[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: 94-5927]
[[Page Unknown]]
[Federal Register: March 17, 1994]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
Release No. 34-33742; File No. S7-5-94]
RIN 3235-AG13
Municipal Securities Disclosure
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rulemaking.
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SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is publishing for comment proposed amendments to Rule
15c2-12 under the Securities Exchange Act of 1934 (``Exchange Act''),
which would make it unlawful for a broker, dealer, or municipal
securities dealer to act as an underwriter of an issue of municipal
securities unless the broker, dealer, or municipal securities dealer
has reasonably determined that the issuer or its designated agent has
undertaken in a written agreement or contract for the benefit of the
holders of such municipal securities to provide certain information to
a nationally recognized municipal securities information repository; or
to recommend the purchase or sale of a municipal security, without
having reviewed the information the issuer of the municipal security
has undertaken to provide. The purpose of the proposed amendments is to
further deter fraud and manipulation in the municipal securities market
by prohibiting the underwriting and subsequent recommendation of
securities for which adequate information is not available.
DATES: Comments must 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., Washington, DC 20549. All comment letters should refer to File No.
S7-5-94. All comments received will be available for public inspection
and copying in the Commission's Public Reference Room, 450 Fifth
Street, NW., Washington, DC 20549.
FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Esq., Chief
Counsel, or Janet W. Russell-Hunter, Esq., Attorney, Office of Chief
Counsel (concerning the rule and release generally), (202) 504-2418,
Division of Market Regulation, Securities and Exchange Commission, Mail
Stop 7-10, 450 Fifth Street, NW., Washington, DC 20549; and Amy Meltzer
Starr, Esq., Attorney, Division of Corporation Finance (concerning the
definitions of ``final official statement'' and ``significant
obligor,'' and concerning annual financial information and material
events generally), (202) 272-3654, Division of Corporation Finance,
Securities and Exchange Commission, Mail Stop 7-6, 450 Fifth Street,
NW., Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. Introduction
In a recent report to Congress,\1\ the staff of the Division of
Market Regulation (``Staff'') reviewed many aspects of the municipal
securities market, including whether opportunities exist for
overreaching and investor deception. The Staff found that investors
need sufficient current information about issuers and significant
obligors to better protect themselves from fraud and manipulation, to
better evaluate offering prices, to decide which municipal securities
to buy, and to decide when to sell.\2\ Moreover, the Staff found that
the growing participation of individuals as both direct and indirect
purchasers of municipal securities underscores the need for sound
recommendations by brokers, dealers, and municipal securities
dealers.\3\
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\1\Securities and Exchange Commission, Division of Market
Regulation, Staff Report on the Municipal Securities Market (Sept.
1993) (``Staff Report''). The Staff Report was prepared at the
request of the Hon. John D. Dingell, Chairman, Committee on Energy
and Commerce, United States House of Representatives, and the Hon.
Edward Markey, Chairman, Subcommittee on Telecommunications and
Finance, United States House of Representatives. Among the topics
discussed in the Staff Report were political contributions, sales
practices, transparency, audit trails, issuer disclosure, and the
regulatory structure for municipal securities. See Letter from Hon.
John D. Dingell, Chairman, Committee on Energy and Commerce, and
Hon. Edward Markey, Chairman, Subcommittee on Telecommunications and
Finance to: Mary L. Schapiro, Acting Chairman, SEC; Christopher A.
Taylor, Executive Director, Municipal Securities Rulemaking Board
(``MSRB''); and Joseph R. Hardiman, President and Chief Executive
Officer, National Association of Securities Dealers, Inc. (``NASD'')
(May 24, 1993).
\2\Staff Report, supra note 1 at 38.
\3\Id. at 28.
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Based on these findings, the Staff recommended that the Commission
use its interpretive authority to provide guidance regarding the
disclosure required by the antifraud provisions of the federal
securities laws.\4\ Today, in a companion release,\5\ the Commission is
interpreting the disclosure obligations of municipal securities
issuers. The Companion Release also addresses the obligations under the
antifraud provisions of brokers, dealers, and municipal securities
dealers who underwrite and sell municipal securities, and the
information dissemination requirements of Rule 15c2-12.\6\
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\4\Id. at 40. Section 17(a) of the Securities Act of 1933
(``Securities Act''), and Section 10(b) of the Exchange Act and Rule
10b-5 promulgated thereunder, apply to ``persons,'' including
issuers of municipal securities.
\5\Securities Act Release No. 7049, Exchange Act Release No.
33741, FR-42 (March 9, 1994) (``Companion Release'').
\6\17 CFR 240.15c2-12. See Securities Exchange Act Release No.
26100 (Sept. 22, 1988), 53 FR 37778 (``Proposing Release'');
Securities Exchange Act Release No. 26985 (June 28, 1989), 54 FR
28799 (``Adopting Release''). Rule 15c2-12 requires an underwriter
of municipal securities (1) to obtain and review an issuer's
official statement that, except for certain information, is ``deemed
final'' by an issuer, prior to making a purchase, offer, or sale of
municipal securities; (2) in negotiated sales, to provide the
issuer's most recent preliminary official statement (if one exists)
to potential customers; (3) to deliver to customers, upon request,
copies of the final official statement for a specified period of
time; and (4) to contract to receive, within a specified time,
sufficient copies of the issuer's final official statement to comply
with the rule's delivery requirement, and the requirements of MSRB
rules. Rule 15c2-12 also contains specific exemptions for three
types of municipal securities offerings.
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In addition, the Staff recommended in the Staff Report that Rule
15c2-12 be amended, or that similar rules be adopted, to prohibit
municipal securities dealers from recommending outstanding municipal
securities unless the issuer has committed to make available ongoing
information regarding its financial condition.\7\ This release proposes
to implement the Staff's recommendation.
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\7\Staff Report, supra note 1 at 40. See also Testimony of
Arthur Levitt, Chairman, SEC, Concerning the Municipal Securities
Market, Before the Subcommittee on Telecommunications and Finance,
Committee on Energy and Commerce, United States House of
Representatives (Sept. 9, 1993) at 5-7; Remarks of Arthur Levitt,
Chairman, SEC, The Bond Buyer Ethics in Public Finance Conference
(Jan. 24, 1994) at 6; Remarks of Richard Y. Roberts, Commissioner,
SEC, ``Alternatives for Improving Municipal Secondary Market
Disclosure,'' The Southern Municipal Finance Society 13th Annual
Fall Conference (Sept. 15, 1993) at 9-12.
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Section 15(c)(2) of the Exchange Act prohibits municipal securities
dealers from effecting any transaction in, or inducing or attempting to
induce the purchase or sale of, any municipal security by means of a
``fraudulent, deceptive, or manipulative act or practice.''\8\ This
section specifically authorizes the Commission to promulgate rules and
regulations to define, and prescribe means reasonably designed to
prevent, such acts and practices. Pursuant to this authority, the
Commission adopted Rule 15c2-12 in 1989 for the purpose of preventing
fraud by enhancing the quality, timing, and dissemination of disclosure
in the municipal securities market.\9\
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\8\Exchange Act Section 15(c)(2), 15 U.S.C. 78o(c)(2).
\9\See Adopting Release, supra note 6 at 54 FR 28800.
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The Commission proposes to amend Rule 15c2-12 to further deter
fraud and manipulation in the primary and secondary municipal
securities markets by prohibiting the underwriting and subsequent
recommendation of securities for which adequate information is not
available.\10\ For many years, the courts and the Commission have
emphasized that, under the antifraud provisions, a broker-dealer
recommending securities to investors implies by its recommendation that
it has an adequate basis for making the recommendation.\11\ In the
Proposing Release and the Adopting Release, the Commission discussed
broker-dealers' obligation to have a reasonable belief in the accuracy
of statements made when underwriting securities.\12\ When
recommendations in the secondary market are made, they must be based on
information that is up-to-date and accessible.
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\10\Under the antifraud provisions of the federal securities
laws, issuer disclosure not only must be accurate in all material
respects, but also must not omit information necessary to make the
statements made, in light of the circumstances, not misleading. The
proposed amendment will assist issuers in satisfying their
obligations under the antifraud provisions by creating a mechanism
for the dissemination of primary and secondary market disclosure.
See Companion Release, supra note 5 at Section III.A.
\11\See e.g. Feeney v. SEC, 564 F.2d 260 (8th Cir. 1977);
Cortlandt Investing Corporation, 44 SEC 45 (1969); Crow, Bourman &
Chotkin, Inc., 42 SEC 938 (1966); Shearson, Hammill & Co., 42 SEC
811 (1965).
\12\See Proposing Release, supra note 6 at 53 FR 37787; Adopting
Release, supra note 6 at 54 FR 28811. See also See Sanders v. John
Nuveen & Co., 524 F.2d 1064, 1069-70 (7th Cir. 1973) (noting
underwriter's heightened obligation when it has an opportunity to
require disclosure from the issuer, and when there are special
selling pressures involved in underwriting a security), vacated and
remanded on other grounds, 425 U.S. 929 (1976), on remand, 554 F.2d
790 (7th Cir. 1977), reh'g denied, 619 F.2d 1222 (7th Cir. 1980),
cert. denied 450 U.S. 1005 (1981); Donaldson, Lufkin & Jenrette
Securities Corp., Securities Exchange Act Release No. 31207 (Sept.
22, 1992); Hamilton Grant & Co., Securities Exchange Act Release No.
24679 (July 7, 1987); Walston & Co., Securities Exchange Act Release
No. 8165 (Sept. 22, 1967) (stating that it is incumbent on dealers
participating in offerings, as well as on dealers recommending
municipal bonds, to make a diligent inquiry as to material facts
relating to the issuer and bearing on the issuer's ability to
service the bonds).
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The proposed amendments to Rule 15c2-12 will assist brokers,
dealers, and municipal securities dealers in satisfying their
obligations under the antifraud provisions of the federal securities
laws, and specifically under section 15(c)(2), by conditioning the
underwriting and recommendation of municipal securities on the
availability of current issuer information. By providing an efficient
and timely means of access to disclosure, the proposed amendments will
ensure that information will be available in the future regarding
underwritten securities. As a result, brokers, dealers, and municipal
securities dealers will be better able to recommend municipal
securities in the secondary market based on current issuer information.
Fraud and manipulation in both the primary and secondary markets for
municipal securities thus will be deterred. Furthermore, the
availability of secondary market disclosure to all municipal securities
market participants will assist investors in protecting themselves from
misrepresentation or other fraudulent activities by brokers, dealers,
and municipal securities dealers.
For these reasons, the Commission proposes to amend Rule 15c2-12 to
prohibit a broker, dealer, or municipal securities dealer
(``Participating Underwriter'')\13\ from purchasing or selling
municipal securities in connection with a primary offering of municipal
securities with an aggregate principal amount of $1,000,000 or more
(``Offering'')\14\ unless the Participating Underwriter has reasonably
determined that the issuer or its designated agent has undertaken in a
written agreement or contract for the benefit of the holders of such
municipal securities to provide certain information to a nationally
recognized municipal securities information repository (``NRMSIR'').
The prohibition would apply to underwriters that have committed
contractually to act as an underwriter in an Offering on or after the
effective date of the rule amendment. This proposal responds, in part,
to a suggestion in the Joint Statement on Improvements in Municipal
Securities Market Disclosure,\15\ in which a broad spectrum of
municipal securities market participants supported wider dissemination
of issuer information and improved mechanisms for such dissemination,
to assure that securities professionals have a sufficient factual basis
on which to recommend secondary market transactions.
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\13\See Rule 15c2-12(a).
\14\The proposed amendments also include an exemption for small
and infrequent issuers. See Section II.D., infra.
\15\Joint Statement on Improvements in Municipal Securities
Market Disclosure (Dec. 20, 1993) (``Joint Statement'') at 2-3. The
Joint Statement was issued by twelve groups representing
participants in all aspects of the municipal securities market. The
groups included were the American Bankers Association's Corporate
Trust Committee; the American Public Power Association; the
Association of Local Housing Finance Agencies; the Council of
Infrastructure Financing Authorities; the Government Finance
Officers Association; the National Association of Bond Lawyers; the
National Association of Counties; the National Association of State
Auditors, Comptrollers and Treasurers; the National Association of
State Treasurers; the National Council of State Housing Agencies;
the National Federation of Municipal Analysts; and the Public
Securities Association.
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The Commission is proposing further to amend Rule 15c2-12 to
require brokers, dealers, and municipal securities dealers, prior to
recommending the purchase or sale of a municipal security, to review
the information the issuer of the municipal security has undertaken to
provide. This amendment would apply to municipal securities issued on
or after the effective date of the proposed amendment discussed in the
preceding paragraph.
Finally, the proposed amendments would define the term
``significant obligor,'' and amend the definition of the term ``final
official statement'' for purposes of Rule 15c2-12.
II. Description of the Proposed Amendments to Rule 15c2-12
A. Underwriting Requirement
One amendment proposed today would add paragraph (b)(5) to Rule
15c2-12. This paragraph would prohibit a Participating Underwriter from
purchasing or selling municipal securities in connection with an
Offering, unless the Participating Underwriter has reasonably
determined that the issuer or its designated agent has undertaken in a
written agreement or contract for the benefit of holders of such
municipal securities to provide certain information to a NRMSIR. In
using the terms ``purchase'' or ``sale,'' the proposed amendment
contemplates that, at such time as the issuer of municipal securities
delivers the securities to the Participating Underwriters, the issuer
will have undertaken, in a written contract or agreement for the
benefit of holders of the municipal securities, to provide information
to a NRMSIR.\16\
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\16\A Participating Underwriter would need to receive assurances
from the issuer that such undertakings would be made before agreeing
to act as an underwriter.
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With the exception of general obligation bonds, most offerings
include a trust indenture which sets forth the undertakings between the
issuer and the holders of municipal securities, and thus delineates the
bondholders' rights. If there is no trust indenture, as in a general
obligation bond offering, a bond resolution, ordinance, or written
agreement or contract sets out the undertakings by the issuer for the
benefit of the holders of the municipal securities. In order to satisfy
its obligation under the rule, a Participating Underwriter would need
to look to these documents for undertakings by the issuer to supply
secondary market disclosure to a NRMSIR. A Participating Underwriter
will have satisfied its obligation under proposed paragraph (b)(5), so
long as it can conclude that all of the appropriate undertakings have
been made. While the issuer's duty will be to its bondholders, all
participants in the municipal securities market will benefit from
having access to this information.
Comment is requested on the use of a written agreement or contract
for the provision of secondary market information by issuers for the
benefit of holders of municipal securities, particularly in light of
the provisions of proposed paragraph (c) prohibiting the recommendation
by brokers, dealers, and municipal securities dealers of municipal
securities when issuer information is unavailable. Comments should
address specifically the consequences of a failure by an issuer to
comply with its secondary market disclosure undertakings after the
initial issuance of municipal securities. Comment is requested on
whether the use of the issuer's undertakings is a necessary or
appropriate approach to implementing procedures for providing
information to the municipal securities market. Comment also is
requested on whether, as an alternative to written undertakings, a
statement in the final official statement of the issuer of municipal
securities that it will provide secondary market disclosure would be
sufficient. In addition, commenters are requested to address whether
the use of written undertakings provides sufficient flexibility for
issuers that, in the future, wish to change the type, timing, or
presentation of the information, or whether some alternative mechanism
should be used.
1. Annual Information
Proposed paragraph (b)(5)(i)(A) would prohibit Participating
Underwriters from purchasing or selling municipal securities in
connection with an Offering unless the Participating Underwriter has
reasonably determined that the issuer or its designated agent has
undertaken to provide to a NRMSIR, at least annually, current financial
information concerning the issuer of the municipal security and any
significant obligors, including annual audited financial statements and
pertinent operating information.
Current annual financial information is an important source of
updated information for the market. The format for presenting such
information is not specified in the proposed amendment, and may be
accomplished through any disclosure document, whatever its form or
principal purpose, that includes annual audited financial statements
and pertinent operating information. The proposed amendment
contemplates that sequential final official statements prepared by
frequent issuers of municipal securities may meet the standards of the
rule. Similarly, the audited financial statements should fairly present
the current financial condition, the results of operations, and cash
flows of the municipal issuer and any significant obligor. Proposed
paragraph (b)(5) also does not dictate the content of the annual
financial information, other than the audited financial statements.
Rather, it provides discretion to offering participants.
The Commission recognizes that there is great diversity in the
municipal marketplace, both in terms of the types of issuers and the
types of issues of municipal securities. The proposed amendment is,
therefore, intended to permit issuers the flexibility to address the
needs of the market by specifying in the written agreement or contract
the particular financial and operating information that is to be
provided on an annual basis, in addition to the annual audited
financial statements. The Commission anticipates that issuers and
offering participants will look to various voluntary guidelines, as
well as the guidance provided in the Companion Release, in establishing
an appropriate level of disclosure for each municipal securities issue.
Of course, additional information, such as unaudited quarterly
information, also could be specified.
Under the proposed amendment, in paragraph (b)(5)(ii), the issuer
of the municipal security also would be required to specify what
accounting principles will be used in the preparation of the audited
financial statements, the time within which the annual information for
each year will be available, and the specific operating and financial
information that will be provided on an annual basis, in addition to
the audited financial statements. The covenant would not limit the
issuer in its ability to supplement the specific information, where
necessary or appropriate.
Proposed paragraph (b)(5)(ii) does not specify the timing of
availability of the annual financial information in each year. Rather,
any written contract or agreement would be required to specify the
annual time frame in which the current financial information covering
the previous fiscal year will be provided by the issuer of the
municipal security and any significant obligors. As noted above, this
permits issuers some flexibility in disseminating this information, and
also allows investors and the marketplace to know when such information
will be available.
Comment is requested on whether the rule should specify the minimum
content of the information to be provided on an annual basis. Comment
is requested on whether audited financial statements should be
required, and whether they should be required to be audited using GAAS.
Comment also is requested on whether the financial statements should be
required to conform to generally accepted accounting principles
(``GAAP'') or should include discussions of material deviations from
GAAP if prepared on some other basis. Further, comment is requested on
whether the rule should specify the time frame, such as six months or
nine months after the fiscal year end, in which the annual financial
information should be made available in each year.
2. Material Events
Proposed paragraph (b)(5)(i)(B) requires that Participating
Underwriters assure themselves that issuers have undertaken to provide,
in a timely manner, notice of any of the following events, if material:
(1) Principal and interest payment delinquencies;
(2) Non-payment related defaults;
(3) Unscheduled draws on debt service reserves reflecting financial
difficulties;
(4) Unscheduled draws on credit enhancements reflecting financial
difficulties;
(5) Substitution of credit or liquidity providers, or their failure
to perform;
(6) Adverse tax opinions or events affecting the tax-exempt status
of the security;
(7) Modifications to rights of security holders;
(8) Bond calls;
(9) Defeasances;
(10) Matters affecting collateral; and
(11) Rating changes.
This portion of the proposed amendment, like that addressing annual
financial information, is intended to provide guidance to issuers and
other participants in the municipal securities market regarding the
dissemination of notices of material events. As discussed in the
Companion Release,17 this list consists of recognized material
events that reflect on the creditworthiness of the issuer of the
municipal security or any significant obligor, as well as on the terms
of the securities they issue. The issuer must determine whether
information needs to be disseminated about a listed event in any
particular situation, and if so, when the information dissemination
should occur in order to be ``timely.'' For example, an issuer would be
free to determine that a de minimis draw on a reserve fund by an issuer
financing agency resulting from a delay by the obligor in transmitting
a payment, where the draw is replaced immediately and is not the result
of the obligor's financial difficulties, is not a material event
requiring notice to the market.
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\1\7Companion Release, supra note 5, at Section IV.B.2.
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Comment is requested as to whether the listed items of material
events should be expanded. Comment also is requested on whether timing,
for example, within a certain number of days, for the dissemination of
notice of these events should be specified as part of the undertaking.
B. Recommendations Without Specified Information
As proposed, a new paragraph (c) would be added to the rule, which
would prohibit any broker, dealer, or municipal securities dealer from
recommending the purchase or sale of a municipal security unless such
broker, dealer, or municipal securities dealer has reviewed the
information the issuer of such municipal security has undertaken to
provide pursuant to paragraph (b)(5).
As noted above, broker-dealers imply by recommending securities
that they have a reasonable basis for making such recommendations. In
the Commission's view, most situations in which a broker, dealer, or
municipal securities dealer brings a municipal security to the
attention of a customer involve an implicit recommendation of the
security to the customer.
The proposed amendment neither specifies the form in which
information must be reviewed, nor specifies which documents must be
obtained.18 Rather, it requires brokers, dealers, and municipal
securities dealers to review the information that the issuer of the
municipal security has agreed to provide. The proposed amendment is
intended to allow this information to be obtained and reviewed through
any means of dissemination used by participants in the municipal
securities market.19 While the information may be available from
documents placed in a NRMSIR, this may not be the only source of
information. Thus, to satisfy the requirements of the rule, brokers,
dealers, and municipal securities dealers may obtain this information
directly from the issuer, from professionals such as attorneys,
accountants, or other municipal securities dealers, or from any other
reliable source. If, in reviewing this information, they discover any
factors that suggest that disclosure is inaccurate or incomplete, or
that signal the need for additional investigation, brokers, dealers,
and municipal securities dealers may need to obtain additional
information, or seek to verify existing information.20 If,
however, the rating is known and information placed with a NRMSIR has
been reviewed and raises no questions, a broker, dealer, or municipal
securities dealer would need to look no further for information about
the security recommended. Furthermore, a broker, dealer, or municipal
securities dealer would not be prohibited from recommending the
purchase or sale of a municipal security solely because of the
existence of material events of which, after its review, it has no
knowledge. This could occur if an issuer failed to disclose the
occurrence of a material event to a NRMSIR or to disseminate notice of
such an occurrence in any other manner. Under paragraph (c), if the
specified information is not available, no recommendation may be made.
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\1\8C.f. Rule 15c2-11, 17 CFR 270.15c2-11. Rule 15c2-11 requires
that brokers and dealers, prior to entering quotations for
securities in a ``quotation medium'', have in their records certain
specific information, and, based on a review of this information,
have a reasonable basis under the circumstances for believing that
the information is accurate in all material respects, and that the
sources of the information are reliable. Submissions of quotations
respecting municipal securities are exempt from the application of
Rule 15c2-11. Rule 15c2-11(f)(4).
\1\9Therefore, brokers, dealers, and municipal securities
dealers could review information received through electronic
dissemination, in response to telephone inquiries, facsimile, by
mail, or by messenger service, so long as the information is
complete.
\2\0See 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); 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). See also Companion
Release, supra note 5 at Section V (discussing the obligations of
brokers, dealers, and municipal securities dealers to investigate
information in order to have a reasonable basis for making a
recommendation).
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Comment is requested on the provisions of proposed paragraph (c).
Specifically, comment is requested on the application of the term
``recommend,'' and whether the requirement to review information is
burdensome, or requires further clarification.
In view of the importance of ensuring the secondary market
liquidity of municipal issues, comment also is requested on whether
market participants believe that the proposed amendments would have a
substantial or long-lasting effect on market liquidity. Questions have
been raised about whether municipal securities dealers will be willing
to effect secondary market transactions in a broad range of municipal
securities in light of the specificity with which the requirement of
paragraph (c) is articulated. The Commission is of the view that once
the proposed amendments are in effect, and dissemination systems are
operating, liquidity will not be affected, and that municipal
securities dealers will be willing and able to purchase and sell as
broad a range of securities as before. Commenters should consider this
analysis and suggest any factors that may have effects on liquidity,
and what operational changes or repository arrangements, or changes to
the proposed amendment to the rule, would reduce these effects.
C. Definitions
1. Final Official Statement
Rule 15c2-12(e)(3) presently defines the term ``final official
statement'' as a document or set of documents prepared by the issuer or
its representatives setting forth information concerning the issuer and
the securities to be issued that is complete as of the date the
document is delivered to the Participating Underwriter. The definition
does not prescribe the specific information required to be included in
the documents. In order to ensure that the purposes of Rule 15c2-12 are
met, and in light of the proposed amendment obligating Participating
Underwriters to assure that issuers have undertaken to provide to a
repository issuer-identified minimum annual financial information, as
well as notices of material events, the Commission is proposing to
amend the definition of final official statement to include an
information requirement. The definition of final official statement
also governs the items of information to be included in the near final
official statement, subject to availability considerations.21
Having a standard with which to compare the contents of near final
official statements should assist Participating Underwriters in
satisfying their obligation to have a reasonable basis on which to
recommend securities.22
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\2\1See Public Securities Association (Aug. 24, 1992)
(interpretation regarding the information to be contained in near
final official statement obtained and reviewed by underwriters
pursuant to Rule 15c2-12(b)(1)).
\2\2For a discussion of the delivery requirement of a near final
official statement pursuant to Rule 15c2-12(b)(1), see Companion
Release, supra note 5, at Section III.E.6.
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The proposed amendment would define the final official statement to
include information concerning the terms of the proposed issue of
securities, and financial and operating information concerning the
issuer that is adequate to provide a fair presentation of the issuer's
current financial condition and results of operations and cash flows,
including audited financial statements. Financial and operating
information also would be required for any ``significant obligor'' with
respect to the municipal security. The term ``significant obligor'' is
defined in the proposed amendment, and is discussed below. As discussed
in the Companion Release, reliable financial information, prepared on a
consistent basis, that fairly presents the issuer's and any significant
obligor's financial position, is an important component of a disclosure
scheme designed to prevent fraud.
Comment is requested on whether an amendment to the definition of
final official statement is necessary. If commenters consider amendment
necessary, comment is requested on whether audited financial statements
should be required, whether audited financial statements should be
required to be audited using GAAS, the number of years of audited
financial statements that should be included, if any, and if audited
financial statements are included, whether unaudited financial
statements covering interim periods also should be included. Comment
also is requested on whether the definition should be amended to
require that the financial statements conform to GAAP, or should
include discussions of material deviations from GAAP if prepared on
some other basis.
The final official statement can be composed of a set of documents.
Comment is requested on whether a seasoned issuer should be permitted
to incorporate previously prepared documents by reference into the
final official statement and, if incorporation by reference is
permitted, what limitations or requirements should be imposed. Comment
is requested on whether seasoned issuers should be required to provide
documents incorporated by reference upon request and at no charge, and
on what definition should be used for ``seasoned issuers.'' For
example, seasoned issuers could be defined as repeat issuers having in
excess of a specified dollar amount of outstanding securities.
2. Significant Obligors
Proposed paragraph (b)(5) of the amendment would require financial
and operating information on ``significant obligors'' of an issuer of a
municipal security to be provided in the final official statement and
in annual financial information. The proposed amendments, in paragraph
(f)(9), also would define the term ``significant obligor.''
An obligor is any person who, directly or indirectly, under a
lease, loan, sale, or other agreement or arrangement, is obligated to
make payments to the issuer, which cash payments are the source of the
cash flow servicing the obligations on municipal securities. The term
``obligor'' is not limited to issuers of separate securities under Rule
3b-5 under the Exchange Act and Rule 131 under the Securities
Act.23 Under the proposed definition, an obligor would be viewed
as ``significant'' if it is the source of 20 percent or more of the
cash flow servicing the obligations on the municipal securities.
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\2\3An obligor is not only an industrial or commercial
enterprise, but may include governmental and nonprofit entities as
well. See the definition of issuer in Rule 15c2-12(e)(4), 17 CFR
240.15c2-12(e)(4); Rule 3b-5, 17 CFR 240.3b-5, and Rule 131, 17 CFR
230.131, under the Securities Act.
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This definition is designed to make available to the municipal
securities market, at the time of issuance and on an annual basis,
information on persons who ultimately are responsible for the cash flow
servicing the municipal securities. The proposed definition recognizes
that, with portfolio and concentration risk diversification, the
``significant obligor'' of an issuer of a municipal security may not be
constant, but may change from year to year.
Comment is requested on whether 20 percent is an appropriate
threshold level of cash flow to require disclosure concerning a
significant obligor, or whether a different threshold, such as 10, 15,
or 30 percent, should be used. Comment also is requested on whether
this standard should differ for a final official statement and annual
financial information. Finally, comment is requested as to whether the
issuer's obligation to provide information concerning significant
obligors should be conditioned on a minimum threshold, for example,
payment obligations in excess of $1,000,000, or some other dollar
threshold.
D. Exemptions
Consistent with other provisions of Rule 15c2-12, the proposed
amendments are limited in application to primary offerings of municipal
securities with an aggregate principal amount of $1,000,000 or more.
The proposed amendments include a new exemption in paragraph
(d)(2), applicable to paragraph (b)(5). This new exemption would
provide that, in addition to the $1,000,000 threshold applicable to
Rule 15c2-12 generally, Offerings would be exempt from the operation of
paragraph (b)(5) if, at such time as the issuer of municipal securities
delivers the securities to the Participating Underwriter, the issuer:
(a) will have less than $10,000,000 in aggregate amount of municipal
securities outstanding, including the offered securities; and (b) the
issuer will have issued less than $3,000,000 in aggregate amount of
municipal securities in the most recent 48 months preceding the
Offering. This exemption is designed to exclude from the application of
paragraph (b)(5) small issuers that do not frequently issue municipal
securities. Comment is requested on the use of these thresholds.
Comment also is requested on whether a different or additional
threshold should be applicable to paragraph (b)(5). Such a threshold
could be based on the number of holders of municipal securities, or on
the number of holders falling below a certain level at the end of a
fiscal year, for example, 300 or 500 debt holders. Comment is requested
on whether issuers of conduit securities that are non-governmental
private activity bonds should be excepted from this exemption, or if
lower or different thresholds should be used for such issuers. Comment
also is requested on whether the exemption in proposed paragraph (d)(2)
is appropriate for conduit financings, in light of the fact that, in
many instances, issuing authorities are created for the sole purpose of
issuing bonds to finance a particular facility.
The proposed amendments also include a new exemption in paragraph
(d)(3), exempting from the application of paragraph (c) of the rule a
primary offering of municipal securities (1) not sold in an Offering to
which paragraph (b)(5) applied, or (2) sold in an Offering exempt under
paragraph (d)(1) or paragraph (d)(2). The purpose of this exemption is
to permit the recommendation in the secondary market of securities that
were not subject to paragraph (b)(5), either because they were sold in
a primary offering of municipal securities with an aggregate principal
amount of less than $1,000,000, or because they came within the
existing exemptions under newly designated paragraph (d)(1) for limited
placements, short-term securities, and securities with demand features,
or within the exemption in new paragraph (d)(2) for small, infrequent
issuers. Comment is requested on this exemption. Specifically, comment
is requested on whether paragraph (c) of the proposed amendments should
be made applicable to all outstanding issues of municipal securities.
The existing transactional exemption in newly designated paragraph (d)
would apply to the amendments.
E. Transitional Provision
Newly designated paragraph (g) of the rule would contain a
transitional provision for the proposed amendments. The provisions of
paragraph (b)(5) would apply to a Participating Underwriter that had
contractually committed to act as an underwriter in an Offering on or
after the effective date of the rule. Comment is requested on whether
this transitional provision is appropriate, and on whether the
effective date of the proposed amendments should be delayed.
III. Nationally Recognized Municipal Securities Information
Repositories
While the term ``NRMSIR'' currently is used in paragraph (b)(4) of
Rule 15c2-12, it is not defined in the rule. In proposing the rule,
however, the Commission requested comment on the creation of one or
more repositories for municipal securities disclosure documents.24
At that time, the Commission strongly supported the development of one
or more central repositories.25 Of the more than sixty comment
letters that the Commission received, forty-five expressed views
regarding the concept of repositories. Forty of the forty-five
commenters expressed support for some form of a central
repository.26
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\2\4Proposing Release, supra note 6 at 54 FR 37791.
\2\5Adopting Release, supra note 6 at 54 FR 28807. The
Commission recognized the benefits that would accrue from the
creation of competing private repositories. Id.
In 1989, the MSRB announced its intention to establish and
manage a central repository to provide for the collection and
dissemination of official statements and refunding documents. Letter
from John W. Rowe, Chairman, MSRB, to Jonathan G. Katz, Secretary,
SEC (June 1, 1989). The MSRB developed its Municipal Securities
Information Library (``MSIL'') system, which presently collects
information and disseminates it electronically to market
participants and information vendors. Securities Exchange Act
Release No. 29298 (June 13, 1991), 56 FR 28194.
In January 1993, the MSRB began operating its Continuing
Disclosure Information pilot system (``CDI System''), which is a
central repository for voluntarily submitted official continuing
disclosure documents relating to outstanding municipal securities
issues. Securities Exchange Act Release No. 30556 (April 6, 1992),
57 FR 12534. The CDI System operates as part of MSIL, and currently
is capable of accepting documents of three or fewer pages in length.
Neither MSIL nor the CDI System is a NRMSIR. In considering the
approval of MSRB rule G-36, which requires underwriters to provide
the MSRB with copies of final official statements and certain other
information prepared by issuers, the Commission noted that the MSRB
did not intend to seek NRMSIR status. The Commission noted that if
the MSRB sought NRMSIR status, it would consider the competitive
implications of such a request. See Securities Exchange Act Release
No. 28081 (June 1, 1990), 55 FR 23333, 23337 n.26.
\2\6See Adopting Release, supra note 6 at 54 FR 28807.
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NRMSIRs were discussed in the Adopting Release, where the
Commission noted that in determining whether a particular entity is a
NRMSIR, it would look, among other things, at whether the repository:
(1) Is national in scope; (2) maintains current, accurate information
about municipal offerings in the form of official statements; (3) has
effective retrieval and dissemination systems; (4) places no limits on
the issuers from which it will accept official statements or related
information; (5) provides access to the documents deposited with it to
anyone willing and able to pay the applicable fees; and (6) charges
reasonable fees.27 The Joint Statement has further refined the
concept to suggest the designation of state-based repositories, and the
creation of an index, maintained by the MSRB, for market participants
to learn of the availability of information provided to the MSRB or to
a NRMSIR.28
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\2\7See Adopting Release, supra note 6 at 54 FR 28808, n.65.
\2\8The Joint Statement suggested that in order to be recognized
as a NRMSIR, a repository should, among other things: (1) maintain
current, accurate information about municipal securities in the form
of annual financial reports, operating data, and other current
information; (2) have an effective retrieval and dissemination
system; (3) place no limits on the issuers from which it will accept
information unless it is a single-state repository; (4) provide
access to the documents to anyone willing and able to pay the
applicable fee; (5) charge reasonable fees; (6) collect information
on at least a state-wide basis; and (7) provide for timely
notification to an MSRB index of names of issuers about which it is
to receive information. Joint Statement, supra note 15 at Addendum.
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The proposed amendments do not define the term NRMSIR. The
Commission requests comment on whether NRMSIR should be defined in the
rule, with specific standards established for NRMSIRs. If standards
were established, the Commission believes the following standards are
appropriate. It requests comment on these standards.
NRMSIRs should maintain current, accurate information about
municipal securities, including final official statements, the issuers'
annual financial information, and issuers' notices of material events.
Moreover, NRMSIRs should have effective systems for the timely
collection, indexing, storage, and retrieval of these documents.
NRMSIRs should be capable of national dissemination of final
official statements, annual financial information, and notices of
material events through electronic dissemination systems, in response
to telephone inquiries, and hard copy delivery via facsimile, by mail,
and by messenger service. Specific dissemination systems and standards
should be delineated in order to emphasize the importance of effective
information dissemination. Timely public availability upon receipt of
information by a NRMSIR also is important. For example, final official
statements and annual financial information could be made available by
the next business day after their receipt by a NRMSIR, and notices of
material events could be made available within fifteen minutes of their
receipt by a NRMSIR. Comment is requested on the provision by NRMSIRs
of electronic dissemination of information, and on the suggested timing
requirements for availability of documents for dissemination.
Repositories created and operated by states would be required to
accept submissions from all issuers within their own states, and would
not be permitted to accept documents from issuers in any other state.
National dissemination requirements, however, would be applicable to
single-state repositories. All other repositories would not be
permitted to limit the issuers from which they will accept final
official statements, annual financial information, and reports of
material events. Comment is requested on whether state-based
repositories can serve as an effective means to disseminate information
to the market for a nationally traded security, so the issuer of that
security can meet its disclosure obligations using a state-based
repository. Comment also is requested on whether a significant number
of states are willing to make the necessary financial commitment to
create a state-based system. NRMSIRs would not be permitted to
discriminate on the basis of the requestor in providing documents, and
would be required to charge reasonable fees.
Finally, in order to implement the indexing system suggested by the
Joint Statement, a NRMSIR would be required to provide notice to the
MSRB of its designation by an issuer as the repository for the issuer's
final official statements, annual financial information, and notices of
material events. This would allow the creation of an index by the MSRB
for informing the municipal securities market of where an issuer is
sending its secondary market disclosure. Comment is requested on the
feasibility of expanding this provision to require a NRMSIR to inform
the MSRB whenever it receives information from an issuer. Comment also
is requested on whether documents should be required to be placed with
the MSRB either in addition to or in lieu of a NRMSIR.29
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\2\9See supra note 25 (regarding the competitive implications of
the MSRB's seeking NRMSIR status).
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The MSRB has expressed concern that permitting issuers to place
documents with multiple NRMSIRs may result in repositories receiving
information at different times. This raises the issue of when the
information becomes ``public,'' and thus when dealers are considered
accountable for it.30 Comment is requested on these issues, and,
in particular, on how to assure that NRMSIRs simultaneously receive
secondary market disclosure. Comment also is requested on whether any
proposal should require that secondary market disclosure is deposited
with all designated NRMSIRs. In addition, comment is requested on
whether the proposal should designate specific methods for sending
information to NRMSIRs.
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\3\0Letter from Christopher A. Taylor, Executive Director, MSRB,
to Catherine McGuire, Chief Counsel, Division of Market Regulation,
SEC (December 20, 1993).
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Since the Commission adopted Rule 15c2-12, the Division of Market
Regulation has issued three letters taking no-action positions
recognizing national information vendors as NRMSIRS, based on the
standards set out in the Adopting Release.31 The Commission
anticipates that if standards for NRMSIRs were adopted, these NRMSIRs,
as well as new NRMSIRs, would be required to have their operations meet
the new standards. Comment is requested on the ability and willingness
of both potential NRMSIRs, and those presently operating under no-
action letters, to meet the standards described. Furthermore, comment
is requested as to whether designation by Commission order, pursuant to
standards set out in Rule 15c2-12, is an appropriate method for
recognizing NRMSIRs, or whether it is appropriate to continue the
current no-action policies of the Division.
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\3\1Letters from Richard G. Ketchum, Director, Division of
Market Regulation, SEC, to: Joseph V. Riccobono, Executive Vice-
President, American Banker-Bond Buyer (Jan. 4, 1990); J. Kevin
Kenny, President, Chief Executive Officer, J.J. Kenny Co. (Jan. 4,
1990); and Michael R. Bloomberg, President, Bloomberg, L.P. (Jan.
11, 1990).
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IV. Application of the Tower Amendment
With the passage of the Securities Acts Amendments of 1975 (``1975
Amendments''), Congress provided for a limited regulatory scheme for
municipal securities.32 Prior to the passage of the 1975
Amendments, municipal issuers were exempt from the registration and
continuous reporting provisions of both the Securities Act and the
Exchange Act. While municipal issuers continued to be exempt from all
but the antifraud provisions of the federal securities laws, the 1975
Amendments required the registration of municipal securities brokers
and dealers,33 and established the MSRB,34 granting it the
authority to promulgate rules governing the sale of municipal
securities.
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\3\2The Securities Acts Amendments of 1975, Pub. L. 94-29, 89
Stat. 97 (June 4, 1975).
\3\315 U.S.C. 78o-4(a)(1).
\3\415 U.S.C. 78o-4(b)(1).
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In so crafting the 1975 Amendments, Congress struck a balance
between investor protection and intergovernmental comity. This concern
is reflected in Section 15B(d)(1) of the Exchange Act, which prohibits
the MSRB from requiring ``any issuer of municipal securities, directly
or indirectly through a purchaser or prospective purchaser of
securities from the issuer, to file with the Commission or the Board
prior to the sale of such securities by the issuer any application,
report, or document, in connection with the issuance, sale, or
distribution of such securities.''35 While narrowly tailoring the
authority of the MSRB to require that disclosure documents be provided
to investors,36 Congress was careful to preserve the authority of
the Commission under Section 15(c)(2) of the Exchange Act.37
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\3\515 U.S.C. 78 o-4(d)(1).
\3\6The so-called ``Tower Amendment,'' adding section 15B(d)(2),
15 U.S.C. 78o-4(d)(2) to the Exchange Act, prohibits the MSRB from
requiring municipal issuers, directly or indirectly, through
municipal securities broker-dealers or otherwise, to furnish the
MSRB or prospective investors with any documents, including official
statements. The MSRB specifically is permitted, however, to require
that official statements or other documents that are available from
sources other than the issuer, such as the underwriter, be provided
to investors.
\3\715 U.S.C. 78o(c)(2).
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Moreover, Section 15B(d)(2) expressly indicates that ``[n]othing in
this paragraph shall be construed to impair or limit the power of the
Commission under any provision of this title.''38 Thus, while
prohibiting the Commission from requiring municipal issuers to file
reports or documents prior to issuing securities in Section
15B(d)(1),39 Congress expanded the Commission's authority to adopt
rules reasonably designed to prevent fraud. The Commission believes
that the proposed amendments to Rule 15c2-12 are consistent with its
Congressional mandate to adopt rules reasonably designed to prevent
fraud in the municipal securities market.40
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\3\815 U.S.C. 78o-4(d)(2).
\3\915 U.S.C. 78o-4(d)(1).
\4\0Rule 15c2-12 was adopted pursuant to the Commission's
authority under Exchange Act Sections 2, 3, 10, 15, 15B, and 23; 15
U.S.C. 78b, 78c, 78j, 78o, 78o-4, 78q, and 78w.
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V. Effects on Competition and Regulatory Flexibility Act
Considerations
Section 23(a)(2) of the Exchange Act\41\ requires the Commission,
in adopting rules under the Act, to consider the anticompetitive
effects of those rules, if any, and to balance that impact against the
regulatory benefits gained in terms of furthering the purposes of the
Exchange Act. The Commission preliminarily is of the view that adoption
of the proposed amendments to Rule 15c2-12 would not impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act. The Commission requests comment, however,
on any competitive burdens that might result from amendment of the
rule. Moreover, while the amendments apply equally to all brokers,
dealers, and municipal securities dealers, the Commission is interested
in receiving comments on the extent to which the proposed dollar
threshold in the new exemption in paragraph (e) would burden one
segment of the industry more than another.
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\4\115 U.S.C. 78w(a)(2).
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In addition, the Commission has prepared an initial regulatory
flexibility analysis (``IRFA''), pursuant to the requirements of the
Regulatory Flexibility Act 42 regarding the proposed amendments to
Rule 15c2-12. The IRFA indicates that the amendments to the rule could
impose some additional costs on small broker-dealers and municipal
issuers. Nonetheless, the Commission is of the view that many of the
substantive requirements of the rule amendments already are observed by
broker-dealers and issuers as a matter of business practice, or to
fulfill their existing obligations under the general antifraud
provisions of the federal securities laws. The Commission requests
comment on the extent to which current practice deviates from the
requirements of the proposed amendments, and the extent to which
additional costs may be imposed on small broker-dealers and municipal
issuers if the amendments are adopted as proposed.
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\4\25 U.S.C. 604.
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A copy of the IRFA may be obtained from Janet W. Russell-Hunter,
Esq., Attorney, Office of Chief Counsel, Division of Market Regulation,
Securities and Exchange Commission, 450 Fifth Street, NW., Mail Stop 7-
10, Washington, DC 20549, (202) 504-2418.
List of Subjects in 17 CFR part 240
Reporting and recordkeeping requirements, Securities
Text of Proposed Amendments to Rule 15c2-12
In accordance with the foregoing, title 17, chapter II of title 17
of the Code of Federal Regulations is proposed to be amended as
follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37,
80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
2. Section 240.15c2-12 is amended by adding a Preliminary Note
preceding paragraph (a); adding paragraph (b)(5); redesignating
paragraph (c) through paragraph (f) as paragraph (d) through paragraph
(g); adding paragraph (c); revising newly designated paragraph (d) and
paragraph (f)(3); adding paragraph (f)(9); and adding one sentence to
the end of newly designated paragraph (g) to read as follows:
Sec. 240.15c2-12 Municipal securities disclosure.
Preliminary Note: For a discussion of disclosure obligations
relating to municipal securities, issuers, brokers, dealers, and
municipal securities dealers should refer to Securities Act Release
No. 7049, Exchange Act Release No. 33741, FR-42 (March 9, 1994). For
a discussion of the obligations of underwriters to have a reasonable
basis for recommendations of municipal securities, brokers, dealers,
and municipal securities dealers should refer to Securities Exchange
Act Release No. 26100 (Sept. 22, 1988) and Securities Exchange Act
Release No. 26985 (June 28, 1989).
* * * * *
(b) Requirements. * * *
(5)(i) A Participating Underwriter shall not purchase or sell
municipal securities in connection with an Offering unless the
Participating Underwriter has reasonably determined that the issuer or
its designated agent has undertaken in a written agreement or contract
for the benefit of holders of such securities, to provide to a
nationally recognized municipal securities information repository:
(A) At least annually, current financial information concerning the
issuer of the municipal securities and any significant obligors,
including annual audited financial statements and pertinent operating
information; and
(B) In a timely manner, notice of any of the following events, if
material:
(1) Principal and interest payment delinquencies;
(2) Non-payment related defaults;
(3) Unscheduled draws on debt service reserves reflecting financial
difficulties;
(4) Unscheduled draws on credit enhancements reflecting financial
difficulties;
(5) Substitution of credit or liquidity providers, or their failure
to perform;
(6) Adverse tax opinions or events affecting the tax-exempt status
of the security;
(7) Modifications to rights of security holders;
(8) Bond calls;
(9) Defeasances;
(10) Matters affecting collateral; and
(11) Rating changes.
(ii) Such written agreement or contract for the benefit of holders
of such securities shall also specify:
(A) The accounting principles pursuant to which the audited
financial statements will be prepared;
(B) The financial and pertinent operating information to be
provided on an annual basis, in addition to audited financial
statements; and
(C) The time within which the annual information for the preceding
year will be provided to the repository.
(c) Recommendations without specified information. As a means
reasonably designed to prevent fraudulent, deceptive, or manipulative
acts or practices, it shall be unlawful for any broker, dealer, or
municipal securities dealer to recommend the purchase or sale of a
municipal security unless such broker, dealer, or municipal securities
dealer has reviewed the information the issuer of the municipal
security has undertaken to provide pursuant to paragraph (b)(5) of this
section.
(d) Exemptions. (1) This section shall not apply to a primary
offering of municipal securities in authorized denominations of
$100,000 or more, if such securities:
(i) Are sold to no more than thirty five persons each of whom the
Participating Underwriter reasonably believes:
(A) Has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
prospective investment; and
(B) Is not purchasing for more than one account or with a view to
distributing the securities; or
(ii) Have a maturity of nine months or less; or
(iii) At the option of the holder thereof may be tendered to an
issuer of such securities or its designated agent for redemption or
purchase at par value or more at least as frequently as every nine
months until maturity, earlier redemption, or purchase by an issuer or
its designated agent.
(2) Paragraph (b)(5) of this section shall not apply to an Offering
of municipal securities if, at such time as the issuer of municipal
securities delivers the securities to the Participating Underwriters:
(i) The issuer will have less than $10,000,000 in aggregate amount
of municipal securities outstanding, including the offered securities;
and
(ii) The issuer will have issued less than $3,000,000 in aggregate
amount, in the 48 months preceding the Offering.
(3) The provisions of paragraph (c) of this section shall not apply
to a primary offering of municipal securities:
(i) Not sold in an Offering to which paragraph (b)(5) of this
section applied; or
(ii) Sold in an Offering exempt under paragraph (d)(1) or paragraph
(d)(2) of this section.
* * * * *
(f) Definitions. * * *
(3) The term final official statement means a document or set of
documents prepared by the issuer of municipal securities or its
representatives setting forth, among other matters, information
concerning the terms of the proposed issue of securities, and financial
and operating information adequate to provide a fair presentation of
the issuer's and any significant obligor's current financial condition
and results of operations, and cash flows, including audited financial
statements, that is complete as of the date delivered to the
Participating Underwriter.
* * * * *
(9) The term significant obligor means any person who, directly or
indirectly, is the source of 20 percent or more of the cash flow
servicing the obligations on the municipal securities.
(g) Transitional Provision. * * * Paragraph (b)(5) of this section
shall not apply to a Participating Underwriter that has contractually
committed to act as an underwriter in an Offering of municipal
securities before [effective date of final rule].
By the Commission.
Dated: March 9, 1994.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5927 Filed 3-16-94; 8:45 am]
BILLING CODE 8010-01-P