in Re-Refundings of
Escrowed Bonds Likely to Gain Attention at Treasury, SEC,'' The Bond
Buyer (May 12, 1992) Pat 1.
\2\1See generally, Testimony of Jeffrey S. Green, General
Counsel, Port Authority of New York and New Jersey on behalf of
Government Finance Officers Association, before the Subcommittee on
Telecommunications and Finance, House Committee on Energy and
Commerce, Oct. 7, 1993 (``GFOA Testimony'') at 7-9; Remarks by C.
Richard Lehmann, President, Bond Investors Association Before the
U.S. House of Representatives Subcommittee on Telecommunications and
Finance Concerning the Municipal Securities Market, Oct. 7, 1993
(``Lehmann Testimony'') at 4-5; Testimony of Andrew R. Kintzinger,
President-Elect, National Association of Bond Lawyers, Before the
Subcommittee on Telecommunications and Finance, House Committee on
Energy and Commerce, Oct. 7, 1993 (``NABL Testimony'') at 8-23;
Testimony of Harvey Eckert, Chairman of the Blue Ribbon Committee on
Secondary Market Disclosure on Behalf of the National Association of
State Auditors, Comptrollers and Treasurers Before the Subcommittee
on Telecommunications and Finance, House Committee on Energy and
Commerce, Oct. 7, 1993 (``NASACT Testimony'') at 3-6; Testimony
Relating to the Municipal Securities Market given by the National
Federation of Municipal Analysts, Katherine Bateman, Chairperson, to
the Subcommittee on Telecommunications and Finance, Oct. 7, 1993
(``NFMA Testimony'') at 1-7; Statement of Gerald McBride, Chairman,
Municipal Securities Division, Public Securities Association, Before
the House Committee on Energy and Commerce, Telecommunications and
Finance Subcommittee, Oct. 7, 1993 (``PSA Testimony'') at 5-7;
NASACT, State and Local Government Securities Markets and Secondary
Market Disclosure (Oct. 1993) at 5; Stamas, ``Issuers' Intentions on
Secondary Market Disclosure are Starting to Appear in Official
Statements,'' The Bond Buyer (Dec. 14, 1992) at 1; Standard &
Poor's, ``In Support of Secondary Market Disclosure,'' CreditWeek
Municipal (Mar. 16, 1992).
\2\2PSA Testimony at 5. See also Lehmann Testimony at 4; NASACT
Testimony at 3; Nemes, ``Investors' Service Steps in to Fill Void in
Hospital Data Disclosure,'' Modern Healthcare (Feb. 3, 1992) at 46;
Quint, ``Credit Markets; Aiming for More Data About Municipal
Bonds,'' The New York Times (June 28, 1993) at D5; Schifrin,
``Hello, Sucker,'' Forbes (Feb. 1, 1993) at 40.
\2\3NASACT, Report of the Blue Ribbon Committee on Secondary
Market Disclosure--Improving Secondary Market Disclosure (Aug. 1993)
(``NASACT Blue Ribbon Committee Report'') at 1-2.
\2\4See id. at 1. See also Allstate Letter.
\2\5See Bond Buyer 1993 Yearbook at 3-5; Municipal Bond
Defaults--The 1980's; a Decade in Review (J.J. Kenny Co., Inc.
1993)(``Kenny Default Report''); Public Securities Association, An
Examination of Non-Rated Municipal Defaults 1986-1991 (Jan. 8,
1993)(``PSA Default Report''); Staff Report, Appendix B.
\2\6See NASACT Blue Ribbon Committee Report at 1-2.
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In response to a request by Commission Chairman Arthur Levitt for a
recommended ``market-participant sponsored solution'' to the disclosure
issues in the municipal securities market, on December 20, 1993, 12
groups and associations representing a broad range of market
participants submitted to the Commission a Joint Statement on
Improvements in Municipal Securities Market Disclosure (the ``Joint
Statement'').27 The Joint Statement sets forth ``a framework for
improving the availability of information in the marketplace'' that
calls for both continued market initiatives to improve issuer
disclosure and ``support from the SEC and the Municipal Securities
Rulemaking Board (MSRB).''28 Among other things, its participants
recommend the adoption of a rule or interpretive guidance restricting
underwriting of municipal issues unless continuing information
covenants are provided by the issuer.
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\2\7Joint Statement on Improvements in Municipal Securities
Market Disclosure (``Joint Statement'') (Dec. 20, 1993) at 1. The
Joint Statement was submitted by the American Bankers Association's
Corporate Trust Committee, American Public Power Association,
Association of Local Housing Finance Agencies, Council of
Infrastructure Financing Authorities, Government Finance Officers
Association, National Association of Bond Lawyers, National
Association of Counties, National Association of State Auditors,
Comptrollers and Treasurers, National Association of State
Treasurers, National Council of State Housing Agencies, National
Federation of Municipal Analysts, and Public Securities Association.
\2\8Id.
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III. Primary Offering Disclosure
A. Application of the Antifraud Provisions
The antifraud provisions of the federal securities laws prohibit
fraudulent or deceptive practices in the offer and sale of municipal
securities.29 Disclosure documents used by municipal issuers, such
as official statements, are subject to the prohibition against false or
misleading statements of material facts, including the omission of
material facts necessary to make the statements made, in light of the
circumstances in which they are made, not misleading. The adequacy of
the disclosure provided in municipal security offering materials is
tested against an objective standard: an omitted fact is material if
there is a substantial likelihood that, under all the circumstances,
the omitted fact would have assumed actual significance in the
deliberations of the reasonable [investor]. Put another way, there must
be a substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having
significantly altered the ``total mix'' of information made
available.30
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\2\9See In re Washington Public Power Supply System Securities
Litigation, 623 F. Supp. 1466, 1478 (W.D. Wash. 1985). See also
Brown v. City of Covington, 805 F.2d 1266, 1270 (6th Cir. 1986).
\3\0TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449
(1976).
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B. Voluntary Guidelines
In the primary offering of municipal securities, the extensive
voluntary guidelines issued by the Government Finance Officers
Association (``GFOA'') have received widespread acceptance and, among a
number of larger issuers, have been viewed as ``in essence obligatory
rules.''31 Other groups, including the National Federation of
Municipal Analysts (``NFMA''), have published voluntary disclosure
guidelines covering industry specific sectors, including among others,
housing, student loans, transportation and health care.32 In
connection with the offering of municipal securities, the GFOA
Guidelines call for:33
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\3\1Letter from Harlan E. Boyles, Treasurer of North Carolina to
SEC Chairman Levitt, dated December 7, 1993. See Government Finance
Officers Association, Disclosure Guidelines for State and Local
Government Securities (Jan. 1991) (``GFOA Guidelines'').
\3\2See NFMA, Disclosure Handbook for Municipal Securities 1992
Update (Nov. 1992) (``NFMA Handbook''). See also Government
Accounting Standards Board, Codification of Government Accounting
and Financial Reporting Standards (2d ed. 1987); PSA,
Recommendations for a Consistent Presentation of Basic Bond
Provisions in Official Statements (Dec. 1989).
\3\3GFOA Guidelines at xv-xix (summary).
An introduction to serve as the guide to the official
statement;
A description of the securities being offered,
including complete information regarding the purposes of the
offering, the plan of financing, the security and sources of
repayment, and the priority of the securities, as well as structural
characteristics, such as call provisions, tender options, original
issue or deep discount, variable rates, and lease purchase
agreements;
Information regarding the nature and extent of any
credit enhancement and financial and business information about the
issuer of the enhancement;
A description of the government issuer or enterprise,
including information about the issuer's range or level of service,
capacity and demographic factors and, in the case of revenue
supported offerings, information on the enterprise's organization,
management, revenue structure, results of operations and operating
plan;
With respect to obligations of private profit making
and nonprofit conduit issuers, information regarding the business or
other activity, including the enterprise's form of organization and
management, rate-making or pricing policies, and historical
operations and plan of operation;
A description of the issuer's outstanding debt,
including the authority to incur debt, limitations on debt, and the
prospective debt burden and rate of its retirement;
A description of the basic documentation, such as
indentures, trust agreements and resolutions authorizing the
issuance and establishing the rights of the parties;
Financial information, including summary information
regarding the issuer's or obligor's financial practices and results
of operations, and financial statements, prepared in conformity with
generally accepted accounting principles and audited in accordance
with generally accepted auditing standards;
A discussion of legal matters, such as pending
judicial, administrative, or regulatory proceedings that may
significantly affect the securities offered, legal opinions, and tax
considerations; and
A discussion of miscellaneous matters, including
ratings and their description and meanings, underwriting
arrangements, arrangements with financial advisors, interests of
named experts, pending legislation, and the availability of
additional information and documentation.
The guidelines prepared by the GFOA and the NFMA provide a
generally comprehensive roadmap for disclosure in offering statements
for municipal securities offerings. There are, however, areas that need
further improvement in both the context of negotiated and competitively
bid underwritings. In addition, implementation of these guidelines
needs to be extended to the whole market. For example, while large
repeat general obligation issuers usually have comprehensive disclosure
documents, small issuers and conduit issuers, particularly in the
health care, housing and industrial development areas, do not always
provide the same quality of disclosure.34
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\3\4See NASACT Blue Ribbon Committee Report at 1-2; Staff Report
at 26. Industry participants generally agreed in testimony before
the House of Representatives Subcommittee on Telecommunications and
Finance on October 7, 1993, that both the greatest disclosure
problems and the greatest risk of default were with unrated
hospital, housing, special district and industrial development
revenue bonds.
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C. Areas Where Improvement Is Needed
1. Conflicts of Interest and Other Relationships or Practices
Information concerning financial and business relationships and
arrangements among the parties involved in the issuance of municipal
securities may be critical to an evaluation of an offering.35
Recent revelations about practices used in the municipal securities
offering process have highlighted the potential materiality of
information concerning financial and business relationships,
arrangements or practices, including political contributions, that
could influence municipal securities offerings. For example, such
information could indicate the existence of actual or potential
conflicts of interest, breaches of duty, or less than arm's-length
transactions. Similarly, these matters may reflect upon the
qualifications, level of diligence, and disinterestedness of financial
advisers, underwriters, experts and other participants in an offering.
Failure to disclose material information concerning such relationships,
arrangements or practices may render misleading statements made in
connection with the process, including statements in the official
statement about the use of proceeds, underwriters' compensation and
other expenses of the offering. In addition, investors reasonably
expect participants in municipal securities offerings to follow
standards and procedures established by such participants, or other
governing authorities, to safeguard the integrity of the offering
process; accordingly, material deviations from those procedures warrant
disclosure.
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\3\5See SEC v. Washington County Utility District, 676 F.2d 218,
222 (6th Cir. 1982) (``Flagrant violations'' of antifraud provisions
arising from failure to disclose use of proceeds to purchase options
on property held by issuer's manager and financial arrangements
between the manager and the underwriter).
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Existing rules and voluntary guidelines call for certain specific
disclosures by offering participants. GFOA guidelines call for offering
statement disclosure to investors of contingency fees to named experts,
including counsel, and any other interest or connection those parties
have with other transaction participants.36 MSRB rules call for
dealer disclosure to issuers and investors of any financial advisory
relationship between an issuer and a broker, dealer, or municipal
securities dealer, under certain circumstances.37 MSRB rules also
call for dealer disclosure to investors of, among other things, certain
fees and expenses in negotiated transactions.38
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\3\6Section XII.D. of the GFOA Guidelines.
\3\7MSRB rule G-23.
\3\8MSRB rule G-32. See Section 15B(c)(1) of the Exchange Act
(15 U.S.C. 78o-4(c)(1)) (requiring compliance with MSRB rules); MSRB
rule G-17.
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Beyond existing specific disclosure requirements and guidelines,
the range of financial and business relationships, arrangements and
practices that need to be disclosed depends on the particular facts and
circumstances of each case. If, for example, the issuer (or any person
acting on its behalf) selects an underwriter, syndicate or selling
group member, expert, counsel or other party who has a direct or
indirect (for example, through a consultant) financial or business
relationship or arrangement with persons connected with the offering
process, that relationship or arrangement may be material.39 Areas
of particular concern are undisclosed payments to obtain underwriting
assignments and undisclosed agreements or arrangements, including fee
splitting, between financial advisers and underwriters.40 If the
adviser is hired to assist the issuer, such relationships, financial or
otherwise, may divide loyalties. Similarly, affiliations between
sellers of property to be used in a financed project and conduit
borrowers raise questions regarding, among other things, the
determination of fair market value of the property and self-dealing.
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\3\9Gasparino, ``The Trouble with Consultants'', The Bond Buyer
(Nov. 16, 1993) at 1. In his testimony before the Subcommittee on
Telecommunications and Finance, Andrew Kintzinger, on behalf of the
National Association of Bond Lawyers (``NABL''), stated: ``[M]embers
of the municipal finance bar should work with issuers to develop
procurement procedures for state and local governments to ensure
that all material financial arrangements between underwriters within
the syndicate and between underwriters and financial advisors and
possible conflicts of interest between issuers and members of the
underwriting syndicate or other participants be accurately
documented and disclosed or, if appropriate, prohibited.'' NABL
Testimony at 28. See Joint Statement at 2.
\4\0Gasparino, ``Several Issuers Start to Scrutinize Ties
Between Advisers, Bankers,'' The Bond Buyer (Dec. 27, 1993) at 1.
See Section XII.C. of the GFOA Guidelines; rule G-23 of the MSRB.
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2. Terms and Risks of Securities
Evolution in the financial markets has led to increasingly complex
and sophisticated derivative and other municipal products. While these
new products offer investors a wide range of investment alternatives,
in choosing among the alternatives, investors need a clear
understanding of the terms and the particular risks arising from the
nature of the products.41
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\4\1As the NABL Testimony indicates: ``Derivatives are
sophisticated securities products designed for sophisticated
investors and should not be sold to retail investors generally and
certainly not without comprehensive disclosure. If issuers choose to
undertake the financial benefits of these sophisticated and
complicated transactions, they can assume the financial costs of
providing * * * information.'' NABL Testimony at 22.
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In particular, investors need to be informed about the nature and
effects of each significant term of the debt, including credit
enhancements and risk modifiers, such as inverse floaters and
detachable call rights. Investors in these securities should be aware
of their exposure to interest rate volatility, under all possible
scenarios. In addition, any legal risk concerning the issuer's
authority to issue securities with unconventional features needs to be
disclosed. The PSA recently has identified disclosure that should be
provided in connection with the offer of financial instruments that
include such features as auction and swap-based inverse floaters and
embedded cap bonds.42
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\4\2PSA, Recommendation on Dissemination of Product--Specific
Terms For Municipal Derivative Products (1993).
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Credit enhancements are used with increasing frequency in the
municipal market. According to published information, over 37% of the
dollar volume of new long term issues carry some form of credit
enhancement.43 The existence of bond insurance or other credit
enhancement creates the need for disclosure concerning the provider of
the credit enhancement and the terms of the enhancement44 to avoid
misleading investors concerning the value of the enhancements provided
and the party's ability to fund the enhancement. The GFOA recommends
that appropriate financial information about the assets, revenues,
reserves and results of operations of credit enhancers be provided in
the official statement. In determining the extent of disclosure,
consideration should be given to the amount of the enhancement relative
to the income and cash flows of the issuer or obligor, conditions
precedent to application of the enhancement, duration of the
enhancement, and other factors indicating a material relationship
between the enhancement and the investor's anticipated return.
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\4\3PSA, Municipal Market Developments (Aug. 1993) at 5.
\4\4See Revisions to Rules Regulating Money Market Funds,
Securities Act Rel. No. 7038, 58 FR 68585, 68588 (footnote omitted)
(``Money Market Fund Release''); Securities and Exchange Commission,
Report by the United States Securities and Exchange Commission on
the Financial Guarantee Market: The Use of the Exemption in Section
3(a)(2) of the Securities Act of 1933 for Securities Guaranteed by
Banks and the Use of Insurance Policies to Guarantee Debt Securities
(Aug. 28, 1987) (``SEC Financial Guarantee Report'') at 82; Adopting
Release, 54 FR at 28812.
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In a trend that has become increasingly common, municipal bond
insurers are including in indentures provisions that appear to delegate
to the bond insurer the ability to modify terms of the indenture, prior
to default, without the consent of, or even prior notification to,
bondholders.45 There should be clear disclosure of any such
provision that may have a material impact on the rights of bondholders
or the obligations of the issuer, including the specific material
rights of the bondholder that could be so altered.
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\4\5See Allstate Letter.
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3. Financial Information
a. Financial Accounting. Sound financial statements are critical to
the integrity of the primary and secondary markets for municipal
securities, just as they are for corporate securities.46 The key
to the reliability and relevancy of the information contained in the
financial statements of a municipal issuer is the use of a
comprehensive body of accounting principles consistently applied by the
issuer.47
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\4\6See NY City Report at Ch. II p. 92.
\4\7See GFOA Guidelines at 50.
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Although there continues to be some diversity in the financial
reporting practices used in preparing financial statements of
governmental issuers, practice in the municipal market is evolving
rapidly to reliance on generally accepted accounting principles
(``GAAP'') as determined by the Government Accounting Standards Board
(``GASB'').48 Only two years after GASB was founded in 1984,
financial statements prepared in accordance with GAAP, as promulgated
by GASB, were required by 75.2% of cities, 78.3% of counties and 69% of
school districts responding to a research survey.49 Forty-six
states currently require, or are in the process of establishing a
requirement, that state government financial statements be presented in
accordance with GAAP.50 In addition, local as well as state
governments that receive significant amounts of federal aid must
prepare financial statements in accordance with GAAP or provide
information concerning variance from GAAP.51
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\4\8The financial statements of corporate obligors backing
conduit securities should follow GAAP for such entities, as
established by the Financial Accounting Standards Board and other
bodies.
\4\9Ingram & Robbins, Financial Reporting Practices of Local
Governments, Government Accounting Standards Board (1987) at 12 (The
survey results were based on information received from 567
respondents to a survey questionnaire mailed to 1161 government
units).
\5\0State Comptrollers: Technical Activities and Functions (1992
Edition).
\5\1Where state and local governments programs that are subject
to the federal ``Single Audit Act of 1984,'' Public Law 98-502 et
seq. prepare financial statements on a basis other than GAAP, ``the
audit report should state the nature of the variances therefrom and
follow professional guidance for reporting on financial statements
which have not been prepared in accordance with GAAP.'' Office of
Management and Budget, ``Questions and Answers on the Single Audit
Process of OMB Circular A-128, `Single Audits of State and Local
Governments,' '' 52 FR at 43716 (Nov. 13, 1987), question 35.
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The GFOA Guidelines call for financial statements that are either
prepared in accordance with GAAP or accompanied by a quantified (if
practicable) explanation of the differences.52 To avoid
misunderstanding, investors need to be informed of the basis for
financial statement presentation. Accordingly, when a municipal issuer
neither uses GAAP nor provides a quantified explanation of material
deviations from GAAP, investors need a full explanation of the
accounting principles followed.
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\5\2GFOA Guidelines at 45.
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b. Audits. Investors in the public securities markets have a
reasonable expectation that annual financial statements contained in
offering documents or periodic reports are subject to audit.53 In
the case of municipal issuers, these financial statement audits are
typically conducted by either an independent certified public
accountant or a state auditor. Although the frequency and timeliness of
audits vary, every state requires some periodic audit verification of
government financial statements.54 A prudent investor needs to be
able to evaluate the extent to which he or she can rely on the second
look an auditor provides.
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\5\3See Gauthier, An Elected Official's Guide to Auditing (1992)
at vii and xi.
\5\4State Comptrollers: Technical Activities and Functions;
NASACT, Municipal Task Force Report (1990) (``NASACT 1990 Task Force
Report'') at 12.
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Accordingly, the offering statement should state whether the
financial statements it contains were audited in accordance with
generally accepted auditing standards (``GAAS''), as established by the
American Institute of Certified Public Accountants.
c. Other Financial and Operating Information. Financial information
beyond that contained in the financial statements--provided in tabular
and narrative format, footnotes, supplemental tables, schedules and
discussions of operations and financial position--is essential to the
fair presentation of an issuer's financial performance and position. As
reflected in industry guidelines,55 the type of information needed
(e.g., tax revenue base, budget, demographics, project revenues and
operations) varies depending on the type of issuer, the type of
security sold, and the sources for repayment of the bond obligations.
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\5\5See generally, GFOA Guidelines; NFMA Handbook. See also
infra n. 84.
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There are a number of areas in which greater care needs to be taken
to provide investors with adequate information. In a pooled financing
structure, such as that used by bond banks, in addition to providing
financial information concerning the issuing authority or program in
the aggregate, it may be necessary to provide information on
participating obligors. This will depend on diversification and risk
concentration factors, such as the significance of any single obligor
to the overall financing.
Conduit bond issuers need to provide operational information
concerning the activities of the private enterprise that will provide
the cash flows to service the debt--for example, financial reporting,
legal proceedings, changes in indebtedness, defaults and other
significant developments relating to the underlying corporate obligor.
Where the issuing authority in a conduit financing has no remaining
obligation for the repayment of the indebtedness, in providing
financial information about the issuing entity (as compared to the
obligor on the bonds), care must be taken to avoid misleading investors
regarding the sources of repayment.56
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\5\6See Letter of John Murphy, Executive Director of Association
of Local Housing Finance Agencies to Chairman Levitt (Dec. 20,
1993).
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Municipal issuers also must consider disclosure issues arising from
their activities as end users of derivative products. For example, the
use of non-exchange traded derivatives to alter interest rate risk
exposes the issuer to counterparty credit risk. Disclosure documents
need to discuss the market risks to which issuers are exposed, the
strategies used to alter such risks and the exposure to both market
risk and credit risk resulting from risk alteration strategies. The
NFMA has published sector specific secondary market disclosure
guidelines calling for a discussion of the issuer's use of derivative
products, especially interest rate swaps.57
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\5\7NFMA Handbook.
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Moreover, in addition to financial and operating data, the official
statement may need to include a narrative explanation to avoid
misunderstanding and assist the reader in understanding the financial
presentation. A numerical presentation alone may not be sufficient to
permit an investor to judge financial and operating condition of the
issuer or obligor.58 For example, it may be necessary to explain
the presentation of budget information and the relationship of the
budget figures to the financial statements.
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\5\8See Management's Discussion and Analysis of Financial
Condition and Results of Operations; Certain Investment Company
Disclosures, Securities Act Release No. 6835 (May 24, 1989), 54 FR
22427; Securities Act Release No. 6711 (April 24, 1987), 52 FR
13715.
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In addition, issuers must assess whether the future impact of
currently known facts mandate disclosure. The GFOA Guidelines call for
a description of known facts that would significantly affect the
financial information presented or future financial operation of the
issuer, as well as a discussion of its projected operations.59 For
example, in a hospital financing, a steadily declining population in
the surrounding community that, in the future, would not support the
size of facility to be built would be important to investors.
Disclosure of such currently known conditions and their future impact
is critical to informed decisionmaking.
---------------------------------------------------------------------------
\5\9GFOA Guidelines at 55.
---------------------------------------------------------------------------
d. Timeliness of Financial Statements. The timeliness of financial
information is a major factor in its usefulness. To avoid providing
investors with a stale, and therefore potentially misleading, picture
of financial condition and results of operations, issuers and obligors
need to release their annual financial statements as soon as practical.
After extensive discussion with market participants, it appears that,
for the most part, audited financial statements of municipal issuers
for the most recently completed fiscal year are available within six
months after fiscal year end. The six month time period is consistent
with the recommendations of NASACT's Blue Ribbon Committee
Report.60 Unaudited financial statements should be provided when
available prior to the completion of the audit.
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\6\0See NASACT Blue Ribbon Committee Report at 17. While due
dates for audited financial statements of government units differ, a
significant majority of states currently require audited financial
statements for government units to be filed within six months after
the fiscal year end. NASACT 1990 Task Force Report at 12-22.
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4. Availability of Continuing Information
An investor's ability to monitor future developments affecting the
issuer, as well as the likely liquidity of a security, are important to
an investor's evaluation of an offering. The official statement should
state clearly whether ongoing disclosure concerning the issuer or
obligor will be provided, including the type, timing, and method of
providing such information.61 In deciding whether to purchase the
securities or to continue to hold them, investors need to know whether
the issuer has committed to provide information on an ongoing
basis.62 The absence of such a commitment can adversely affect the
secondary market for the securities and increases the risks of the
investment.
---------------------------------------------------------------------------
\6\1See Fall 1992 NFMA Survey. See also American Bankers
Association, Corporate Trust Committee, Four Point Public 1991
Disclosure Guidelines for Corporate Trustees (``ABA 1991
Guidelines'') at 2; Stamas, ``Issuers' Intentions on Secondary
Disclosure are Starting to Appear in Official Statements,'' The Bond
Buyer (Dec. 14, 1992) at 1.
\6\2See MSRB, Report of the Municipal Securities Rulemaking
Board on Regulation of the Municipal Securities Market (Sept. 1993)
at 6-7 (Board announced plan that would include requiring
underwriters to recommend to issuers that they provide continuing
disclosure to the market and requiring municipal securities dealers
to disclose to their customers the negative impact that the lack of
secondary market information may have on the value and liquidity of
the securities and whether the issuer has agreed to voluntarily
provide such disclosures).
---------------------------------------------------------------------------
As discussed above, the Joint Statement recommends that the
Commission adopt a rule prohibiting a municipal securities dealer from
underwriting securities absent a commitment to provide ongoing
information. In the Companion Release, the Commission is proposing such
a rule for comment. In order to fully inform investors, an issuer needs
to include in the official statement a description of the scope of its
continuing disclosure commitment, the type of information that would be
provided, the repositories to which the information would be sent, when
annual and other periodic information would be available, and the
consequences of the issuer's failure to abide by the requirements of
the covenant.
5. Clarity and Conciseness
Like other disclosure documents, official statements need to be
clear and concise to avoid misleading investors through confusion and
obfuscation. The expanded level of disclosure in official statements
and increased sophistication of municipal securities instruments have,
in many cases, resulted in longer and more complex disclosure
documents, with the corresponding danger of overly detailed,
legalistic, and possibly obtuse disclosure.63
---------------------------------------------------------------------------
\6\3See GFOA Testimony at 6. See also Allstate Letter.
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The location, emphasis, and context of the disclosure can affect
the ability of a reasonable investor to understand the relationship
between, and cumulative effect of, the disclosure.64 As the U.S.
Court of Appeals for the Second Circuit has stated:
---------------------------------------------------------------------------
\6\4Isquith v. Middle South Utilities, 847 F.2d 186, 201 (5th
Cir.), cert. denied, 488 U.S. 926 (1988); Kas v. Financial General
Bankshares, Inc., et al., 796 F.2d 508, 516 (D.C. Cir. 1986);
Kennedy v. Tallant, 710 F.2d 711, 720 (11th Cir. 1983).
[D]isclosures in a prospectus must steer a middle course,
neither submerging a material fact in a flood of collateral data,
nor slighting its importance through seemingly cavalier treatment.
The import of the information conveyed must be neither oversubtle
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nor overplayed, its meaning accurate, yet accessible.65
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\6\5Isquith, 847 F.2d at 202.
Appropriate disclosure ``is measured not by literal truth, but by
the ability of the material to accurately inform rather than mislead''
investors.66 As the Commission has indicated in other contexts,
legalistic, overly complex presentations and inattention to
understandability can render the disclosure incomprehensible and
consequently misleading.67
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\6\6McMahan & Company, et. al. v. Wherehouse Entertainment,
Inc., 900 F.2d 576, 579 (2d Cir. 1990).
\6\7See, e.g., Limited Partnership Reorganizations and Public
Offerings of Limited Partnership Interests, Securities Act Release
No. 6900 (June 25, 1991) 56 FR 28979, 28980 (``Limited Partnership
Release'').
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6. Delivery of Official Statements
One of the concerns leading to the adoption of Rule 15c2-12 was
that underwriters were not receiving official statements within time
periods that would allow them to examine the accuracy of the
disclosure.68 The Commission noted in proposing the rule that a
thorough, professional review by underwriters of municipal offering
documents could encourage appropriate disclosure of foreseeable risks
and accurate descriptions of complex put and call features, as well as
novel financing structures now employed in many municipal offerings. In
addition, with the increase in novel or complex financings, there may
be greater value in having investors receive disclosure documents
describing fundamental aspects of their investment. Yet, underwriters
are unable to perform this function effectively when offering
statements are not provided to them on a timely basis.69
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\6\8Proposing Release, 53 FR at 37781.
\6\9Proposing Release, 53 FR at 37782.
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To address this concern, the rule requires any underwriter,
including lead underwriters, syndicate members, and selling group
members that receive in excess of the usual seller's commission, to
obtain and review an official statement that is deemed final as of its
date by the issuer, except for the omission of certain information,
before bidding for, purchasing, offering, or selling municipal
securities in a primary offering.
Since the adoption of Rule 15c2-12, however, there have been
continued problems with the timeliness of receipt by underwriters of
the ``near final'' official statement required by the Rule.70 In
addition to compromising the ability of an underwriter to make a
reasonable investigation of the issuer, this problem also may limit the
ability of potential customers to make informed investment decisions.
In a recent NFMA survey, 59% of those responding rated the delivery of
preliminary official statements in competitive sales as either not very
good or poor, and 50% rated the delivery of preliminary official
statements in negotiated sales as either not very good or poor.71
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\7\0As a practical matter, near final official statements
distributed to underwriters to satisfy Rule 15c2-12(b)(1) are often
the same document as the preliminary official statement distributed
to potential customers pursuant to Rule 15c2-12(b)(2). See Mudge
Rose Guthrie Alexander & Ferndon (April 4, 1990) (``Mudge Rose'')
(rejecting the argument that in a negotiated offering, the
identification of a credit enhancer and related information about
the credit enhancer may be omitted on the assumption that the
information depends on pricing). See also Fippinger & Pittman,
Disclosure Obligations of Underwriters of Municipal Securities, 47
Business Lawyer 127, 140 (Nov. 1991). In addition, underwriters are
required to deliver to potential customers, upon request, copies of
the final official statement for a specified time period. Rule 15c2-
12(b)(4).
\7\1NFMA Survey. See also Letter from Jeffrey M. Baker,
Chairperson, NFMA Industry Practices and Procedures Committee and
Richard A. Ciccarone, Past Chairperson, NFMA Industry Practices and
Procedures Committee to Arthur Levitt, Chairman, Securities and
Exchange Commission, Christopher A. Taylor, Executive Director, MSRB
and Joseph R. Hardiman, President and Chief Executive Officer,
National Association of Securities Dealers, Inc. (Oct. 19, 1993)
(regarding the timeliness of receipt of near final and preliminary
official statements).
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One cause of delay has been confusion as to the point at which the
underwriter must have obtained and reviewed the near final official
statement in a negotiated offering. The term ``offer'' traditionally
has been defined broadly under the federal securities laws and, for
purposes of Rule 15c2-12, encompasses the distribution of a preliminary
official statement by the underwriter, as well as oral solicitations of
indications of interest. Thus, prior to the time that the underwriter
distributes the preliminary official statement to potential investors,
or otherwise begins orally soliciting investors, the rule requires it
to have obtained and reviewed a near final official statement. If no
offers are made, the underwriter is required to obtain and review a
near final official statement by the earlier of the time the
underwriter agrees (whether in principle or by signing the bond
purchase agreement) to purchase the bonds, or the first sale of bonds
to investors.72
---------------------------------------------------------------------------
\7\2See Mudge Rose.
---------------------------------------------------------------------------
The Commission has acknowledged that the rule would require greater
planning and discipline by some issuers.73 The Commission
anticipated that, in order to allow underwriters to meet their
obligation to have a reasonable basis for recommending any municipal
securities, issuers would have to begin drafting disclosure documents
earlier, and perhaps with greater care than in the past.74 This
result enables underwriters to receive, and if necessary influence the
content of, the final official statement before committing themselves
to an offering.75 Moreover, placing an obligation on the issuer to
prepare the official statement at an earlier stage is appropriate,
because it is the issuer's obligation to ensure that there is timely
dissemination of disclosure documents in connection with the offer and
sale of the issuer's securities.76
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\7\3Adopting Release, 54 FR at 28804. The Commission also noted
that the requirements of Rule 15c2-12(b)(1) could be met through the
use of multiple documents. For example, a frequent issuer might be
able to supply a recent official statement, together with
supplementary information containing the terms of the current
offering, as well as any material changes from the previous offering
materials.
\7\4Proposing Release, 53 FR at 37790.
\7\5Id.
\7\6See Adopting Release, 54 FR at 28811 N. 84 (official
statement is issuer's document).
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D. Conduit Financings
When financing involves a third party as the source of repayment,
investors need information on that underlying borrower. The GFOA
Guidelines call for description of conduit obligors, which are defined
by the GFOA Guidelines to include both private profit-making and
nonprofit entities.77 The suggested information includes the
nature and development of the business or other activity to be
undertaken by the conduit obligor (including its form of organization
and management), location of principal facilities and service area,
ratemaking or pricing policies and historical operations and plan of
operations.
---------------------------------------------------------------------------
\7\7GFOA Guidelines at 26. In a recent policy statement, the
GFOA referred to ``conduit bonds'' as ``municipal securities issued
by a state or local government for the benefit of a private
corporation or other entity that is ultimately obligated to pay such
bonds * * *.'' GFOA, Committee on Governmental Debt and Fiscal
Policy, Improvements in Municipal Securities' Market Disclosure
(Feb. 1, 1994) (``GFOA Disclosure Policy Statement'').
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To address disclosure issues involving conduit financings in a
comprehensive fashion, however, legislation addressing the exempt
status of conduit securities under the federal securities laws is
necessary. Bonds used to finance a project to be used in the trade or
business of a private corporation are, from an investment standpoint,
equivalent to corporate debt securities issued directly by the
underlying corporate obligor.78 Payments on these types of conduit
securities are derived solely from revenues received by the
governmental entity under the terms of a contractual agreement,
typically a lease or a note, from a private enterprise, rather than
from the general credit and taxing power of the governmental issuer.
The tax-exempt status of interest payments does not alter the
fundamental analysis that these are private obligations, in which the
investor looks, and can look, only to a private entity for repayment.
---------------------------------------------------------------------------
\7\8See Money Market Fund Release, 58 FR at 68588 (proposal to
subject tax exempt money market fund investments in conduit
securities to restrictions similar to those applicable to securities
of comparable obligors offered to taxable funds).
---------------------------------------------------------------------------
The private nature of many conduit enterprises distinguishes them
from traditional municipal financings. The incidence of bond default
appears to be inversely related to the degree a financed project
represents an essential public service.79 A study conducted by the
PSA on non-rated issues that defaulted found that 75% were issued by
local authorities in the areas of health care and industrial related
sectors such as energy, chemical, pollution control and industrial
development.80
---------------------------------------------------------------------------
\7\9Kenny Default Report at 2.
\8\0PSA Default Report at 12.
---------------------------------------------------------------------------
Given the essentially private nature of non-governmental industrial
development financings, investors need the same disclosure regarding
the underlying non-municipal corporate obligor as they would receive
regarding any corporate obligor, and the same regulatory and liability
scheme should apply. Accordingly, the Commission has consistently
supported legislative proposals to amend Section 3(a)(2) of the
Securities Act81 and Section 3(a)(29)82 of the Exchange Act
to remove the registration exemption for the corporate credit
underlying municipal conduit securities involving non-governmental
industrial development (private activity) financings.83 The
Commission today renews that legislative recommendation.
---------------------------------------------------------------------------
\8\115 U.S.C. 77c(a)(2).
\8\215 U.S.C. 78c(a)(29).
\8\3See Remarks of David S. Ruder, Chairman, SEC, ``Disclosure
in the Municipal Securities Markets,'' Before the Public Securities
Association (Oct. 23, 1987) at 17-18; Letter from John S.R. Shad,
Chairman, SEC to Representative Timothy E. Wirth, Chairman, House
Subcommittee on Telecommunications, Consumer Protection, and Finance
(March 12, 1985); 124 Cong. Rec. 21, 639 (1978) (letter from SEC
Chairman Harold M. Williams to Senator Harrison A. Williams). There
were two bills introduced, one in 1975 and one in 1978, that would
have repealed the exemption from the registration requirements of
the Securities Act of 1933. The 1978 bill would have subjected
certain industrial development bonds to the registration
requirements of the Securities Act of 1933, the filing and
qualification provisions of the Trust Indenture Act and the periodic
reporting requirements of the Securities Exchange Act of 1934.
Neither bill was enacted. See also ``Municipal Securities Full
Disclosure Act of 1976,'' S. 2969, 94th Cong., 2d. Sess. (Feb. 17,
1976).
Governmental industrial development financings, which would have
retained their exempt status under prior proposals, include those
financings in which the bonds are repaid from the general revenues
of the governmental unit or the project or facility is a public
facility (or part of a public facility) and owned and operated by or
on behalf of the governmental unit. The prior proposals to register
conduit financings would not have affected the separate exemption
for securities issued by non-profit charitable organizations in
Section 3(a)(4) of the Securities Act (15 U.S.C. 77c(a)(4)).
---------------------------------------------------------------------------
Pending amendment to the securities laws to eliminate the
registration exemption, the disclosure provided by such non-
governmental conduit borrowers should be substantially the same as if
such conduit borrower were subject to the information requirements of
the federal securities laws applicable to the particular conduit
borrower. For example, financial statements prepared in accordance with
generally accepted accounting principles prescribed by the Financial
Accounting Standards Board should be provided.
IV. Disclosure in the Secondary Market for Municipal Securities
While significant progress has been made in primary market
disclosure practices in recent years, the same development has not
taken place with respect to secondary market disclosure. The GFOA
issued separate secondary market disclosure guidelines in 1979, but
they have not yet achieved the broad acceptance accorded its primary
offering guidance. In the last five years, the NFMA, the National
Council of State Housing Agencies, and the Association of Local Housing
Authorities have published sector specific guidelines for secondary
market disclosure; the National Advisory Council of the National
Association of State Auditors, Comptrollers and Treasurers (``NASACT'')
is in the process of preparing such guidelines for adoption by the
states.84 The GFOA's longstanding Certificate of Achievement
program recognizes issuers that have prepared comprehensive annual
financial reports meeting its guidelines. The NFMA's Award of
Recognition Program likewise recognizes issuers that have committed to
provide continuous disclosure.
---------------------------------------------------------------------------
\8\4See Association of Local Housing Finance Agencies,
Guidelines for Information Disclosure to the Secondary Market (1992)
(``Local Housing Guidelines''); National Council of State Housing
Agencies, Quarterly Reporting Format for State Housing Finance
Agency Single Family Housing Bonds (1989) and Multi-family
Disclosure Format (1991) collectively (``State Housing
Guidelines''); NFMA Handbook. See also Healthcare Financial
Management Association, Statement of Principles of Public Disclosure
of Financial and Operating Information by Healthcare Providers
(Exposure Draft dated Aug. 1, 1993) (``Healthcare Disclosure
Principles'').
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A. Application of Antifraud Provisions
Participants in the municipal securities market do not dispute the
need for ongoing disclosure following an offering of securities, but
municipal issuers reportedly resist developing a routine of ongoing
disclosure to the investing market because of concerns about the costs
of generating and disseminating that information and about potential
liability relating to such disclosure. These issuers and obligors are
at times advised by their professional advisors that there is no duty
under the federal securities laws to make disclosure following the
completion of the distribution.85 At least some municipal issuers
thus appear to believe that silence shields them from liability for
what may later be found to be false or misleading information. As a
practical matter, however, municipal issuers do not have the option of
remaining silent. Given the wide range of information routinely
released to the public, formally and informally, by these issuers in
their day-to-day operations, the stream of information on which the
market relies does not cease with the close of a municipal offering. In
light of the public nature of these issuers and their accountability
and governmental functions, a variety of information about issuers of
municipal securities is collected by state and local governmental
bodies, and routinely made publicly available.86 Municipal
officials also make frequent public statements and issue press releases
concerning the entity's fiscal affairs.
---------------------------------------------------------------------------
\8\5See Stamas, ``Issuers' Intentions on Secondary Market
Disclosure Are Starting to Appear in Official Statements,'' The Bond
Buyer (Dec. 14, 1992) at 1; Stamas, ``Why the Issue of Secondary-
Market Disclosure Remains on the Back Burner: It Can Be Risky,'' The
Bond Buyer (Sept. 20, 1991) at 1; Stamas, ``Analysts Warn Issuers
About Some Lawyers' Disclosure Advice,'' The Bond Buyer (Jan. 15,
1991) at 1.
\8\6See NASACT Blue Ribbon Committee Report at 2, 24; NASACT
1990 Task Force Report at 21.
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A municipal issuer may not be subject to the mandated continuous
reporting requirements of the Exchange Act, but when it releases
information to the public that is reasonably expected to reach
investors and the trading markets, those disclosures are subject to the
antifraud provisions.87 The fact that they are not published for
purposes of informing the securities markets does not alter the mandate
that they not violate antifraud proscriptions.88 Those statements
are a principal source of significant, current information about the
issuer of the security, and thus reasonably can be expected to reach
investors and the trading market. As the U.S. Court of Appeals for the
Second Circuit has said: ``The securities markets are highly sensitive
to press releases and to information contained in all sorts of publicly
released . . . documents, and the investor is foolish who would ignore
such releases.''89 Since investors obtain information concerning
the fiscal health of a municipal issuer from its public statements
concerning financial and other matters, ``[t]he nature of these
statements and the assumptions upon which they are based must be
carefully and accurately communicated to the public, so that potential
investors may be fully informed of all material facts relevant to their
investment decision.''90
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\8\7See Public Statements by Corporate Representatives,
Securities Act Release No. 6504 (Jan. 20, 1984) 49 FR 2468, 2469; In
re Ames Dept. Stores Inc. Stock Litigation, 991 F.2d 953, 965-67 (2d
Cir. 1993) (with respect to corporate information).
\8\8See Fippinger, The Securities Law of Public Finance (2d ed.
1993) at 291 (``[P]ress releases, conversations with analysts,
information meetings, official comments on budget negotiations, and
even angry reactions by public officials to rating agency
downgrades'' are subject to antifraud provisions).
\8\9Ames, 991 F.2d at 963 (corporate information).
\9\0NY City Report at Ch. III at 2. The report found that public
statements by City officials were misleading, since they were
characterized by unwarranted reassurances as to the soundness and
attractiveness of the City's securities, including statements that
the City's budget problems, no matter how serious, had nothing to do
with the City's ability to pay its debts. Id. at 110-111.
Municipal issuers should also be sensitive to whether their
official statements contain forward-looking statements, such as
projections of revenues, that remain alive in the market and may
require updating in light of subsequent events. Guides for
Disclosure of Projections of Future Economic Performance, Exchange
Act Rel. No. 5992 (Nov. 7, 1978), 43 FR 53246. To the extent that
the official statement in many cases remains the principal (or
perhaps even the sole) source of information concerning an
outstanding security, the potential for an obligation to update is
of particular importance.
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The current process by which municipal issuers and their officials
release information to market participants does not address the risk of
misleading investors, because there is no mechanism for disseminating
information about the municipal issuer to the market as a whole. To the
contrary, in the municipal market, information released publicly
frequently is disseminated only to a narrow segment of the marketplace.
For example, market participants who request current information from
indenture trustees are often turned away on the grounds that they are
not current holders of the securities.91 As a result, investors
purchasing municipal securities in the secondary market risk doing so
on the basis of incomplete and outdated information.
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\9\1Under notice provisions of indentures, the issuer and
trustee generally are required to provide notice to existing
bondholders of events of default and other significant matters, such
as a draw on reserves, a failure to renew a letter of credit, or a
substitution of collateral. ABA 1991 Guidelines at 10. Indeed,
trustees often deny requests by market participants for information
out of concern for liability arising from exceeding the authority
set forth in the indenture. Fippinger at 325. This situation led the
American Bankers Association Corporate Trust Committee, in
cooperation with the National Association of Bond Lawyers, to
develop agreed upon guidelines for indenture provisions permitting
the trustee to provide public notice of specified events. See ABA
1991 Guidelines.
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Since access by market participants to current and reliable
information is uneven and inefficient, municipal issuers presently face
a risk of misleading investors through public statements that may not
be intended to be the basis of investment decisions, but nevertheless
may reasonably be expected to reach the securities markets. As market
participants have urged,92 in order to minimize the risk of
misleading investors, municipal issuers should establish practices and
procedures to identify and timely disclose, in a manner designed to
inform the trading market, material information reflecting on the
creditworthiness of the issuer and obligor and the terms of the
security.93
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\9\2See GFOA Guidelines at 91-97; Joint Statement.
\9\3National Association of Bond Lawyers and Section of Urban,
State and Local Government Law, American Bar Association, Disclosure
Roles of Counsel in State and Local Government Securities Offerings
at 135 (forthcoming 1994) (Pre-publication Draft) (``ABA Disclosure
Roles'') (noting that many municipal issuers have concluded that
post-issuance disclosure in accordance with GFOA guidelines can be
more efficient and expose them to less potential liability than ad
hoc disclosures).
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B. Secondary Market Disclosure
There is general recognition of the need for disseminating
comprehensive information on an annual basis and, on a more timely
basis, information about material events that reflect on the credit
quality of the security.94
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\9\4See GFOA Testimony; Mires, ``An Investor's Framework for
Examining Disclosure Issues and Possible Solutions,'' The Bond Buyer
(Feb. 7, 1994) at 24; NASACT Blue Ribbon Committee Report at 7. See
also PSA Testimony at 6, supporting annual financial statement
filing requirements and submission of information regarding any
material fact for issuers who borrow $1 million or more annually.
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1. Annual Information
Investors need updated comprehensive information sufficient to
enable them to evaluate the financial condition, results of operations
and cash flows of the issuer or underlying borrower. Although the
issuance of comprehensive annual information has not yet become
prevailing practice, it is recommended by industry disclosure
guidelines, including those published by the GFOA in connection with
its Comprehensive Annual Financial Reports (``CAFRs'') award program,
NFMA, and the other industry specific guidelines,95 and is an
effective means of providing the market updated information about the
issuer and the issue. The GFOA Guidelines for Continuing Disclosure
call for, either in an official statement or comprehensive annual
report, a description of:
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\9\5See ABA Disclosure Roles at 134-136; ABA 1991 Guidelines;
Association of Local Housing Guidelines; Healthcare Disclosure
Principles. The Disclosure Task Force of the National Council of
State Housing Agencies is developing standards for the issuance of
audited financial and annual reports.
The issuer and its structure, management, assets and
operations;
The issuer's debt structure (including changes in
indebtedness);
The issuer's finances (including financial condition and
results of operations and financial practices of the issuer or the
enterprise);
Legal matters affecting the issuer; including litigation
and legislation;
Ratings; and
Interests of certain persons.
The GFOA Guidelines also specify additional information to be
provided by conduit borrowers. The eligibility criteria for a
Certificate of Achievement from GFOA include audited financial
statements prepared in accordance with GAAP, reported upon by an
independent public auditor. The guidelines for CAFRs include both a
financial section and a statistical section.96
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\9\6See GFOA Certificate of Achievement for Excellence in
Financial Reporting Program; GFOA Guidelines at 64.
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For frequent issuers, current information can be disseminated in
official statements for new offerings, and thus is readily available
without the preparation of a separate annual financial report.
Regardless of the form of document relied upon to provide the
marketplace with information concerning the financial condition of the
issuer or obligor, to minimize risk of misleading investors, issuers or
obligors should provide, as discussed above with respect to primary
offerings:
Financial statements that are audited in accordance with
GAAS (or disclosure of the absence of such an audit) and that are
either prepared in accordance with GAAP, or accompanied by a
quantified explanation of material deviations from GAAP or a full
explanation of the accounting principles used;
Other pertinent financial and operating information
(depending on the type of issuer and security sold), as well as the
sources for repayment--of course, a variety of information may be
appropriate for an issuer with a range of outstanding securities
with differing characteristics, from general obligation to revenue
and conduit bonds; and
A narrative discussion that analyzes the issuer's or
obligor's financial condition, and results of operations, as well as
facts likely to have a material impact on the issuer or obligor.
Clarity and conciseness are equally relevant concerns with respect to
ongoing disclosures, as with official statements.
As discussed above with respect to offering statements, as a
general matter, the annual financial information may reasonably be
expected to be made available within six months of the issuer's fiscal
year end.\97\ For some conduit entities, annual information may not be
sufficient and investors may need more frequent periodic financial
information. Under guidelines developed by the National Council of
State Housing Agencies, for example, current information on loan
portfolio status is compiled and disseminated to information
repositories on a quarterly basis.\98\ Similar ongoing disclosure on a
periodic basis appears appropriate for analogous conduit municipal
financings such as structured student loan programs, housing and health
care financings.
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\97\See Section III.C.3.d. above.
\98\State Housing Guidelines.
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2. Event Disclosure
In addition to periodic information, to assure that participants in
the secondary market base their investment decisions on current
information, commentators have called for timely disclosure of events
that materially reflect on the creditworthiness of municipal securities
issuers and obligors and the terms of their securities. There is a
general consensus among participants in the municipal securities market
that investors need information about the following events, among
others, where material:\99\
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\99\In 1990, the American Bankers Association Corporate Trust
Committee drafted a proposal identifying 16 factors that it believed
were important for issuers to disclose to bondholders and the
marketplace. American Bankers Association Corporate Trust Committee,
Proposed Disclosure Guidelines for Corporate Trustees (ABA Draft for
Discussion Purposes) (June 12, 1990) (``ABA 1990 Guidelines''). As
published in final form in September of 1991 (``ABA 1991
Guidelines''), the Guidelines contained a nonexclusive list of five
types of events that could be disclosed by notice to a repository.
Numerous market participants have referenced the ABA draft proposal,
or variations of that proposal, as a starting point for identifying
straightforward, nonjudgmental, categories of events that call for
prompt disclosure. An addendum to the Joint Statement provided four
examples of ``significant information'' that the participants
considered appropriate for disclosure. The nonexclusive examples
were (1) nontechnical defaults, (2) draws from a debt service
reserve fund, (3) failure to make a regularly scheduled payment, and
(4) any draws on any credit enhancement. Joint Statement, Addendum.
The list set forth above is drawn from these proposals.
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a. Principal and interest payment delinquencies
b. Nonpayment-related defaults
c. Unscheduled draws on reserves
d. Unscheduled draws on credit enhancements
e. Substitution of credit or liquidity providers, or their failure to
perform
f. Adverse tax opinions or events affecting the tax-exempt status of
the security
g. Modifications to rights of security holders
h. Bond calls
i. Defeasances
j. Matters affecting collateral
k. Rating changes
3. Dissemination
As discussed above, the municipal market today lacks an effective
mechanism for dissemination of material information to investors and
the marketplace. To be effective in minimizing the issuer's risk under
the antifraud provisions, the annual financial information and event
disclosure should be disseminated in a manner reasonably designed to
inform the holders of the issuer's securities and the market for those
securities.
Trustees can serve as cost effective disseminators of information
to the market due to the capacity and duties of trustees under the
terms of the indentures, which positions them to have knowledge of the
events requiring disclosure, and the ability and authority to
communicate with bondholders.\100\ The Commission encourages the
inclusion of provisions in trust indentures that authorize trustees to
transmit information to the market, particularly in structured
financings where the issuer's obligations generally are delegated to
various participants. Trustees also may provide a service to other
small issuers, by enabling them to notify the market in a timely manner
and at a lower cost.
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\100\See ABA 1991 Guidelines at 3.
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The common denominator for current proposals to improve secondary
market disclosure for municipal securities is the establishment and
designation of one or more information repositories to serve as a
collection and access point for annual and current information.\101\
Such repositories would serve as predetermined sources for information
concerning a particular issuer, allowing participants to verify that
they have the latest available information concerning the issuer before
recommending, purchasing, or bidding for a security. The repositories
would supplement, not substitute for, the existing access bondholders
may have to issuers to obtain current information.\102\
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\101\Consistent with the recent recommendation of the Joint
Statement, the GFOA Guidelines call for lodging secondary market
disclosure with a repository, as did the ABA guidelines published in
1991. GFOA Guidelines, Procedural Statement No. 8; ABA 1991
Guidelines at 3.
\102\The American Bankers Association Corporate Trust Committee
and the National Association of Bond Lawyers, as well as the Joint
Statement, have expressed concern that securities depositories and
their participants do not retransmit notices they receive from
trustees and issuers to the beneficial owners of the issuer's
securities. The ABA Corporate Trust Committee sought to address the
problem by calling for simultaneous dissemination of the information
to the marketplace through an information repository. The National
Association of Bond Lawyers has suggested that the Commission
promulgate a rule mandating that all depositories and their direct
and indirect participants promptly retransmit notices received from
the issuer or indenture trustee. While the establishment of
information repositories may address the problem to some extent, the
Commission staff intends to work with the relevant organizations to
assure that steps are taken to provide for consistent retransmission
of the information.
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In the Companion Release, the Commission is proposing an amendment
to Rule 15c2-12 to prohibit, as suggested by the Joint Statement,
underwriting of a municipal securities issue unless the issuer of the
municipal security has covenanted to provide annual and ongoing
disclosure to a repository.
V. Interpretive Guidance With Respect to Obligations of Municipal
Securities Dealers
In the Proposing and Adopting Releases for Rule 15c2-12, the
Commission set forth its interpretation of the obligation of municipal
underwriters under the antifraud provisions of the federal securities
laws. The interpretation discussed the duty of underwriters to the
investing public to have a reasonable basis for recommending any
municipal securities, and their responsibility, in fulfilling that
obligation, to review in a professional manner the accuracy of
statements made in connection with the offering. The interpretation was
set out in the Proposing Release, and modified slightly in the Adopting
Release. The Commission reaffirms its Interpretation with respect to
underwriters' responsibilities under the antifraud provisions of the
federal securities laws.\103\
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\103\In light of the underwriter's obligation, as discussed in
the prior releases, to review the official statement and to have a
reasonable basis for its belief in the accuracy and completeness of
the official statement's key representations, disclaimers by
underwriters of responsibility for the information provided by the
issuer or other parties, without further clarification regarding the
underwriter's belief as to accuracy, and the basis therefor, are
misleading and should not be included in official statements.
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Furthermore, the Commission believes that it is also appropriate to
emphasize the responsibilities of brokers and dealers in trading
municipal securities in the secondary market. The Commission
historically has taken the position that a broker-dealer recommending
securities to investors implies by its recommendation that it has an
adequate basis for the recommendation.\104\ A dealer, unlike an
underwriter, ordinarily is not obligated to contact the issuer to
verify information. A dealer must, however, have a reasonable basis for
its recommendation.\105\ If, based on publicly available information, a
dealer discovers any factors that indicate the disclosure is inaccurate
or incomplete, or signal the need for further inquiry, a municipal
securities dealer may need to obtain additional information, or seek to
verify existing information.\106\
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\104\See Donald T. Sheldon, Securities Exchange Act Release No.
31475 (Nov. 18, 1992); Elizabeth Bamberg, Securities Exchange Act
Release No. 27672 (Feb. 5, 1990); Feeney v. SEC, 564 F.2d 260 (8th
Cir. 1977); Nassar & Co., Securities Exchange Act Release No. 15347
(Nov. 22, 1978). See also Proposing Release, 53 FR at 37787, n.72-
73.
\105\Richard J. Buck & Co., 43 SEC 998 (1968), aff'd sub nom.
Hanley v. SEC, 416 F.2d 589 (2d Cir. 1969). See also The Obligations
of Underwriters, Brokers and Dealers in Distributing and Trading
Securities, Particularly of New High Risk Ventures, Securities Act
Release No. 5275 (Aug. 9, 1972) 37 FR 16011, 16012-13; In Re
Blumenfeld. Securities Exchange Act Release No. 16437 (Dec. 19,
1979) (broker-dealer charged unfair mark-ups and recommended
transactions in municipal securities without a reasonable basis);
J.A. Winston & Co., Inc., 42 S.E.C. 62 (1964) (broker-dealer
recommended transactions without a reasonable basis, and made
representations that were false and misleading).
\106\See Merrill, Lynch, Pierce, Fenner & Smith, Securities
Exchange Act Release No. 14149 (Nov. 9, 1977) (``A recommendation by
a broker-dealer is perceived by a customer as (and in fact it should
be) the product of an objective analysis [which] can only be
achieved when the scope of an investigation is extended beyond the
company's management); John R. Brick, Securities Exchange Act
Release No. 11763 (Oct. 24, 1975) (``the professional...is not an
issuer. But he is under a duty to investigate and see that his
recommendations have a reasonable basis''); M.G. Davis & Co., 44 SEC
153, 157-58 (1970) (broker-dealer registration revoked because
``representations and predictions'' made and market letter relied on
by registrant ``were without reasonable basis,'' and ``registrant
could not reasonably accept all of the statements in the [market
letter] without further investigation''), aff'd sub nom. Levine v.
SEC, 436 F.2d 88 (2d Cir. 1971). See also Merrill, Lynch, Pierce,
Fenner & Smith, Securities Exchange Act Release No. 14149 (Nov. 9,
1977) (noting that if a broker-dealer lacks sufficient information
to make a recommendation, the lack of information is material and
should be disclosed).
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One of the rules proposed simultaneously with the issuance of this
release would require a broker, dealer or municipal securities dealer
to review current information provided by the issuer prior to
recommending a transaction in a municipal security. In the absence of
such current information, the dealer could not recommend a transaction
in the issuer's securities. That rule, which would be applicable to
municipal securities issued subsequent to the effective date of the
proposed rule, would reinforce the obligations of dealers under the
antifraud provisions of the federal securities laws to have a
reasonable basis for recommendations of outstanding municipal
securities.
The Joint Statement also called for a strengthening of the
suitability rules to require disclosure of ratings and whether the
issuer has committed to provide annual financial reports. Today, the
Commission is proposing amendments to its confirmation rules to require
disclosure of the absence of a rating in confirmations. The MSRB has
indicated it has under consideration a plan requiring municipal
securities dealers to disclose to their customers the importance of
secondary market information and whether the issuer has agreed to
voluntarily provide such disclosures.107 The Commission will defer
to the MSRB's reexamination of its suitability rules in implementing
those aspects of the Joint Statement.
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\1\07See supra n. 62.
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VI. Request for Comments
The Commission intends to continue to monitor developments in
municipal securities disclosure practices. Comment is requested
regarding the disclosure items discussed in this release, and in
particular, items warranting event disclosure. Comment also is
requested regarding additional action that should be taken with respect
to disclosure in the municipal securities market by the Commission, the
MSRB, or Congress.
List of Subjects in 17 CFR Parts 211, 231 and 241
Securities.
Amendment of the Code of Federal Regulations
For the reasons set out in the preamble, title 17 chapter II of the
Code of Federal Regulations is amended as set forth below:
PART 211--INTERPRETATIONS RELATING TO FINANCIAL REPORTING MATTERS
1. Part 211, Subpart A, is amended by adding Release No. FR-42 and
the release date of March 9, 1994, to the list of interpretive
releases.
PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER
2. Part 231 is amended by adding Release No. 33-7049 and the
release date of March 9, 1994, to the list of interpretive releases.
PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER
3. Part 241 is amended by adding Release No. 34-33741 and the
release date of March 9, 1994, to the list of interpretive releases.
By the Commission.
Dated: March 9, 1994.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5922 Filed 3-16-94; 8:45 am]
BILLING CODE 8010-01-P