Proposed Amendment to Municipal Securities Disclosure, 46138-46160 [E8-17856]
Download as PDF
<![CDATA[
46138
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release No. 34–58255; File No. S7–21–08]
RIN–3235–AK20
Proposed Amendment to Municipal
Securities Disclosure
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
ebenthall on PROD1PC65 with PROPOSALS2
SUMMARY: The Securities and Exchange
Commission (‘‘Commission’’) is
publishing for comment proposed
amendments to a rule under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) relating to municipal
securities disclosure. The proposal
would amend certain requirements
regarding the information that the
broker, dealer, or municipal securities
dealer acting as an underwriter in a
primary offering of municipal securities
must reasonably determine that an
issuer of municipal securities or an
obligated person has undertaken, in a
written agreement or contract for the
benefit of holders of the issuer’s
municipal securities, to provide.
Specifically, the amendments would
require the broker, dealer, or municipal
securities dealer to reasonably
determine that the issuer or obligated
person has agreed to provide the
information covered by the written
agreement to the Municipal Securities
Rulemaking Board (‘‘MSRB’’ or
‘‘Board’’), instead of to multiple
nationally recognized municipal
securities information repositories
(‘‘NRMSIRs’’) and state information
depositories (‘‘SIDs’’), as the rule
currently provides, and to provide such
information in an electronic format and
accompanied by identifying information
as prescribed by the MSRB.
DATES: Comments should be received on
or before September 22, 2008.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. S7–21–08 on the subject line; or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
S7–21–08. This file number should be
included on the subject line if e-mail is
used. To help us process and review
your comments more efficiently, please
use only one method. The Commission
will post all comments on the
Commission’s Internet Web site (https://
www.sec.gov/rules/proposed.shtml).
Comments are also available for public
inspection and copying in the
Commission’s Public Reference Room,
100 F Street, NE., Washington, DC
20549 on official business days between
the hours of 10 a.m. and 3 p.m. All
comments received will be posted
without change; we do not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT:
Martha Mahan Haines, Assistant
Director and Chief, Office of Municipal
Securities, at (202) 551–5681; Mary N.
Simpkins, Senior Special Counsel,
Office of Municipal Securities, at (202)
551–5683; Cyndi N. Rodriguez, Special
Counsel, Office of Market Supervision,
at (202) 551–5636; or Rahman J.
Harrison, Special Counsel, Office of
Market Supervision, at (202) 551–5663,
Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–6628.
SUPPLEMENTARY INFORMATION: The
Commission is requesting public
comment on a proposed amendment to
Rule 15c2–12 under the Exchange Act.1
I. Background
A. History of Rule 15c2–12
The Commission has long been
concerned with improving the quality,
timing, and dissemination of disclosure
in the municipal securities markets. In
an effort to improve the transparency of
the municipal securities market, in
1989, the Commission adopted Rule
15c2–122 (‘‘Rule’’ or ‘‘Rule 15c2–12’’)
and an accompanying interpretation
modifying a previously published
interpretation of the legal obligations of
underwriters of municipal securities.3
As adopted in 1989, Rule 15c2–12
required, and still requires,
underwriters participating in primary
offerings of municipal securities of
$1,000,000 or more to obtain, review,
1 17
CFR 240.15c2–12.
CFR 240.15c2–12.
3 See Securities Exchange Act Release No. 26985
(June 28, 1989), 54 FR 28799 (July 10, 1989 (‘‘1989
Adopting Release’’).
2 17
PO 00000
Frm 00002
Fmt 4701
Sfmt 4702
and distribute to potential customers
copies of the issuer’s official statement.
Specifically, Rule 15c2–12 required, and
still requires, an underwriter acting in a
primary offering of municipal securities:
(1) To obtain and review an official
statement ‘‘deemed final’’ by an issuer
of the securities, except for the omission
of specified information, prior to
making a bid, purchase, offer, or sale of
municipal securities; (2) in noncompetitively bid offerings, to send,
upon request, a copy of the most recent
preliminary official statement (if one
exists) to potential customers; (3) to
send, upon request, a copy of the final
official statement to potential customers
for a specified period of time; and (4) to
contract with the issuer to receive,
within a specified time, sufficient
copies of the final official statement to
comply with the Rule’s delivery
requirement, and the requirements of
the rules of the MSRB.
While the availability of primary
offering disclosure significantly
improved following the adoption of
Rule 15c2–12, there was a continuing
concern about the adequacy of
disclosure in the secondary market.4 To
enhance the quality, timing, and
dissemination of disclosure in the
secondary municipal securities market,
the Commission in 1994 adopted
amendments to Rule 15c2–12.5 Among
4 In 1993, the Commission’s Division of Market
Regulation (n/k/a the Division of Trading and
Markets) conducted a comprehensive review of
many aspects of the municipal securities market,
including secondary market disclosure (‘‘1993 Staff
Report’’). Findings in the 1993 Staff Report
highlighted the need for improved disclosure
practices in both the primary and secondary
municipal securities markets. The 1993 Staff Report
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. Moreover, the 1993 Staff
Report found that the growing participation of
individuals as both direct and indirect purchasers
of municipal securities underscored the need for
sound recommendations by brokers, dealers, and
municipal securities dealers. See Securities and
Exchange Commission, Division of Market
Regulation (n/k/a Division of Trading and Markets),
Staff Report on the Municipal Securities Market
(September 1993) (available at https://www.sec.gov/
info/municipal.shtml).
5 See Securities Exchange Act Release No. 34961
(November 10, 1994), 59 FR 59590 (November 17,
1994) (‘‘1994 Amendments’’).
In light of the growing volume of municipal
securities offerings, as well as the growing
ownership of municipal securities by individual
investors, in March 1994, the Commission
published the Statement of the Commission
Regarding Disclosure Obligations of Municipal
Securities Issuers and Others. See Securities
Exchange Act Release No. 33741 (March 9, 1994),
59 FR 12748 (March 17, 1994). The Commission
intended that its statement of views with respect to
disclosures under the federal securities laws in the
municipal market would encourage and expedite
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
other things, the 1994 Amendments
placed certain requirements on brokers,
dealers, and municipal securities
dealers (‘‘Dealers’’ or, when used in
connection with primary offerings,
‘‘Participating Underwriters’’). In
adopting the 1994 Amendments, the
Commission intended ‘‘to deter fraud
and manipulation in the municipal
securities market’’ by prohibiting the
underwriting and subsequent
recommendation of transactions in
municipal securities for which adequate
information was not available on an
ongoing basis.6
Specifically, under the 1994
Amendments, Participating
Underwriters are prohibited, subject to
certain exemptions, from purchasing or
selling municipal securities covered by
the Rule in a primary offering, unless
the Participating Underwriter has
reasonably determined that an issuer of
municipal securities or an obligated
person 7 has undertaken in a written
agreement or contract for the benefit of
holders of such securities (‘‘continuing
disclosure agreement’’) to provide
specified annual information and event
notices to certain information
repositories. The information to be
provided consists of: (1) Certain annual
financial and operating information and
audited financial statements (‘‘annual
filings’’); 8 (2) notices of the occurrence
of any of eleven specific events
(‘‘material event notices’’) 9 and (3)
notices of the failure of an issuer or
other obligated person to make a
submission required by a continuing
the ongoing efforts by market participants to
improve disclosure practices, particularly in the
secondary market, and to assist market participants
in meeting their obligations under the antifraud
provisions. Id.
6 See 1994 Amendments, supra note 5.
7 Obligated persons include persons, including
the issuer, committed by contract or other
arrangement to support payment of all or part of the
obligations on the municipal securities to be sold
in an offering. See 17 CFR 240.15c2–12(f)(10).
8 17 CFR 240.15c2–12(b)(5)(i)(A) and (B).
9 17 CFR 240.15c2–12(b)(5)(i)(C). The following
events, if material, require notice: (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) release, substitution, or
sale of property securing repayment of the
securities; and (11) rating changes.
In addition, Rule 15c2–12(d)(2) provides an
exemption from the application of paragraph (b)(5)
of the Rule with respect to primary offerings if,
among other things, the issuer or obligated person
has agreed to a limited disclosure obligation,
including sending certain material event notices to
each NRMSIR or the MSRB, as well as the
appropriate SID. See 17 CFR 240.15c2–12(d)(2).
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
disclosure agreement (‘‘failure to file
notices’’).10 The 1994 Amendments
require the Participating Underwriter to
reasonably determine that an issuer of
municipal securities or an obligated
person has undertaken in the continuing
disclosure agreement to provide: (1)
Annual filings to each NRMSIR; (2)
material event notices and failure to file
notices either to each NRMSIR or to the
MSRB; and (3) in the case of states that
established SIDs, all continuing
disclosure documents to the appropriate
SID. Finally, the 1994 Amendments
revise the definition of ‘‘final official
statement’’ to include a description of
the issuer’s or obligated person’s
continuing disclosure undertakings for
the securities being offered, and of any
instances in the previous five years in
which the issuer or obligated person
failed to comply, in all material
respects, with undertakings in previous
continuing disclosure agreements.
B. Disclosure Practices in the Secondary
Market and Need for Improved
Availability to Continuing Disclosure
Since the adoption of Rule 15c2–12 in
1989 and its subsequent amendment in
1994, the size of the municipal
securities market has grown
considerably.11 There were over $2.6
trillion of municipal securities
outstanding at the end of 2007.12
Notably, at the end of 2007, retail
investors held approximately 35% of
outstanding municipal securities
directly and up to another 36%
indirectly through money market funds,
mutual funds, and closed end funds.13
There is also substantial trading volume
in the municipal securities market.
According to the MSRB, more than $6.6
trillion of long and short term municipal
securities were traded in 2007 in more
than 9 million transactions.14 Further,
the municipal securities market is
extremely diverse, with more than
10 17 CFR 240.15c2–12(b)(5)(i)(D). Annual filings,
material event notices, and failure to file notices are
referred to collectively herein as ‘‘continuing
disclosure documents.’’
11 According to statistics assembled by the
Securities Industry and Financial Markets
Association (SIFMA), the amount of outstanding
municipal securities grew from $1.2616 trillion in
1996 to $2.6174 trillion at the end of 2007. See
SIFMA ‘‘Outstanding U.S. Bond Market Debt’’
(available at https://www.sifma.org/research/pdf/
Overall_Outstanding.pdf ).
12 See SIFMA ‘‘Outstanding U.S. Bond Market
Debt’’ (available at https://www.sifma.org/research/
pdf/Overall_Outstanding.pdf ).
13 See SIFMA ‘‘Holders of U.S. Municipal
Securities’’ (available at https://www.sifma.org/
research/pdf/Holders_Municipal_Securities.pdf ).
14 See MSRB’s Real-Time Transaction Reporting
Statistical Information, Monthly Summaries 2007
(available at https://www.msrb.org/msrb1/TRSweb/
MarketStats/statistical_patterns_in_the_muni.htm).
PO 00000
Frm 00003
Fmt 4701
Sfmt 4702
46139
50,000 state and local issuers of these
securities.15
Currently, there are four NRMSIRs 16
and three SIDs.17 Each of the NRMSIRs
utilizes the information obtained from
continuing disclosure documents to
create proprietary information products
that are primarily sold to and used by
dealers, institutional investors and other
market participants who subscribe to
such products. With respect to the
availability of municipal securities
information to retail investors, each of
the NRMSIRs also make continuing
disclosure documents available for sale
to non-subscribers.18
Although the existing practice for the
collection and availability of municipal
securities disclosures has substantially
improved the availability of information
to the market, the Commission believes
that improvements could achieve more
efficient, effective, and wider
availability of municipal securities
information to market participants.19
Among other things, improvements in
information availability may allow
investors to obtain information more
readily and may help them to make
15 See Securities Exchange Act Release No. 33741,
supra note 5.
16 The four NRMSIRs are the Bloomberg
Municipal Repository, DPC Data, Inc., Interactive
Data Pricing and Reference Data, Inc., and Standard
& Poor’s Securities Evaluations, Inc.
17 The three SIDs are the Municipal Advisory
Council of Michigan, the Municipal Advisory
Council of Texas, and the Ohio Municipal Advisory
Council.
18 See https://www.bloomberg.com/markets/rates/
municontacts.html (Bloomberg Municipal
Repository); https://www.munifilings.com/help/
help.cfm (DPC Data, Inc.); https://
www.interactivedata-prd.com/07company_info/
about_us/MN/NRMSIR.shtml (Interactive Data
Pricing and Reference Data, Inc.); and https://
www.disclosuredirectory.standardandpoors.com/
(Standard & Poor’s Securities Evaluations, Inc.).
19 The Commission notes that the aspects of the
Rule that relate to the provision of continuing
disclosure documents to multiple locations (i.e., to
each NRMSIR and SID) may have engendered
certain inefficiencies in the current system. See 17
CFR 240.15c2–12(b)(5)(i)(A) through (D). For
instance, there have been reports that NRMSIRs
may not receive continuing disclosure documents
concurrently, resulting in the uneven availability of
documents from the various NRMSIRs for some
period of time. There also have been reports of
inconsistent document collections among
NRMSIRs, possibly due to the failure of some
issuers or obligated persons to provide continuing
disclosure documents to each NRMSIR. Finally,
there have been reports indicating possible
weaknesses in document retrieval at the NRMSIRs.
See, e.g., Troy L. Kilpatrick and Antonio Portuondo,
Is This the Last Chance for the Muni Industry to
Self-Regulate?, THE BOND BUYER, August 6, 2007,
and comments made at the 2001 Municipal Market
Roundtable—‘‘Secondary Market Disclosure for the
21st Century’’ held November 14, 2001 (‘‘2001
Roundtable’’), and the 2000 Municipal Market
Roundtable held October 12, 2000 (available at
https://www.sec.gov/info/municipal/roundtables/
thirdmuniround.htm and https://www.sec.gov/info/
municipal/roundtables/2000participants.htm,
respectively).
E:\FR\FM\07AUP2.SGM
07AUP2
46140
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
more informed investment decisions.
Specifically, the Commission believes
that municipal securities disclosure
documents should be made more
readily and more promptly available to
the public and that all investors should
have better access to important market
information that may affect the price of
a municipal security, such as
information in financial statements and
notices regarding defaults and changes
in ratings, credit enhancement provider,
and tax status.
Furthermore, the Commission
believes that improved access to the
information in continuing disclosure
documents not only would provide the
investing public with important
information regarding municipal
securities, both during offerings and on
an ongoing basis, but also would help
fulfill the regulatory and information
needs of municipal market participants,
including Dealers, Participating
Underwriters, mutual funds, and others.
For example, many mutual funds
include municipal securities in their
portfolios that they routinely monitor
for regulatory and other reasons.20 They
do so by reviewing annual filings, as
well as material event notices and
failure to file notices, obtained from
NRMSIRs and SIDs.21 In addition, the
MSRB requires Dealers to disclose to a
customer at the time of trade all material
facts about a transaction known by the
Dealer.22 Further, the MSRB requires a
Dealer to disclose material facts about a
security when such facts are reasonably
accessible to the market.23 Accordingly,
a Dealer is responsible for disclosing to
a customer any material fact concerning
a municipal security transaction made
publicly available through sources such
as NRMSIRs, the MSRB’s Municipal
Securities Information Library
(‘‘MSIL’’) system,24 the MSRB’s Real20 For example, Rule 2a–7 under the Investment
Company Act of 1940 specifies the characteristics
of investments that may be purchased and held by
money market funds. Among other requirements,
Rule 2a–7 requires a money market fund to limit
its portfolio investments to those securities that the
fund’s board of directors determines present
minimal credit risks (including factors in addition
to any assigned rating). See Rule 2a–7(c)(3), 17 CFR
270.2a–7(c)(3).
21 See, e.g., the comments of Leslie RichardsYellen, Principal, The Vanguard Group, at the 2001
Roundtable, supra note 19.
22 See MSRB ‘‘Interpretive Notice Regarding Rule
G–17 on Disclosure of Material Facts’’ (March 20,
2002) (available at https://www.msrb.org/msrb1/
rules/notg17.htm). See also Securities Exchange Act
Release No. 45591 (March 18, 2002), 67 FR 13673
(March 25, 2002) (SR–MSRB–2002–01) (order
approving MSRB’s proposed interpretation of the
duty to deal fairly set forth in MSRB Rule G–17).
23 Id.
24 Municipal Securities Information Library and
MSIL are registered trademarks of the MSRB. The
Official Statement and Advance Refunding
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
Time Transaction Reporting System
(‘‘RTRS’’), rating agency reports and
other sources of information relating to
the municipal securities transaction
generally used by Dealers that effect
transactions in the type of municipal
securities at issue.25 Dealers use the
information contained in the continuing
disclosure documents to carry out these
obligations. Therefore, improving access
to information in the continuing
disclosure documents would help
facilitate and simplify the process of
gathering the necessary information to
carry out their obligations. For these
reasons, the Commission believes that
municipal market participants should
have more efficient access to
information in continuing disclosure
documents to satisfy their regulatory
requirements and informational needs.
C. The MSRB’s Electronic Systems
In 2006, the Commission published
for comment proposed amendments to
Rule 15c2–12 in response to a petition
from the MSRB 26 that would permit the
MSRB to close its Continuing Disclosure
Information Net (‘‘CDINet’’) system,
thereby eliminating the MSRB as a
location to which issuers could submit
material event notices and failure to file
notices.27 In the 2006 Proposed
Amendments, the Commission
indicated its belief that, given the
limited usage of the MSRB’s CDINet
system, among other things, the
proposed elimination of the provision in
Rule 15c2–12 that allows the filing of
Document (‘‘OS/ARD’’) system of the MSIL system
was initially approved by the Commission in 1991
and was amended in 2001 to establish the MSRB’s
current optional electronic system for underwriters
to submit official statements and advance refunding
documents. See Securities Exchange Act Release
Nos. 29298 (June 13, 1991), 56 FR 28194 (June 19,
1991) (File No. SR–MSRB–90–2) (order approving
MSRB’s proposal to establish and operate the OS/
ARD of the MSIL system, through which
information collected pursuant to MSRB Rule G–36
would be made available electronically to market
participants and information vendors) and 44643
(August 1, 2001), 66 FR 42243 (August 10, 2001)
(File No. SR–MSRB–2001–03) (order approving
MSRB’s proposal to amend the OS/ARD system to
establish an optional procedure for electronic
submissions of required materials under MSRB
Rule G–36).
25 See note 22, supra.
26 See Letter from Diane G. Klinke, General
Counsel, MSRB, to Jonathan G. Katz, Secretary,
Commission, dated September 8, 2005 (‘‘MSRB
Petition’’).
27 See Securities Exchange Act Release No. 54863
(December 4, 2006), 71 FR 71109 (December 8,
2006) (‘‘2006 Proposed Amendments’’). According
to the MSRB Petition, the CDINet system was
designed to permit issuers to satisfy their
undertakings to provide material event notices
through a single submission to the MSRB, rather
than through separate submissions to each of the
NRMSIRs. The MSRB stated that relatively few
issuers had opted to use the CDINet system, and,
in recent years, usage of the CDINet system had
diminished. See MSRB Petition, supra note 26.
PO 00000
Frm 00004
Fmt 4701
Sfmt 4702
material event notices with the MSRB
was warranted.28
The Commission recently approved
the MSRB’s proposed rule change, filed
under section 19(b) of the Exchange
Act,29 to establish a pilot program for an
Internet-based public access portal
(‘‘pilot portal’’) for the consolidated
availability of primary offering
information about municipal securities
that currently is made available in paper
form, subject to copying charges, at the
MSRB’s public access facility, and
electronically by paid subscription on a
daily over-night basis and by purchase
of annual back-log collections.30 The
MSRB is implementing the pilot portal
as a service of its new Internet-based
public access system, which it is
designating as the Electronic Municipal
Market Access (‘‘EMMA’’) system, as a
pilot facility within the MSIL system.
In the course of developing the
primary offering information component
of the EMMA system, the MSRB
determined that it could incorporate in
the EMMA system the collection and
availability of continuing disclosure
documents, thus eliminating the need
for the Commission to adopt its
proposed changes to Rule 15c2–12 to
remove the MSRB as a repository of
material event notices.31 As a result, the
MSRB recently submitted to the
Commission a proposed rule change,
filed under section 19(b) of the
Exchange Act,32 to expand the EMMA
system to accommodate the collection
and availability of annual filings,
material event notices and failure to file
notices.33 While the MSRB still intends
to propose to terminate its CDINet
System, subject to Commission
approval,34 the MSRB’s subsequent
decision to file a proposed rule change
to expand the EMMA system to
accommodate annual filings, material
event notices, and failure to file
notices 35 has led the MSRB to consider
whether to withdraw the MSRB
Petition.36 In light of the collection and
availability of continuing disclosure
28 See
2006 Proposed Amendments, supra note
27.
29 15
U.S.C. 78s(b).
Securities Exchange Act Release No. 57577
(March 28, 2008), 73 FR 18022 (April 2, 2008) (File
No. SR–MSRB–2007–06) (order approving the pilot
portal). Primary offering information consists of the
official statement and the advance refunding
document that Participating Underwriters are
required to send to the MSRB under MSRB Rule G–
36.
31 See Securities Exchange Act Release No. 58256
(July 30, 2008) (File No. MSRB–2008–05).
32 15 U.S.C. 78s(b).
33 See Securities Exchange Act Release No. 58256,
supra note 31.
34 Id.
35 Id.
36 Id.
30 See
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
documents and in conjunction with the
Commission’s proposal today to amend
Rule 15c2–12, the Commission is
considering whether to withdraw its
2006 Proposed Amendments.
Under the MSRB’s proposed rule
change—filed under section 19(b) of the
Exchange Act 37 and under separate
consideration by the Commission 38—
the EMMA system would be expanded
from the pilot program to allow for the
electronic collection through the
MSRB’s Web site of continuing
disclosure documents and related
information received by the MSRB from
issuers and obligated persons pursuant
to undertakings under the Rule and for
free public access to such information
through MSRB web-based systems.39
Information regarding the continuing
disclosure documents would also be
made available through a data stream by
subscription for a fee.40
II. Description of the Proposal
A. Proposed Amendments to Rule 15c2–
12
The Commission is considering
whether the development of a
centralized system for the electronic
collection and availability of
information about outstanding
municipal securities would improve the
current paper-based system. Since the
adoption of the 1994 Amendments,
there have been significant
advancements in technology and
information systems that allow market
participants and investors, both retail
and institutional, easily, quickly, and
inexpensively to obtain information
through electronic means. The
exponential growth of the Internet and
the capacity it affords to investors,
particularly retail investors, to obtain,
compile and review information has
likely helped to keep investors better
informed. In addition to the
Commission’s EDGAR system, which
contains filings by public companies
required to file periodic reports and by
mutual funds, the Commission has
increasingly encouraged and, in some
cases required, the use of the Internet
and Web sites by public reporting
companies and mutual funds to provide
37 15
U.S.C. 78s(b).
Commission is publishing for public
comment this proposed rule change at the same
time as it publishes these proposed amendments to
Rule 15c2–12. Comments on the MSRB’s proposed
rule change should be directed to File No. SR–
MSRB–2008–05.
39 See Securities Exchange Act Release No. 58256,
supra note 31.
40 The Commission notes that the MSRB would be
required to file a proposed rule change with the
Commission under Section 19(b) of the Exchange
Act regarding any fees it proposes to establish for
the subscription service.
ebenthall on PROD1PC65 with PROPOSALS2
38 The
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
disclosures and communicate with
investors.41
The Commission believes that, at
present, information about municipal
issuers and their securities that is
accessible on the Internet may not be as
consistently available or comprehensive
as information about other classes of
issuers and their securities. This may be
due, in part, to the lack of a central
point of collection and availability of
information in the municipal securities
sector.42 Therefore, the Commission is
proposing to amend Rule 15c2–12 to
provide for a single centralized
repository that receives submissions in
an electronic format to encourage a
more efficient and effective process for
the collection and availability of
continuing disclosure documents. In the
Commission’s view, a single repository
that receives submissions in an
electronic format could assist in
facilitating and simplifying submissions
of continuing disclosure documents
under the Rule by enabling issuers and
obligated persons to comply with their
undertakings by submitting their
continuing disclosure documents only
to one repository, as opposed to
multiple repositories.
The Commission also believes that
having a centralized repository that
receives submissions in an electronic
format would provide ready and prompt
access to continuing disclosure
documents by investors and other
municipal securities market
participants. Rather than having to
approach multiple locations, investors
and other market participants would be
able to go solely to one location to
retrieve continuing disclosure
documents, thereby allowing for a more
convenient means to obtain such
information. Moreover, the Commission
believes that having one repository
electronically collect and make
available all continuing disclosure
documents would increase the
likelihood that investors and other
41 See, e.g., Securities Exchange Act Release Nos.
52056 (July 19, 2005), 70 FR 44722 (August 3, 2005)
(File No. S7–38–04) (adopting amendments to
encourage and, in some cases, mandate the use of
an Internet site in securities offering) and 56135
(July 26, 2007), 72 FR 42222 (August 1, 2007) (File
No. S7–03–07) (adopting amendments to the proxy
rules under the Exchange Act requiring issuers and
other soliciting persons to post their proxy
materials on an Internet Web site and providing
shareholders with a notice of the Internet
availability of the materials).
42 Historically, there has been support for the
concept of a central repository. For example, in
response to the proposing release for Rule 15c2–12
in 1988, a majority of the comment letters
supported a central repository and indicated a need
to have a readily accessible central source of
information about municipal bonds. See 1989
Adopting Release, supra note 3.
PO 00000
Frm 00005
Fmt 4701
Sfmt 4702
46141
market participants obtain complete
information about a municipal security
or its issuer, since the information
would not be dispersed across multiple
repositories. In addition, the
Commission preliminarily expects that
the consistent availability of such
information from a single source could
simplify compliance with regulatory
requirements by Participating
Underwriters and others, such as
mutual funds and Dealers. Information
vendors (including NRMSIRs and SIDs)
and others also would have ready access
from a single source to continuing
disclosure documents for use in their
value-added products.
The Commission notes that, when it
adopted Rule 15c2–12 in 1989, it
strongly supported the development of
one or more central repositories for
municipal disclosure documents.43 In
this regard, the Commission noted in
the 1989 Adopting Release that ‘‘the
creation of multiple repositories should
be accompanied by the development of
an information linkage among these
repositories’’ so as to afford ‘‘the widest
retrieval and dissemination of
information in the secondary market.’’ 44
The Commission further stated that the
‘‘use of such repositories will
substantially increase the availability of
information on municipal issues and
enhance the efficiency of the secondary
trading market.’’ 45 In addition, the
Commission stated when it adopted the
1994 Amendments that the
‘‘requirement to deliver disclosure to
the NRMSIRs and the appropriate SID
also allay[ed] the anti-competitive
concerns raised by the creation of a
single repository.’’ 46
As noted earlier, the Commission has
long been interested in improving the
availability of disclosure in the
municipal securities market. At the time
the Commission adopted Rule 15c2–12
and amended it in 1994, disclosure
documents were submitted in paper
form. The Commission believed that, in
such an environment where document
retrieval would be handled manually,
the establishment of one or more
repositories could be beneficial in
widening the retrieval and availability
of information in the secondary market,
since the public could obtain the
disclosure documents from multiple
locations. The Commission’s objective
43 See 1989 Adopting Release at 54 FR 28807,
supra note 3. See also Securities Exchange Act
Release No. 33742 (March 9, 1994), 59 FR 12759
(March 17, 1994) (File No. S7–5-94) (proposing
release for the 1994 Amendments) (‘‘1994 Proposing
Release’’).
44 See 1989 Adopting Release, supra note 3.
45 Id.
46 See 1994 Amendments, supra note 5.
E:\FR\FM\07AUP2.SGM
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
46142
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
of encouraging greater availability of
municipal securities information
remains unchanged. However, as
indicated earlier, there have been
significant inefficiencies in the current
use of multiple repositories that likely
have impacted the public’s ability to
retrieve continuing disclosure
documents.47 Although the Commission
in the 1989 Adopting Release supported
the development of an information
linkage among the repositories, none
was established to help broaden the
availability of the disclosure
information. Also, since the adoption of
the 1994 Amendments, there have been
significant advancements in technology
and information systems, including the
use of the Internet, to provide
information quickly and inexpensively
to market participants and investors. In
this regard, the Commission
preliminarily believes that the use of a
single repository to receive, in an
electronic format, and make available
continuing disclosure documents, in an
electronic format, would substantially
and effectively increase the availability
of municipal securities information
about municipal issues and enhance the
efficiency of the secondary trading
market.
The Commission acknowledges that,
if the proposed amendments were
adopted to provide for a single
repository, competition with respect to
services provided by the existing
NRMSIRs could decline, including a
potential reduction in current services
relating to municipal securities that are
not within the ambit of Rule 15c2–12 or
a potential narrowing of competing
information services regarding
municipal securities.48 The
Commission, however, preliminarily
believes that any potential effect on
competition that could result from
having a single repository would be
justified by the more efficient and
effective process for the collection and
availability of continuing disclosure
documents by a single repository. For
instance, utilizing the Internet for the
collection and availability of continuing
disclosure documents would modernize
the method of delivery of such
documents to the single repository and
make the documents more readily and
easily accessible to investors and others.
Moreover, in providing for a single
repository for continuing disclosure
documents that investors and others
could easily access, the proposed
amendments would foster the goals of
the Exchange Act to protect investors
47 See
48 See
note 19, supra.
also discussion in Sections V. and VI.,
infra.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
and promote the public interest. For
example, investors would be able to
readily retrieve information from the
central repository about municipal
securities, and thus it would be easier
for them to make more informed
decisions in assessing whether to
purchase, sell, or hold municipal
securities. Similarly, commercial
vendors could readily access the
information to redisseminate it or use it
in whatever value-added products they
may wish to provide.
As a result, the Commission
preliminarily does not believe that
having a single repository would have a
significant adverse effect on the ability
or willingness of private information
vendors to compete to create and market
value-added products. In fact, a single
repository where documents are
submitted in an electronic format could
encourage the private information
vendors to disseminate municipal
securities information by reducing the
cost of entry into the information
services market. Vendors may need to
make some adjustments to their
infrastructure or facilities. However,
some vendors could determine they no
longer need to invest in the
infrastructure and facilities necessary to
collect and store continuing disclosure
documents, and new entrants into the
market would not need to purchase the
information from multiple locations, but
rather could readily access such
information from one centralized
source. Thus, all vendors would have
equal availability to the continuing
disclosure documents and be able to
compete in providing value-added
services.
The Commission requests comment
on whether it should amend Rule 15c2–
12 as proposed in this release, or
whether it is preferable to continue to
have multiple sources for such
information. The Commission requests
comment on whether having one
repository instead of multiple
repositories for the submission of, and
access to, continuing disclosure
documents would improve access to
secondary market disclosure for
investors and municipal securities
market participants. The Commission
also requests comment on whether the
availability of such information from a
single source would simplify
compliance with regulatory
requirements by Participating
Underwriters and others. The
Commission seeks comment on any
possible disadvantages in having only
one repository responsible for the
collection of, and access to, municipal
securities information. Furthermore, the
Commission requests comment whether
PO 00000
Frm 00006
Fmt 4701
Sfmt 4702
it should contemplate alternative ways
of improving the efficiency of the
current structure, including the use of
the existing NRMSIRs, instead of
amending the Rule to provide for only
one repository. In this regard, the
Commission seeks comment concerning
whether instead Rule 15c2–12 should be
amended to require Participating
Underwriters to reasonably determine
that the continuing disclosure
agreements provide solely for the
electronic submission of such
documents to each of the NRMSIRs.
Commenters should provide reasons
why submitting documents,
electronically or otherwise, to multiple
NRMSIRs, rather than to a single
repository, would be preferable.
If the Commission should determine
to amend the Rule to refer to one
repository, the Commission also is
proposing to revise Rule 15c2–12 to
delete all references to NRMSIRs and
instead to insert references to the MSRB.
Established pursuant to an act of
Congress 49 as a self-regulatory
organization (‘‘SRO’’) for brokers,
dealers and municipal securities dealers
engaged in transactions in municipal
securities, the MSRB is subject to
Commission oversight, as provided by
the Exchange Act. As an SRO, the MSRB
is required to file its rules and changes
to those rules with the Commission for
notice and comment and Commission
review under Section 19(b) of the
Exchange Act.50 Pursuant to Section
15B(b)(2)(C) of the Exchange Act, the
MSRB’s rules are required to be
designed, in part, ‘‘to prevent fraudulent
and manipulative acts and practices, to
promote just and equitable principles of
trade, * * * to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in municipal
securities, to remove impediments to
and perfect the mechanism of a free and
open market in municipal securities,
and, in general, to protect investors and
the public interest.’’ 51 The MSRB’s
existing RTRS and MSIL systems, and
the primary offering information
component of the EMMA system that
has been approved by the Commission
(relating to the submission of official
statements and advance refunding
documents),52 were subject to notice
and comment and Commission review.
Similarly, the MSRB’s proposal to
establish a continuing disclosure
49 15
U.S.C. 78o–4.
U.S.C. 78s(b).
51 15 U.S.C. 78o–4(b)(2)(C).
52 See Securities Exchange Act Release No. 57577,
supra note 30.
50 15
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
component within the EMMA system,
as well as any future changes to that
component, would be subject to
Commission review under section 19(b)
of the Exchange Act.53 Further, the
Commission believes that, in addition to
being subject to Commission oversight
as an SRO, the MSRB is both familiar
with the complexities of municipal
securities and the municipal securities
market and has experience in
developing and maintaining electronic
information systems for that market.54
Collectively, these factors lead the
Commission to propose to amend Rule
15c2–12 to provide that the MSRB be
the centralized location for collecting
(in an electronic format) and making
information about municipal securities
available to the public at no cost.
The Commission previously stated
that it would specifically consider the
competitive implications of the MSRB
becoming a repository.55 In addition,
the Commission stated that, if the
Commission were to conclude that the
MSRB’s status as a repository might
have adverse competitive implications,
it would consider whether it should
take any action to address these
effects.56 As noted above, the
Commission recognizes that
competition with respect to certain
information services regarding
municipal securities that are provided
by the existing NRMSIRs could decline
should the MSRB become the central
repository. However, the Commission
believes that the reasons it provided
above regarding the competitive
implications with respect to having a
single repository similarly would apply
if the MSRB were the sole repository.
The Commission does not believe that
there are competitive implications that
would uniquely apply to the MSRB in
its capacity as the sole repository, as
opposed to any other entity that could
be the sole repository. In fact, the
Commission believes that, if the MSRB
were the sole repository, its status as an
SRO would provide an additional level
of Commission oversight, as any
changes to its rules relating to
53 See Securities Exchange Act Release No. 58256,
supra note 31.
54 For example, the MSRB is experienced with
operating CDINet, the MSIL system, and the RTRS
system.
55 Specifically, the Commission stated that it
would consider the competitive implications of an
MSRB request for NRMSIR status. See Securities
Exchange Act Release No. 28081 (June 1, 1990), 55
FR 23333 (June 7, 1990) (File No. SR–MSRB–89–9).
See also 1994 Proposing Release and 1994
Amendments, supra notes 43 and 5, respectively.
Although the MSRB is not seeking NRMSIR status,
the MSRB essentially would become a repository if
the proposed amendments were adopted.
56 See Securities Exchange Act Release No. 28081,
supra note 55.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
continuing disclosure documents would
have to be filed for Commission
consideration as a proposed rule change
under section 19(b) of the Exchange Act.
Accordingly, similar to the discussion
above, the Commission believes that any
competitive impact that could result
from the MSRB’s status as the sole
repository would be justified by the
benefits that such status could provide.
The Commission believes that one of the
benefits in having the MSRB be the sole
repository would be its ability to
provide a ready source of continuing
disclosure documents to all investors,
broker-dealers and information vendors
who wish to use that information for
their products. Private vendors could
utilize the MSRB in its capacity as a
repository as a means to collect
information from the continuing
disclosure documents to create valueadded products for their customers. As
noted earlier, vendors may need to make
some adjustments to their infrastructure
or facilities in using the MSRB’s
services as a repository of continuing
disclosure documents. However, some
vendors could determine they no longer
need to incur the cost of obtaining and
storing continuing disclosure
documents, and new entrants into the
information services market would not
need to purchase the information from
multiple locations. Thus, all vendors
would have equal availability to these
public documents and would be able to
develop whatever services they choose.
The Commission requests comment
concerning whether the MSRB should
serve as the sole repository of
continuing disclosure documents or
whether another entity, such as a
private vendor, should serve as the sole
repository, instead of the MSRB. If
commenters believe another entity
should be the sole repository,
commenters should provide reasons for
their viewpoint. The Commission seeks
comment on whether the MSRB would
be an appropriate operator of a
centralized repository for the collection
and availability of continuing disclosure
information about municipal securities,
and whether there is a more appropriate
location or means through which such
information could be made readily
available to the public without charge.
Commenters are also asked to address
whether the MSRB’s status as an SRO
would be an advantage or disadvantage
to its serving as the sole repository. In
addition, the Commission requests
comment on whether having the MSRB
serve as the sole repository would
encourage or discourage competition
between the MSRB and private vendors,
or others.
PO 00000
Frm 00007
Fmt 4701
Sfmt 4702
46143
If the Commission were to amend the
Rule to provide for the MSRB to serve
as the sole repository, the Commission
would amend Rule 15c2–12(b)(5),
which sets forth the undertakings to
which Participating Underwriters must
reasonably determine that issuers or
other obligated persons have
contractually agreed to provide in
connection with primary offerings
subject to the Rule. The proposed
amendments would revise
subparagraphs (b)(5)(i)(A) through (D) of
Rule 15c2–12 to require Participating
Underwriters to reasonably determine
that the issuer or obligated person has
agreed at the time of a primary offering:
(1) To provide the continuing disclosure
documents directly to the MSRB instead
of to each NRMSIR and appropriate SID,
and (2) to provide the continuing
disclosure documents in an electronic
format and accompanied by identifying
information as prescribed by the MSRB.
Specifically, the Commission proposes
to amend Rule 15c2–12(b)(5)(i)(A)
through (D) by deleting references in
each of those provisions to NRMSIR and
SID and adding language to require
Participating Underwriters to reasonably
determine that issuers or obligated
persons have undertaken to provide
continuing disclosure documents to the
MSRB in an electronic format as
prescribed by the MSRB.57
The Rule requires that Participating
Underwriters reasonably determine that
the information undertaken to be
provided, in addition to being submitted
to the NRMSIRs, or, in some cases, to
the MSRB, must be submitted to a SID,
if an appropriate SID has been
established by that state.58 The
Commission adopted an exemption
from paragraph (b)(5) of the Rule that,
among other things, contains conditions
on limited undertakings relating to
making financial information or
operating data available upon request or
at least annually to a SID, and providing
material event notices to each NRMSIR
or the MSRB, and to a SID.59 Because
the Commission is now proposing to
amend the Rule to provide for a single
repository for the electronic collection
and availability of continuing disclosure
documents that the Commission
believes would efficiently and
effectively improve disclosure in the
municipal securities market, the
Commission believes that it is no longer
necessary to specifically require in the
57 The Commission notes that the MSRB would be
required to file a proposed rule change with the
Commission under Section 19(b) of the Exchange
Act regarding the electronic format it proposes to
use.
58 17 CFR 240.15c2–12(b)(5)(i)(A) through (D).
59 17 CFR 240.15c2–12(d)(2)(ii)(A) and (B).
E:\FR\FM\07AUP2.SGM
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
46144
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
Rule that Participating Underwriters
reasonably determine that issuers and
obligated persons have contractually
agreed to provide continuing disclosure
documents to the SIDs. The
Commission, therefore, is proposing to
delete references to the SIDs in the Rule.
As discussed further below, the
Commission, however, notes that there
may be an obligation to provide such
documents to a SID, if required by
applicable state law, which also could
be beneficial in improving disclosure in
the municipal securities market.
Specifically, the Commission is
proposing to delete references to the
SIDs in Rule 15c2–12(b)(5)(i)(A) through
(D). Under these proposed amendments,
Participating Underwriters no longer
would need to reasonably determine
that issuers or obligated persons have
agreed in the continuing disclosure
agreements to provide continuing
disclosure documents to the appropriate
SID, if any. The proposed amendments,
however, would not affect the legal
obligations of issuers and obligated
persons to provide continuing
disclosure documents, along with any
other submissions, to the appropriate
SID, if any, that are required under the
appropriate state law. In addition, the
proposed amendments would have no
effect on the obligations of issuers and
obligated persons under outstanding
continuing disclosure agreements
entered into prior to any effective date
of the proposed amendments to the Rule
to submit continuing disclosure
documents to the appropriate SID, if
any, as stated in their existing
continuing disclosure agreements, nor
on their obligation to make any other
submissions that may be required under
the appropriate state law.
The Commission requests comment
on whether the reference to the SIDs
should be deleted in the Rule. The
Commission requests comment on the
impact of deleting the references to the
SIDs in the Rule, including the impact
of the proposed deletion on the
obligations of Participating
Underwriters, issuers and obligated
persons. The Commission also requests
comment on the effect of the proposed
deletion on SIDs and their role in the
collection and disclosure of continuing
disclosure documents.
The proposed amendments also
would revise Rule 15c2–12(d)(2)(ii),
which is part of an exemptive provision
from Rule 15c2–12(b)(5). The exemption
in Rule 15c2–12(d)(2) currently
provides that paragraph (b)(5) of the
Rule, which relates to the submission of
continuing disclosure documents
pursuant to continuing disclosure
agreements, does not apply to a primary
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
offering if three conditions are met: (1)
The issuer or the obligated person has
less than $10 million of debt
outstanding; 60 (2) the issuer or obligated
person has undertaken in a written
agreement or contract (‘‘limited
undertaking’’) to provide: (i) Financial
information or operating data regarding
each obligated person for which
financial information or operating data
is presented in the final official
statement, including financial
information and operating data which is
customarily prepared by such obligated
person and is publicly available, upon
request to any person or at least
annually to the appropriate SID,61 and
(ii) material event notices to each
NRMSIR or the MSRB, as well as the
appropriate SID; 62 and (3) the final
official statement identifies by name,
address and telephone numbers the
persons from which the foregoing
information, data and notices can be
obtained. The proposed amendments
would revise the limited undertaking set
forth in 15c2–12(d)(2)(ii)(A) and (B) by
deleting references to the NRMSIRs and
SIDs and solely referencing the MSRB.
Accordingly, under the proposed
amendment to Rule 15c2–12(d)(2)(ii), a
Participating Underwriter would be
exempt from their obligations under
paragraph (b)(5) of the Rule as long as
an issuer or obligated person has agreed
in its limited undertaking to provide
financial information, operating data
and material event notices to the MSRB
in an electronic format as prescribed by
the MSRB, and the exemption’s other
conditions are satisfied. In conjunction
with this proposed change, the
Commission also would amend the
provision of the exemption relating to
the limited undertaking to provide that
the type of financial information or
operating data described in Rule 15c2–
12(d)(2)(ii)(A) regarding each obligated
person be submitted at least annually to
the MSRB.63
60 17
CFR 240.15c2–12(d)(2)(i).
CFR 240.15c2–12(d)(2)(ii)(A).
62 17 CFR 240.15c2–12(d)(2)(ii)(B).
63 Similar to the earlier discussion regarding the
deletion of references to the SIDs in Rule 15c2–
12(b)(5)(i), the proposed amendments to Rule 15c2–
12(d)(2)(ii)(A) and (B) would not affect the legal
obligations of issuers and obligated persons to
provide financial information, operating data and
material event notices, along with any other
submissions, to the appropriate SID, if any, that are
required under the appropriate state law.
Furthermore, the proposed amendments to Rule
15c2–12(d)(2)(ii)(A) and (B) would have no effect
on the obligations of issuers and obligated persons
under outstanding limited undertakings entered
into prior to any effective date of the proposed
amendments to the Rule to submit financial
information, operating data and material event
notices to the appropriate SID, if any, as stated in
their existing limited undertakings, nor on their
61 17
PO 00000
Frm 00008
Fmt 4701
Sfmt 4702
With respect to the proposed
electronic submission of continuing
disclosure documents, the Commission
believes that this method would better
enable the information to be promptly
posted and made available to the public
without charge. Electronic submission
also would eliminate the need for
manual handling of paper documents,
which can be a less efficient and more
costly process. For instance, the
submission of paper documents would
require the repository to manually
review, sort and store such documents.
There is also a potential for a less
complete record of continuing
disclosure documents at the repository
if such documents are submitted in
paper to the repository and, for instance,
are misplaced or misfiled. As discussed
below, the Commission believes that
submissions in an electronic format
should not be very burdensome on
issuers or other obligated persons, since
many continuing disclosure documents
already are being created in an
electronic format and, as a result, are
readily transmitted by electronic
means.64
The Commission requests comment
on the proposed amendment to provide
continuing disclosure documents in an
electronic format. The Commission
requests comment on whether
submitting continuing disclosure
documents in an electronic format
would increase the efficiency of
submission and availability of
continuing disclosure documents, and
whether submitting the documents in an
electronic format would facilitate wider
availability of the information. The
Commission also requests comment on
alternative methods of providing
secondary market disclosure, including
whether commenters instead believe
that the NRMSIRs should establish new
comprehensive electronic systems for
the submission of such documents.
Furthermore, the Commission requests
comment concerning whether the
proposed amendments to Rule 15c2–12
should allow for the submission of
paper documents and, if so, whether
any conditions should be imposed in
connection with paper submissions.
Comments are also requested on
whether the proposed amendments to
Rule 15c2–12 should allow for the
obligation to make other submissions that may be
required under the appropriate state law.
64 In addition, the availability of audited financial
statements and other financial and statistical data
in an electronic format by issuers subject to the
Rule could encourage the establishment of the
necessary taxonomies and permit states and local
governments to make use of XBRL in the future,
should they wish to do so.
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
availability of paper copies upon
request from the central repository.
To enable the continuing disclosure
documents to be identified and
retrieved accurately, the Commission is
proposing new subparagraph (b)(5)(iv)
of Rule 15c2–12 to require Participating
Underwriters to reasonably determine
that the issuer or obligated person has
undertaken in writing to accompany all
documents submitted to the MSRB with
identifying information as prescribed by
the MSRB. Similarly, the Commission is
proposing a conforming change in
subparagraph (d)(2)(ii)(C) of Rule 15c2–
12 relating to the limited undertaking
set forth in Rule 15c2–12(d)(2)(ii) to
provide that all documents provided to
the MSRB would be required to be
accompanied by identifying information
as prescribed by the MSRB.65
The Commission believes that
providing identifying information with
each submitted document would permit
the repository to sort and categorize the
document efficiently and accurately.
The Commission also anticipates that
including in each submission the basic
information needed to accurately
identify the document would facilitate
the ability of investors, market
participants, and others to reliably
search for and locate relevant disclosure
documents. Furthermore, the
Commission preliminarily expects that
there would be a minimal burden on
Participating Underwriters to comply
with the proposed new subparagraph
(b)(5)(iv) of Rule 15c2–12 since it would
only require that the Participating
Underwriters reasonably determine that
issuers and obligated persons have
contractually agreed to one additional
provision relating to the identifying
information, while there would be a
significant benefit to investors and other
municipal market participants to easily
retrieve the information. Indeed, issuers
and other obligated persons that choose
to submit continuing disclosure
documents through some existing
dissemination agents and document
delivery services already are supplying
identifying information with their
submissions.66
65 The Commission notes that the MSRB would be
required to file a proposed rule change with the
Commission pursuant to Section 19(b) of the
Exchange Act regarding any such identifying
information that it wished to specify.
66 The commitment by an issuer to provide
identifying information would exist only if it were
included in a continuing disclosure agreement. As
a result, issuers submitting continuing disclosure
documents pursuant to the terms of undertakings
entered into prior to the effective date of the
proposed amendments that did not require
identifying information could submit documents
without supplying identifying information.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
The Commission requests comment
on the proposed amendments to the
Rule regarding supplying identifying
information as prescribed by the MSRB.
The Commission also requests comment
on alternative methods that would assist
investors and municipal market
participants in locating specific
information about a municipal security
that is submitted under the Rule.
In addition, because the Commission
is proposing to amend the Rule to
reference the MSRB as the sole
repository, the Commission proposes to
make a similar change to Rule 15c2–
12(b)(4)(ii), which currently refers to a
NRMSIR with respect to the time period
in which the Participating Underwriter
must send the final official statement to
any potential customer. Specifically,
under Rule 15c2–12(b)(4), from the time
the final official statement becomes
available until the earlier of: (1) Ninety
days from the end of the underwriting
period, or (2) the time when the official
statement is available to any person
from a NRMSIR, but in no case less than
twenty-five days following the end of
the underwriting period, the
Participating Underwriter in a primary
offering is required to send to any
potential customer, upon request, the
final official statement. The Commission
proposes to amend the language in Rule
15c2–12(b)(4)(ii) to refer to the MSRB
instead of to a NRMSIR. Accordingly,
Participating Underwriters would have
the time period from when the final
official statement becomes available
until the earlier of: (1) Ninety days from
the end of the underwriting period, or
(2) the time when the official statement
is available to any person from the
MSRB, but in no case less than twentyfive days following the end of the
underwriting period, to send the final
official statement to a potential
customer, upon request. The
Commission requests comment on this
proposed change to Rule 15c2–
12(b)(4)(ii), including whether
Participating Underwriters or others
would encounter problems complying
with this provision as a result of the
proposed revision.
Finally, the Commission proposes to
make similar changes in Rule 15c2–
12(f)(3) and (f)(9), which define the
terms ‘‘final official statement’’ and
‘‘annual financial information,’’
respectively. Rule 15c2–12(f)(3) defines
the term ‘‘final official statement’’ to
mean a document or set of documents
prepared by an issuer of municipal
securities or its representatives that is
complete as of the date delivered to the
Participating Underwriter and that sets
forth information concerning, among
other things, financial information or
PO 00000
Frm 00009
Fmt 4701
Sfmt 4702
46145
operating data concerning such issuers
of municipal securities and those other
entities, enterprises, funds, accounts,
and other persons material to an
evaluation of the offering. Rule 15c2–
12(f)(9) defines the term ‘‘annual
financial information’’ to mean financial
information or operating data, provided
at least annually, of the type included
in the final official statement with
respect to an obligated person, or in the
case where no financial information or
operating data was provided in the final
official statement with respect to such
obligated person, of the type included in
the final official statement with respect
to those obligated persons that meet the
objective criteria applied to select the
persons for which financial information
or operating data will be provided on an
annual basis. Both definitions allow for
financial information or operating data
to be set forth in the document or set of
documents, or be included by specific
reference to documents previously
provided to each NRMSIR, and to a SID,
if any, or filed with the Commission.
The Commission is proposing
amendments to Rule 15c2–12(f)(3) and
(f)(9) to replace references to a NRMSIR
and SID, with references to the MSRB’s
Internet Web site. Accordingly, the
proposed amendments to paragraphs
(f)(3) and (f)(9) of the Rule would allow
issuers to reference financial
information or operating data set forth
in specified documents available to the
public from the MSRB’s Internet Web
site (or filed with the Commission) as
part of the final official statements and
annual financial information, instead of
referencing specific documents
previously provided to each NRMSIR
and SID. The Commission requests
comment on the proposed changes to
the definitions of ‘‘final official
statement’’ and ‘‘annual financial
information’’ contained in Rule 15c2–
12.
B. Submissions Required by Existing
Undertakings
The proposed amendments to Rule
15c2–12 would only impact continuing
disclosure agreements that are entered
into in connection with primary
offerings occurring on or after the
effective date of these proposed
amendments, if they were adopted by
the Commission. In accordance with the
proposed amendments, Participating
Underwriters would have to reasonably
determine that a continuing disclosure
agreement specifically referenced the
MSRB as the sole repository to receive
and make available the issuer’s or
obligated person’s continuing disclosure
documents. The Commission
understands, however, that existing
E:\FR\FM\07AUP2.SGM
07AUP2
46146
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
undertakings by issuers and obligated
persons that were entered into prior to
the effective date of these proposed
amendments may specify in their
continuing disclosure agreements that
continuing disclosure documents be
submitted to the current NRMSIRs in
existence at the time a submission is
made.
The Commission believes that, if the
proposed amendments to Rule 15c2–12
were adopted, it would be more efficient
and effective to implement a sole
repository expeditiously. Towards this
end, the Commission wishes to create a
mechanism by which issuers or
obligated persons could comply with
their existing undertakings by
submitting the continuing disclosure
documents to one location, thereby
providing investors and municipal
market participants with prompt and
easy access to continuing disclosure
documents at no charge.
One approach that the Commission
could consider to address this situation
would be to direct its staff to withdraw
all ‘‘no action’’ letters recognizing
existing NRMSIRs 67 and for the
Commission to designate the MSRB as
the only NRMSIR. As a result,
continuing disclosure documents that
are provided pursuant to existing
continuing disclosure agreements—i.e.,
those agreements entered into prior to
the effective date of the proposed
amendments which typically reference
the NRMSIRs as the location to which
a submission should be made—would
be provided to the MSRB in its capacity
as the sole NRMSIR.68 Providing all
submissions—for both past and future
offerings—to the same location
preliminarily would be expected to be
less confusing to, and could simplify the
submission process for, issuers and
other obligated persons subject to
continuing disclosure agreements, as
67 See Letters from Brandon Becker, Director,
Division of Market Regulation (n/k/a Division of
Trading and Markets), Commission, to: Michael R.
Bloomberg, President, Bloomberg L.P., dated June
26, 1995, and Aaron L. Kaplow, Vice President,
Kenny S&P Information Services, dated June 26,
1995; and Letters from Robert L.D. Colby, Deputy
Director, Division of Market Regulation (n/k/a
Division of Trading and Markets), Commission, to:
Peter J. Schmitt, President, DPC Data, Inc., dated
June 23, 1997, and John King, Chief Operating
Officer, Interactive Data, dated December 21, 1999.
68 Issuers or obligated persons with existing
limited undertakings under Rule 15c2–
12(d)(2)(ii)(B) that reference the MSRB rather than
the NRMSIRs as the location to submit material
event notices would not be affected by this
proposed approach because they would continue to
submit such notices to the MSRB as stated in their
limited undertaking. However, issuers or obligated
persons with existing limited undertakings that
reference the NRMSIRs as the location to submit
material event notices would provide such notices
to the MSRB in its capacity as the sole NRMSIR.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
well as to investors and others who
wish to obtain such information.
The Commission requests comment
relating to the potential withdrawal of
the ‘‘no action’’ letters provided to the
NRMSIRs and having one NRMSIR—
the MSRB—be the sole NRMSIR for
those continuing disclosure agreements
entered into prior to any Commission
adoption of the proposed amendments
to Rule 15c2–12. The Commission
requests comment on the effect of the
potential withdrawal of the ‘‘no action’’
letters on Participating Underwriters,
issuers, NRMSIRs, investors and others.
The Commission requests comment on
possible alternative methods of
transitioning from the current system of
sending documents to multiple
NRMSIRs. The Commission requests
comment on whether there are any
transition issues with respect to the
proposed amendments, such as whether
there would be any conflicts with
respect to terms in existing continuing
disclosure agreements. The Commission
seeks comment on whether there are
concerns that the NRMSIRs would not
retain the historical continuing
disclosure documents and whether
commenters anticipate any problems in
obtaining such documents from the
current NRMSIRs, if they were no longer
recognized as such. If commenters
foresee any such problems, they should
suggest alternative approaches for the
retention of and access to historical
information. The Commission also seeks
comment on any issues or problems that
could arise if investors seek to obtain
and compare information from multiple
repositories—e.g., historical continuing
disclosure documents from the
NRMSIRs and current continuing
disclosure documents from the MSRB—
and whether there are any alternative
methods that would allow them to
obtain complete information about
municipal securities, including
obtaining historical information.
The Commission seeks comment on
any other transition issues in
connection with the proposed
amendments to Rule 15c2–12. In this
regard, the Commission seeks comment
on whether it would be appropriate to
immediately move to an electronic form
of submission if the Commission were
to approve the proposed amendments to
the Rule or whether there would be a
need to maintain the option of
submitting documents in paper form
either as a temporary option during a
transition period or as a permanent
option. Finally, with respect to the
transition to a sole repository for
continuing disclosure documents, the
Commission requests comment on
whether commenters foresee any
PO 00000
Frm 00010
Fmt 4701
Sfmt 4702
differences that could occur between the
existing structure of multiple NRMSIRs
and one repository regarding the scope,
quantity, and continuity of information.
III. Request for Comments
The Commission seeks comment on
all aspects of the proposed amendments
to the Rule. In addition to the comments
requested throughout the proposing
release, comment is requested on
whether the proposed amendments
would further the Commission’s goal of
enhancing investors’ prompt and
efficient access to important information
regarding municipal issuers, and
whether the proposed amendments
would improve the access to the
information. Further, the Commission
seeks comment regarding whether the
proposed amendments would simplify
the ability of municipal issuers and
other obligated persons to provide
annual filings, material event notices,
and failure to file notices. In addition,
the Commission requests comment
regarding the impact of the proposed
amendments on Participating
Underwriters and Dealers, as well as on
the NRMSIRs and SIDs. The
Commission requests comment on the
impact on investors, vendors and others
that may be affected by the proposed
amendments. Further, the Commission
requests comment on whether there are
alternative approaches to improving the
public’s access to information about
municipal securities that the
Commission should consider. For
example, the Commission seeks
comment on possible alternatives
including: Whether the Commission
should retain the current process of
collecting and making available
continuing disclosure documents
through the existing NRMSIRs and, if
so, whether the NRMSIRs should only
accept submissions in an electronic
format and allow for electronic access to
them; whether the Commission should
open the process and allow any other
person or entity be the sole repository
for the collection and availability of
continuing disclosure documents, rather
than proposing to amend the Rule to
establish the MSRB as the sole
repository. In addition, the Commission
seeks comment on the operation of a
system of continuing disclosure by the
MSRB as opposed to another entity,
such as a private vendor that is not an
SRO. In this regard, the Commission
requests comment on whether it is
appropriate for an SRO, such as the
MSRB, to function in the capacity as the
sole information repository under the
Rule. Finally, the Commission requests
comment on the advantages and
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
disadvantages of having one repository
instead of having multiple NRMSIRs.
ebenthall on PROD1PC65 with PROPOSALS2
IV. Paperwork Reduction Act
Certain provisions of the proposed
amendments to the Rule contain
‘‘collection of information
requirements’’ within the meaning of
the Paperwork Reduction Act of 1995
(‘‘PRA’’).69 In accordance with 44 U.S.C.
3507 and 5 CFR 1320.11, the
Commission has submitted revisions to
the currently approved collection of
information titled ‘‘Municipal Securities
Disclosure’’ (17 CFR 240.15c2–12)
(OMB Control No. 3235–0372) to OMB.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless it
displays a currently valid control
number.
A. Summary of Collection of
Information
Currently, under paragraph (b) of Rule
15c2–12, a Participating Underwriter is
required: (1) To obtain and review an
official statement ‘‘deemed final’’ by an
issuer of the securities, except for the
omission of specified information, prior
to making a bid, purchase, offer, or sale
of municipal securities; (2) in noncompetitively bid offerings, to send,
upon request, a copy of the most recent
preliminary official statement (if one
exists) to potential customers; (3) to
send, upon request, a copy of the final
official statement to potential customers
for a specified period of time; (4) to
contract with the issuer to receive,
within a specified time, sufficient
copies of the final official statement to
comply with the Rule’s delivery
requirement, and the requirements of
the rules of the MSRB; and (5) before
purchasing or selling municipal
securities in connection with an
offering, to reasonably determine that
the issuer or obligated person has
undertaken, in a written agreement or
contract, for the benefit of holders of
such municipal securities, to provide
annual filings, material event notices,
and failure to file notices (i.e.,
continuing disclosure documents) to
each NRMSIR (or, alternatively, to the
MSRB in the case of material event
notices and failure to file notices).70
Under the proposed amendments to the
Rule, Participating Underwriters would
be required to reasonably determine that
the issuer or obligated person has
undertaken in a continuing disclosure
agreement to provide continuing
disclosure documents to the MSRB, in
an electronic format and accompanied
by identifying information, in each case
as prescribed by the MSRB. The
proposed amendments to the Rule
would not substantively change any of
the current obligations of Participating
Underwriters, except to the extent that
Participating Underwriters would have
to reasonably determine that the issuer
or obligated person has agreed in the
continuing disclosure agreement to
provide continuing disclosure
documents to a single repository instead
of to multiple NRMSIRs.
The proposed amendments also
would revise Rule 15c2–12(d)(2)(ii),
which is part of an exemptive provision
from Rule 15c2–12(b)(5). The exemption
in Rule 15c2–12(d)(2) currently
provides that paragraph (b)(5) of the
Rule, which relates to the submission of
continuing disclosure documents
pursuant to continuing disclosure
agreements, does not apply to a primary
offering if three conditions are met: (1)
The issuer or the obligated person has
less than $10 million of debt
outstanding; 71 (2) the issuer or obligated
person has undertaken in a written
agreement or contract to provide: (i)
Financial information or operating data
regarding each obligated person for
which financial information or
operating data is presented in the final
official statement, including financial
information and operating data which is
customarily prepared by such obligated
person and is publicly available, upon
request to any person or at least
annually to the appropriate SID,72 and
(ii) material event notices to each
NRMSIR or the MSRB, as well as the
appropriate SID; 73 and (3) the final
official statement identifies by name,
address and telephone number the
persons from which the foregoing
information, data and notices can be
obtained. The proposed amendments
would revise the limited undertaking set
forth in 15c2–12(d)(2)(ii)(A) and (B) by
deleting references to the NRMSIRs and
SIDs and solely referencing the MSRB.
Accordingly, under the proposed
amendment to Rule 15c2–12(d)(2)(ii), a
Participating Underwriter would be
exempt from its obligations under
paragraph (b)(5) of the Rule as long as
an issuer or obligated person has agreed
in its limited undertaking to provide
financial information, operating data
and material event notices to the MSRB
in an electronic format as prescribed by
the MSRB, and the exemption’s other
conditions are satisfied. In conjunction
with this proposed change, the
Commission also would amend the
CFR 240.15c2–12(d)(2)(i).
CFR 240.15c2–12(d)(2)(ii)(A).
73 17 CFR 240.15c2–12(d)(2)(ii)(B).
46147
provision of the exemption relating to
the limited undertaking to provide that
the type of financial information or
operating data described in Rule 15c2–
12(d)(2)(ii)(A) regarding each obligated
person be submitted at least annually to
the MSRB.
B. Proposed Use of Information
The proposed amendments to the
Rule would provide for a single
repository that receives submissions in
an electronic format to encourage a
more efficient and effective process for
the collection and availability of
continuing disclosure documents. The
proposed amendments to Rule 15c2–12
are intended to improve the availability
of continuing disclosure documents that
provide current information about
municipal issuers and their securities.
The proposed amendments would
enable investors and other municipal
securities market participates to have
ready and prompt access to the
continuing disclosure documents of
municipal securities issuers. This
information could be used by retail and
institutional investors; underwriters of
municipal securities; other market
participants, including broker-dealers
and municipal securities dealers;
municipal securities issuers; vendors of
information regarding municipal
securities; the MSRB and its staff;
Commission staff; and the public
generally.
C. Respondents
In 2006, the Commission submitted a
request to OMB for extension and
approval of the collection of information
associated with the existing Rule (‘‘2006
PRA Submission’’). OMB approved the
extension of the 2006 PRA Submission
on March 29, 2007. The current
paperwork collection associated with
Rule 15c2–12 applies to broker-dealers,
issuers of municipal securities, and the
NRMSIRs.74 Currently, there are four
NRMSIRs. The proposal would require
that a Participating Underwriter in a
primary offering of municipal securities
reasonably determine that the issuer or
an obligated person has undertaken in a
continuing disclosure agreement to
submit specified continuing disclosure
documents to the MSRB in an electronic
format and accompanied by identifying
information, as prescribed by the MSRB.
In the 2006 PRA Submission, the
Commission estimated that the
respondents impacted by the paperwork
collection associated with the current
Rule would consist of: 500 brokerdealers, 10,000 issuers, and four
71 17
69 44
U.S.C. 3501 et seq.
70 17 CFR 240.15c2–12(b).
VerDate Aug<31>2005
14:36 Aug 06, 2008
72 17
Jkt 214001
PO 00000
Frm 00011
Fmt 4701
Sfmt 4702
74 NRMSIRs currently collect, index, store,
retrieve and disseminate disclosure documents.
E:\FR\FM\07AUP2.SGM
07AUP2
46148
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
NRMSIRs.75 Commission staff expects
that there would be a reduction in the
number of broker-dealers included in
the current paperwork collection
associated with the Rule, based on
current information it obtained, as
described below. Commission staff
expects that there would be no change
from the current paperwork collection
associated with the Rule in the number
of respondents that are issuers. The only
other change in the number of
respondents from the current paperwork
collection would be that, in lieu of the
four existing NRMSIRs, there would be
a single repository.
ebenthall on PROD1PC65 with PROPOSALS2
D. Total Annual Reporting and
Recordkeeping Burden
In the 2006 PRA Submission, the
Commission included estimates for the
hourly burdens that the Rule would
impose upon broker-dealers, issuers of
municipal securities, and the NRMSIRs.
Commission staff has relied on these
estimates and on updated information
its staff has obtained to prepare the
analysis discussed below for each of the
aforementioned entities and to compare
current paperwork burdens associated
with the Rule to paperwork burdens
associated with the Rule as proposed to
be amended.
Commission staff estimates the
aggregate information collection burden
for the amended Rule to consist of the
following:
1. Broker-Dealers
Under the 2006 PRA Submission, the
Commission estimated that the Rule
imposes a paperwork collection burden
for 500 broker-dealers.76 In addition, the
Commission estimated that it would
require each of these broker-dealers an
average burden of one hour per year to
comply with the Rule.77 This burden
accounted for the time it would take a
broker-dealer to reasonably determine
that the issuer or obligated person has
undertaken, in a written agreement or
contract, for the benefit of holders of
such municipal securities, to provide
annual filings, material event notices,
and failure to file notices (i.e.,
continuing disclosure documents) to
each NRMSIR (or, alternatively, to the
MSRB in the case of material event
notices and failure to file notices).
Based on information provided to
Commission staff by MSRB staff in a
telephone conversation on April 11,
2008, Commission staff estimates that
currently 200 to 250 broker-dealers
potentially could serve as Participating
75 See
2006 PRA Submission.
76 Id.
77 Id.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
Underwriters in an offering of
municipal securities. Therefore,
Commission staff estimates that, under
the proposed amendments, the
maximum number of broker-dealer
respondents would be 250. This
estimate represents a reduction of 250
broker-dealers from the current
paperwork collection associated with
the Rule.78 Commission staff believes
that this estimated reduction in the
number of broker-dealer respondents
could be attributed in part to the fact
that it may have been over-inclusive in
estimating the number of broker-dealer
respondents in the past. Further, both
large and small broker-dealer firms
increasingly have consolidated their
operations during the past several years
and some firms have left the municipal
securities business, which also could
account for a reduction in the number
of broker-dealer respondents. Moreover,
in connection with developing the
proposed amendments, Commission
staff has attempted to obtain more
current information with respect to the
number of respondents that would be
subject to a paperwork collection. The
proposed amendments, however, would
not alter the paperwork burden of
broker-dealers from that of the current
Rule. Accordingly, Commission staff
estimates that 250 broker-dealers would
incur an estimated average burden of
one hour per year to comply with the
Rule, as proposed to be amended.
Commission staff estimates that a
broker-dealer would incur a one-time
paperwork burden to have its internal
compliance attorney prepare and issue a
notice advising its employees who work
on primary offerings of municipal
securities about the proposed revisions
to Rule 15c2–12, if they are adopted by
the Commission. Commission staff
estimates that it would take the internal
compliance attorney approximately 30
minutes to prepare a notice describing
the broker-dealer’s obligations in light of
the proposed amendments to Rule.
Commission staff believes that the task
of preparing and issuing a notice
advising the broker-dealer’s employees
about the proposed amendments is
consistent with the type of compliance
work that a broker-dealer typically
handles internally. Accordingly,
Commission staff estimates that 250
broker-dealers would each incur a one78 500 (number of broker-dealer respondents in
2006 PRA Submission)¥250 (maximum estimate of
broker-dealers impacted by the proposed
amendments to the Rule) = 250 (broker-dealers). In
order to provide an estimate for the paperwork
burden that would not be under-inclusive,
Commission staff elected to use the higher end of
the estimate for the total number of broker-dealers
impacted by the proposed amendments.
PO 00000
Frm 00012
Fmt 4701
Sfmt 4702
time, first-year burden of 30 minutes to
prepare and issue a notice to its
employees regarding the broker dealer’s
obligations under the proposed
amendments.
Therefore, under the proposed
amendments, the total burden on these
respondents would be 375 hours for the
first year 79 and 250 hours for each
subsequent year.80
2. Issuers
The Commission believes that issuers
prepare annual filings and material
event notices as a usual and customary
practice in the municipal securities
market. Issuers’ undertakings regarding
the submission of annual filings,
material event notices, and failure to file
notices that are set forth in continuing
disclosure agreements contemplated by
the existing Rule, as well as the
proposed amendments to the Rule,
impose a paperwork burden on issuers
of municipal securities.
In the 2006 PRA Submission, the
Commission estimated that Rule 15c2–
12 imposed a total paperwork burden of
5,000 hours on 10,000 issuers in any
given year.81 In determining the
paperwork burden for issuers under the
2006 PRA Submission, the Commission
estimated that each issuer would submit
each year one annual filing that
describes its finances and operations.
Thus, under the 2006 PRA Submission,
the Commission estimated that issuers
would prepare approximately 10,000
packages of annual filings yearly and
that it would take each issuer 30
minutes to do so, for a total burden of
5,000 hours.82 However, based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February
2008, Commission staff estimates that,
in connection with the proposed
amendments, 10,000 municipal issuers
with continuing disclosure agreements
would prepare approximately 12,000 to
15,000 annual filings yearly.83
79 (250 (maximum estimate of broker-dealers
impacted by the proposed amendments to the Rule)
× 1 hour) + (250 (maximum estimate of brokerdealers impacted by the proposed amendments to
the Rule) × .5 hour (estimate for one-time burden
to issue notice regarding broker-dealer’s obligations
under the proposed amendments to the Rule)) = 375
hours.
80 250 (maximum estimate of broker-dealers
impacted by the proposed amendments to the Rule)
× 1 hour = 250 hours.
81 See 2006 PRA Submission.
82 10,000 (annual filings) × 30 minutes = 5,000
hours.
83 The revision in the number of annual filings
from the 10,000 annual filings included in the 2006
PRA Submission to approximately 12,000 to 15,000
annual filings reflects current information provided
to Commission staff by MSRB staff, which advised
that some issuers submit more than one annual
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
Issuers could submit continuing
disclosure documents directly to the
single repository or could do so
indirectly through a designated agent.
Based on telephone conversations with
industry sources in May 2008,
Commission staff estimates that
approximately 30% of issuers today
utilize the services of a designated agent
to submit disclosure documents to
NRMSIRS. An issuer would engage the
services of a designated agent as a
matter of convenience to advise it of the
timing and type of continuing
disclosure documents to be submitted to
the repository. Commission staff does
not believe that the percentage of issuers
that rely on the services of a designated
agent would change appreciably as a
result of the proposed amendments
because the proposed amendments
simply would revise the location to
which continuing disclosure documents
would be submitted.
In the 2006 PRA Submission, the
Commission estimated that the process
for an issuer to submit the annual filings
to each of the four NRMSIRs would
require approximately 30 minutes.84
Commission staff estimates that, under
the proposed amendments, an issuer
would take approximately 45 minutes to
submit the same annual filings to a
single repository in an electronic format
and accompanied by identifying
information. This estimate includes
approximately 30 minutes to prepare
the annual filing, which is consistent
with the 2006 PRA Submission, plus a
new burden of an additional 15 minutes
to convert the information into an
electronic format and add any
identifying information that the
repository may prescribe.85 Therefore,
filing each year. Also, the estimate for the number
of annual filings includes the submission of annual
financial information or operating data described in
Rule 15c2–12(d)(2)(ii)(A).
84 See 2006 PRA Submission.
85 This additional burden of 15 minutes may
decrease over time as issuers become more efficient
at converting continuing disclosure documents into
an electronic format and preparing any identifying
information that the repository may prescribe. Also,
Commission staff estimates that, for the estimated
30% of issuers that utilize the services of a
designated agent, the designated agent would
convert the document into an electronic format (if
the issuer has not already done so) and add the
identifying information on the issuer’s behalf and
then submit the information to the MSRB. The
additional paperwork burden of 15 minutes
described above would remain the same whether or
not an issuer utilizes a designated agent because the
information would need to be converted into an
electronic format and identifying information
added, whether the issuer or the designated agent
on the issuer’s behalf performed these tasks.
Commission staff has elected to use conservative
estimates for purposes of this rulemaking but
believes that ultimately the estimated additional
paperwork burden of 15 minutes would be lower
for those issuers that use designated agents that
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
under the proposed amendments, the
total burden on issuers of municipal
securities to submit 15,000 annual
filings to the MSRB is estimated to be
11,250 hours.86 This amount represents
an increase of 6,250 hours from the
5,000 hours included in the 2006 PRA
Submission.87
In connection with developing the
proposed amendments, the Commission
has attempted to obtain more current
information regarding the number of
material event notices that potentially
would be submitted annually to the
proposed single repository. Based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February,
2008, it is estimated that, on an annual
basis, the MSRB would receive
approximately 50,000 to 60,000 notices
of the occurrence of a material event.88
Commission staff notes that this new
estimate represents a substantial
increase in the estimated number of
material event notices that issuers
would file relative to the number of
material event notices included in the
2006 PRA Submission, and believes that
the disparity could be due in part to the
difficulty in obtaining an accurate, nonduplicative estimate of the number of
paper documents filed with the various
NRMSIRs, as well as Commission staff’s
decision to use conservative estimates
for purposes of this rulemaking.
Under the 2006 PRA Submission, the
Commission estimated that the process
for an issuer to submit a material event
notice to a NRMSIR would require
approximately 30 minutes.89
Commission staff estimates that, under
the proposed amendments, providing
implement computer-to-computer interfaces with
the MSRB.
86 15,000 (maximum estimate of annual filings) ×
45 minutes = 11,250 hours. In order to provide an
estimate for the paperwork burden that would not
be under-inclusive, Commission staff elected to use
the higher end of the estimate for the total number
of annual filings estimated to be submitted each
year.
87 Under the proposed amendments, the increase
in the annual paperwork burden for issuers with
respect to the submission of annual filings is a
result of the 15 minute increase in time it would
require each issuer to submit annual filings, as well
as Commission staff’s revision of the estimate for
the total number of annual filings submitted by
issuers, which increased by 5,000 over the
Commission’s estimates in the 2006 PRA
Submission. Issuers’ burden under the 2006 PRA
Submission is as follows: 10,000 annual filings × 30
minutes = 5,000 hours. Issuers’ burden under the
proposed amendments is as follows: 15,000 annual
filings × 45 minutes = 11,250 hours. The difference
in burden between the proposed amendments and
the 2006 PRA Submission is as follows: 11,250
hours¥5,000 hours = 6,250 hours.
88 This estimate for material event notices
includes the submission of material event notices
described in Rule 15c2–12(d)(2)(ii)(B).
89 See 2006 PRA Submission.
PO 00000
Frm 00013
Fmt 4701
Sfmt 4702
46149
this same information to the MSRB
would require approximately 45
minutes. This estimate includes
approximately 30 minutes to prepare
the material event notice, which is
consistent with the 2006 PRA
Submission, plus a new burden of an
additional 15 minutes to convert the
information into an electronic format
and add any identifying information
that the repository may prescribe.90
Therefore, under the proposed
amendments, the total burden on issuers
to submit material event notices to the
MSRB would require 45,000 hours.91
This amount represents an increase of
44,250 hours from the 750 hours
included in the 2006 PRA Submission.92
Based on information provided to
Commission staff by MSRB staff in a
series of telephone conversations in
February, 2008, Commission staff
estimates that, on an annual basis, the
MSRB would receive approximately
90 Commission staff notes that this additional
burden of 15 minutes may decrease over time as
issuers become more efficient at converting
continuing disclosure documents into an electronic
format and preparing any identifying information
that the repository may prescribe, as set forth in the
proposed amendments. Also, Commission staff
estimates that, for the estimated 30% of issuers that
utilize the services of a designated agent, the
designated agent would convert the document into
an electronic format (if the issuer has not already
done so) and add the identifying information on the
issuer’s behalf and then submit the information to
the MSRB. The additional paperwork burden of 15
minutes described above would remain the same
whether or not an issuer utilizes a designated agent
because the information would need to be
converted into an electronic format and identifying
information added, whether the issuer or the
designated agent on the issuer’s behalf performed
these tasks. Commission staff has elected to use
conservative estimates for purposes of this
rulemaking but believes that ultimately the
estimated additional paperwork burden of 15
minutes would be lower for those issuers that use
designated agents that implement computer-tocomputer interfaces with the MSRB.
91 60,000 (maximum estimate of material event
notices) × 45 minutes = 45,000 hours. In order to
provide an estimate for the paperwork burden that
would not be under-inclusive, Commission staff has
elected to use the higher end of the estimate for the
total number of material event notices estimated to
be submitted each year.
92 Under the proposed amendments, the increase
in the annual paperwork burden for issuers with
respect to the submission of material event notices
is a result of the 15 minute increase in time it would
require each issuer to submit material event notices,
as well as Commission staff’s upward revision of its
estimate for the total number of material event
notices that issuers would submit, which is
estimated to increase by 58,500 notices over the
Commission’s estimate in the 2006 PRA
Submission, as noted earlier. See text
accompanying note 88. Issuers’ burden under the
2006 PRA Submission is as follows: 1,500 material
event notices × 30 minutes = 750 hours. Issuers’
burden under the proposed amendments is as
follows: 60,000 material event notices × 45 minutes
= 45,000 hours. The difference in burden between
the proposed amendments and the 2006 PRA
Submission is as follows: 45,000 hours¥750 hours
= 44,250 hours.
E:\FR\FM\07AUP2.SGM
07AUP2
46150
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
1,500 to 2,000 failure to file notices.
Commission staff estimates that the
current process of preparing and
submitting a failure to file notice to a
NRMSIR would require approximately
15 minutes. Commission staff estimates
that, under the proposed amendments,
providing this same information to the
MSRB would require approximately 30
minutes. This estimate includes
approximately 15 minutes to prepare
and submit the failure to file notice,
plus an additional 15 minutes to convert
the information into an electronic
format and add any identifying
information that the repository would
prescribe.93 Therefore, under the
proposed amendments, the total burden
on issuers to prepare and submit failure
to file notices to the MSRB would be
1,000 hours.94 Thus, the estimated 1,000
hours to prepare and submit failure to
file notices to the MSRB represents a
new paperwork burden of 1,000 hours.
Accordingly, under the proposed
amendments, the total burden on issuers
to submit annual filings, material event
notices and failure to file notices to the
MSRB would be 57,250 hours.95 This
represents an increase in the total
number of burden hours for issuers of
51,500 hours from the 5,750 hours
included in the 2006 PRA Submission.
ebenthall on PROD1PC65 with PROPOSALS2
3. The MSRB
In the 2006 PRA Submission, the
Commission estimated that the total
burden on each NRMSIR of collecting,
indexing, storing, retrieving and
disseminating information requested by
93 Commission staff notes that this additional
burden of 15 minutes may decrease over time as
issuers become more efficient at converting
continuing disclosure documents into an electronic
format and preparing any identifying information
that the repository may prescribe. Also,
Commission staff estimates that, for the estimated
30% of issuers that utilize the services of a
designated agent, the designated agent would
convert the document into an electronic format (if
the issuer has not already done so) and add the
identifying information on the issuer’s behalf and
then submit the information to the MSRB. The
additional paperwork burden of 15 minutes
described above would remain the same whether or
not an issuer utilizes a designated agent because the
information would need to be converted into an
electronic format and identifying information
added, whether the issuer or the designated agent
on the issuer’s behalf performed these tasks.
Commission staff has elected to use conservative
estimates for purposes of this rulemaking but
believes that ultimately the estimated additional
paperwork burden of 15 minutes would be lower
for those issuers that use designated agents that
implement computer-to-computer interfaces with
the MSRB.
94 2,000 (maximum estimate of failure to file
notices) × 30 minutes = 1,000 hours.
95 11,250 hours (estimated burden for issuers to
submit annual filings) + 45,000 hours (estimated
burden for issuers to submit material event notices)
+ 1,000 hours (estimated burden for issuers to
submit failure to file notices) = 57,250 hours.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
the public to be 29,400 hours and that
the total burden on all four NRMSIRs
was 117,600 hours (4 NRMSIRs × 29,400
hours). The proposed amendments
contemplate that the MSRB would be
the sole repository and would receive
disclosure documents in an electronic,
rather than paper, format. Based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February,
2008, Commission staff estimates that
the burden to collect, index, store,
retrieve, and make available the
pertinent documents would be the
number of hours that MSRB employees
would be assigned to the system for
collecting, storing, retrieving, and
making available the documents. In a
series of telephone conversations
between MSRB staff and Commission
staff in February 2008, the MSRB
advised that three full-time employees
and one half-time employee would be
assigned to these tasks and that each
full-time employee would spend
approximately 2,000 hours per year
working on these tasks. Therefore, the
total burden on the MSRB to collect,
store, retrieve, and make available the
disclosure documents covered by the
proposed amendments would be 7,000
hours per year.96 Thus, the total burden
on the MSRB to collect, store, retrieve,
and make available the disclosure
documents covered by the proposed
amendments would be 22,400 hours 97
less than the burden for each NRMSIR
to collect, index, store, retrieve and
make available disclosure documents
under the 2006 PRA Submission, and
110,600 hours 98 less than the burden for
all four NRMSIRs to collect, index,
store, retrieve and make available
disclosure documents as estimated in
the 2006 PRA Submission. The
difference in the burden hour estimate
for the MSRB to collect, store, retrieve,
and make available continuing
disclosure documents under the
proposed amendments in comparison to
the burden on the NRMSIRs estimated
in the 2006 PRA Submission could be
attributed to the fact that the proposed
amendments contemplate that the
continuing disclosure documents would
be collected, stored, retrieved and made
available electronically, whereas the
96 2,000 hours × 3.5 (3 full-time employees and
1 half-time employee) = 7,000 hours.
97 29,400 hours (estimated burden for each
NRMSIR in the 2006 PRA Submission)—7,000
hours (estimated burden for MSRB under the
proposed amendments) = 22,400 hours (estimated
reduction from current Rule’s burden).
98 117,600 hours (estimated burden for all four
NRMSIRs in the 2006 PRA Submission)—7,000
hours (estimated burden for MSRB under the
proposed amendments) = 110,600 hours (estimated
reduction from current Rule’s burden).
PO 00000
Frm 00014
Fmt 4701
Sfmt 4702
2006 PRA Submission contemplated
that these documents would be
collected, stored, retrieved and made
available in paper format. In part, the
estimate in the 2006 PRA Submission
was based on the expectation that the
documents would be collected, stored,
retrieved and made available in paper
rather than electronic format, which
would require more people to perform
these tasks.
4. Annual Aggregate Burden for
Proposed Amendments
Accordingly, Commission staff
expects that the ongoing annual
aggregate information collection burden
for the proposed amendments to the
Rule would be 64,500 hours.99 The
current annual aggregate information
collection burden for the Rule is
123,850 hours.100 Therefore, if the
Commission were to adopt the proposed
amendments, the ongoing annual
aggregate information collection burden
for Rule 15c2–12 is estimated to be
reduced by 59,350 hours.101
E. Total Annual Cost Burden
1. Issuers
The Commission expects that some
issuers could be subject to some costs
associated with the proposed electronic
submission of annual filings, material
event notices and failure to file notices,
particularly if they (or their agent)
currently submit paper copies of these
documents to the NRMSIRs. It is likely,
however, that many issuers of
municipal securities currently have the
computer equipment and software
necessary to convert paper copies of
continuing disclosure documents to
electronic copies and to electronically
transmit the documents to the MSRB.
For issuers that currently have such
capability, the start-up costs to provide
continuing disclosure documents to the
MSRB would be minimal because they
already would possess the necessary
resources internally. Some issuers may
have the necessary computer equipment
to transmit documents electronically to
99 250 hours (total estimated burden for brokerdealers) + 57,250 hours (total estimated burden for
issuers) + 7,000 hours (total estimated burden for
MSRB) = 64,500 hours. The initial first-year burden
would be 64,625 hours: 375 hours (total estimated
burden for broker-dealers in the first year) + 57,250
hours (total estimated burden for issuers) + 7,000
hours (total estimated burden for MSRB) = 64,625
hours.
100 See 2006 PRA Submission.
101 123,850 hours (total burden under current
Rule)—64,500 hours (total burden under amended
Rule) = 59,350 hours. In the first year, the aggregate
burden would be reduced by 59,225 hours: 123,850
(total burden under current Rule)—64,625 hours
(total burden under amended Rule in the first year)
= 59,225 hours.
E:\FR\FM\07AUP2.SGM
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
the MSRB, but may need to upgrade or
obtain the software necessary to submit
documents to the MSRB in the
electronic format that it prescribes. For
these issuers, the start-up costs would
be the costs of upgrading or acquiring
the necessary software. Issuers that
presently do not provide their annual
filings, material event notices and/or
failure to file notices in an electronic
format and that are currently sending
paper copies of their documents to the
NRMSIRs pursuant to their continuing
disclosure agreements could incur some
costs to obtain electronic copies of such
documents if they are prepared by a
third party (e.g., accountant or attorney)
or, alternatively, to have a paper copy
converted into an electronic format.
These costs would vary depending on
how the issuer elected to convert its
continuing disclosure documents into
an electronic format. An issuer could
elect to have a third-party vendor
transfer its paper continuing disclosure
documents into the appropriate
electronic format. An issuer also could
decide to undertake the work internally,
and its costs would vary depending on
the issuer’s current technology
resources.
The cost for an issuer to have a thirdparty vendor transfer its paper
continuing disclosure documents into
an appropriate electronic format could
vary depending on what resources are
required to transfer the documents into
the appropriate electronic format. One
example of such a transfer would be the
scanning of paper-based continuing
disclosure documents into an electronic
format. Based on information provided
to Commission staff through limited
inquiries to commercial vendors in
February 2008, Commission staff
estimates that the cost for an issuer to
have a third-party vendor scan
documents would be $6 for the first
page and $2 for each page thereafter.
Based on information provided to
Commission staff by MSRB staff in a
series of telephone conversations in
February 2008, Commission staff
estimates that material event and failure
to file notices consist of one to two
pages, while annual filings range from
eight to ten pages to several hundred
pages, but average about 30 pages in
length. Accordingly, the approximate
cost for an issuer to use a third party
vendor to scan a material event notice
or failure to file notice would be $8
each, and the approximate cost to scan
an average-sized annual financial
statement would be $64. Based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
2008, Commission staff estimates that
an issuer would submit one to five
continuing disclosure documents
annually.
Alternatively, an issuer that currently
does not have the appropriate
technology could elect to purchase the
resources to electronically format the
disclosure documents on its own.102
Based on information obtained by
Commission staff through limited
inquiries of commercial vendors in
February 2008, Commission staff
estimates that an issuer’s initial cost to
acquire these technology resources
could range from $750 to $4,300.103
Some issuers may have the necessary
hardware to transmit documents
electronically to the MSRB, but may
need to upgrade or obtain the software
necessary to submit documents to the
MSRB in the electronic format that it
prescribes. Based on information
obtained by Commission staff through
limited inquiries of commercial vendors
in February 2008, Commission staff
estimates that an issuer’s cost to update
or acquire this software could range
from $50 to $300.104
In addition, issuers without direct
Internet access could incur some costs
to obtain such access to submit the
documents. However, Commission staff
notes that Internet access is now broadly
available to and utilized by businesses,
governments, organizations and the
public, and Commission staff expects
that most issuers of municipal securities
currently have Internet access. In the
102 Generally, the technology resources necessary
to transfer a paper document into an electronic
format are a computer, scanner and possibly
software to convert the scanned document into the
appropriate electronic document format. Most
scanners include a software package that is capable
of converting scanned images into multiple
electronic document formats. An issuer would only
need to purchase software if the issuer (i) has a
scanner that does not include a software package
that is capable of converting scanned images into
the appropriate electronic format, or (ii) purchases
a scanner that does not include a software package
capable of converting documents into the
appropriate electronic format.
103 Commission staff estimates the cost for an
issuer to upgrade or acquire the necessary
technology to transfer its paper continuing
disclosure documents into an electronic format are
based upon the following estimates for purchasing
the necessary equipment from a commercial
vendor: (i) An issuer’s cost for a computer would
range from $500 to $3,000; (ii) an issuer’s cost for
a scanner would range from $200 to $1,000; and (iii)
an issuer’s cost for software to submit documents
in an electronic format would range from $50 to
$300.
104 Commission staff estimates the cost for an
issuer to upgrade or acquire the software to submit
documents in an electronic format would range
from $50 to $300. Issuers that only need to upgrade
existing software would incur costs closer to the
lower end of this estimate, while those issuers that
need to purchase completely new software packages
would incur costs closer to the higher end of this
estimate.
PO 00000
Frm 00015
Fmt 4701
Sfmt 4702
46151
event that an issuer does not have
Internet access, it would incur costs in
obtaining such access, which
Commission staff estimates to be
approximately $50 per month, based on
its limited inquiries to Internet service
providers. Otherwise, there are multiple
free or low cost locations that an issuer
could utilize, such as various
commercial sites, which could help an
issuer to avoid the costs of maintaining
continuous Internet access solely to
comply with the proposed amendments
to the Rule.
Accordingly, Commission staff
estimates that the costs to some issuers
to submit continuing disclosure
documents to a single repository in
electronic format could include: (i) An
approximate cost of $8 per notice to use
a third party vendor to scan a material
event notice or failure to file notice, and
an approximate cost of $64 to use a
third party vendor to scan an averagesized annual financial statement, (ii) an
approximate cost ranging from $750 and
$4,300 to acquire technology resources
to convert continuing disclosure
documents into an electronic format,
(iii) $50 to $300 solely to upgrade or
acquire the software to submit
documents in an electronic format; and
(iv) approximately $50 per month to
acquire Internet access.
For an issuer that does not have
Internet access and elects to have a third
party convert continuing disclosure
documents into an electronic format
(‘‘Category 1’’), the total maximum
external cost such issuer would incur
would be $752 per year.105 For an issuer
that does not have Internet access and
elects to acquire the technological
resources to convert continuing
disclosure documents into an electronic
format internally (‘‘Category 2’’), the
total maximum external cost such issuer
would incur would be $4,900 for the
first year and $600 per year
thereafter.106 Accordingly, Commission
105 [$64 (cost to have third party convert annual
filing into an electronic format) × 2 (maximum
estimated number of annual filings filed per year
per issuer)] + [$8 (cost to have third party convert
material event notice or failure to file notice into
an electronic format) × 3 (maximum estimated
number of material event or failure to file notices
filed per year per issuer)] + [$50 (estimated monthly
Internet charge) × 12 months] = $752. Commission
staff estimates that an issuer would file one to five
continuing disclosure documents per year. These
documents generally consist of no more than two
annual filings and three material event or failure to
file notices.
106 [$4300 (maximum estimated one-time cost to
acquire technology to convert continuing disclosure
documents into an electronic format)] + [$50
(estimated monthly Internet charge) × 12 months]
= $4900. After the initial year, issuers who acquire
the technology to convert continuing disclosure
documents into an electronic format internally
E:\FR\FM\07AUP2.SGM
Continued
07AUP2
46152
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
staff estimates that the total cost for
issuers, if they all were classified as
Category 1, would be $7,520,000 per
year, and that the total cost for issuers,
if they all were classified as Category 2,
would be $49,000,000 for the first year
and $6,000,000 per year thereafter.107
Alternatively, an issuer could elect to
use the services of a designated agent to
submit continuing disclosure
documents to the MSRB. As noted
above, Commission staff believes that
approximately 30% of municipal issuers
that submit continuing disclosure
documents today rely on the services of
a designated agent. Generally, when
issuers utilize the services of a
designated agent, they enter into a
contract with the designated agent for a
package of services, including the
submission of continuing disclosure
documents, for a single fee. Based on
information provided to Commission
staff by industry sources in telephone
conversations in May 2008, it is
anticipated that five of the largest
designated agents would submit
documents electronically to the MSRB
via a direct computer-to-computer
interface. Based on information
provided to Commission staff by MSRB
staff during telephone conversations in
May 2008, Commission staff estimates
that the start-up cost for an entity to
develop a direct computer-to-computer
interface with the MSRB would range
from approximately $69,360 to
$138,720.108 Thus, the maximum
estimated total start-up cost of
developing a direct computer-tocomputer interface by each of the five
designated agents for the submission of
would only have the cost of obtaining Internet
access. $50 (estimated monthly Internet charge) ×
12 months = $600.
107 Total cost for Category 1: 10,000 issuers × $752
(annual cost per issuer to have a third party convert
continuing disclosure documents into an electronic
format and for Internet access) = $7,520,000. Total
cost for Category 2: 10,000 issuers × $4,900 (onetime cost to acquire technology to convert
continuing disclosure documents into an electronic
format and annual cost for Internet access) =
$49,000,000. 10,000 issuers × $600 (annual cost per
issuer for Internet access) = $6,000,000. In order to
provide an estimate of the total costs to issuers that
would not be under-inclusive, Commission staff
elected to use all 10,000 issuers for each Category’s
estimate.
108 The MSRB estimated that it would take an
entity approximately 240 to 480 hours of computer
programming to develop the computer-to-computer
interface with the MSRB. $289 (hourly wage for a
senior programmer) × 240 hours = $69,360. $289
(hourly wage for a senior programmer) × 480 hours
= $138,720. The $289 per hour estimate for a senior
programmer is from SIFMA’s Office Salaries in the
Securities Industry 2007, modified by Commission
staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
continuing disclosure documents to the
MSRB would be $693,600.
The Commission believes that, in
light of the estimated cost to develop
and implement a computer-to-computer
interface with the MSRB, it is unlikely
that issuers would elect to proceed with
this approach given the availability of
less expensive alternatives to submitting
continuing disclosure documents
electronically to the MSRB. However,
some issuers could choose to submit
their continuing disclosure documents
to the MSRB through a designated agent.
A designated agent could submit
continuing disclosure documents along
with identifying information to the
MSRB on behalf of numerous issuers.
Depending on its business model, a
designated agent could submit
continuing disclosure documents along
with identifying information to the
MSRB via the Internet or through a
direct computer-to-computer interface.
In either case, the issuer could incur a
cost associated with the designated
agent’s electronic submission of the
pertinent continuing disclosure
document and any identifying
information to the MSRB. Commission
staff estimates that this cost could be
approximately $16 per continuing
disclosure document.109
2. MSRB
The MSRB would incur costs to
develop the computer system to allow it
to collect, store, process, retrieve, and
make available continuing disclosure
documents furnished to it by issuers of
municipal securities. Based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February
2008, MSRB’s start-up costs associated
with developing the portal for
continuing disclosure documents,
including hardware, an additional
hosting site, and software licensing and
acquisition costs, would be
approximately $1,000,000. In addition,
the MSRB indicated that the annual
operating costs for this system,
excluding salary and other costs related
to employees, would be approximately
$350,000. Accordingly, Commission
109 For this estimate, Commission staff has
included the cost of having the designated agent’s
compliance clerk submit electronically the
pertinent continuing disclosure document and any
identifying information to the MSRB. 15 minutes
(.25 hours) (estimated time per document to gather
identifying information) × $62 (hourly wage for a
compliance clerk) = $15.50 (approximately $16).
The $62 per hour estimate for a compliance clerk
is from SIFMA’s Office Salaries in the Securities
Industry 2007, modified by Commission staff to
account for an 1800-hour work-year and multiplied
by 2.93 to account for bonuses, firm size, employee
benefits and overhead.
PO 00000
Frm 00016
Fmt 4701
Sfmt 4702
staff estimates that the total costs for the
MSRB would be $1,350,000 for the first
year and $350,000 per year thereafter,
exclusive of salary and other costs
related to employees.110
F. Retention Period of Recordkeeping
Requirements
As an SRO subject to Rule 17a–1
under the Exchange Act,111 if the
proposed amendments to the Rule were
adopted, the MSRB would be required
to retain records of the collection of
information for a period of not less than
five years, the first two years in an
easily accessible place. The proposed
amendments to the Rule would contain
no recordkeeping requirements for any
other persons.
G. Collection of Information is
Mandatory
Any collection of information
pursuant to the proposed amendments
to the Rule would be a mandatory
collection of information.
H. Responses to Collection of
Information Will Not Be Kept
Confidential
The collection of information
pursuant to the proposed amendments
to the Rule would not be confidential
and would be publicly available.
I. Request for Comments
Pursuant to 44 U.S.C. 3506(c)(2)(B),
the Commission solicits comments
regarding: (1) Whether the proposed
collections of information are necessary
for the proper performance of the
functions of the agency, including
whether the information will have
practical utility; (2) the accuracy of the
Commission’s estimate of the burden of
the revised collections of information;
(3) whether there are ways to enhance
the quality, utility, and clarity of the
information to be collected; and (4)
whether there are ways to minimize the
burden of the collection of information
on those who are to respond, including
through the use of automated collection
techniques or other forms of information
technology.
The Commission has submitted to
OMB for approval the proposed
110 $1,000,000 (cost to establish computer system)
+ $350,000 (annual operation costs for computer
system, excluding salary and other related costs for
employees) = $1,350,000 (first year cost to MSRB).
After the first year, the only cost would be the
annual operation cost of $350,000. These costs do
not include the salary and other overhead costs
related to the employees who would maintain the
system. MSRB staff advised Commission staff that
the personnel costs associated with operating the
portal for continuing disclosure documents would
be approximately $400,000 per year.
111 17 CFR 240.17a–1.
E:\FR\FM\07AUP2.SGM
07AUP2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
A. Benefits
Under the proposed amendments to
the Rule, a Participating Underwriter
would be prohibited from purchasing or
selling municipal securities covered by
the Rule in a primary offering, unless it
has reasonably determined that the
issuer of a municipal security has
undertaken in a continuing disclosure
agreement to provide continuing
disclosure documents to the MSRB.112
The Commission believes that providing
for a single repository that receives
submissions in an electronic format,
rather than multiple repositories, would
encourage a more efficient and effective
process for the collection and
availability of continuing disclosure
information. In the Commission’s view,
a single electronic point of collection
and accessibility of continuing
disclosure documents could assist
issuers and obligated persons in
complying with their undertakings.
Submission of continuing disclosure
documents only to one repository rather
than multiple repositories would reduce
the resources issuers and obligated
persons need to devote to the process of
gathering and submitting continuing
disclosure documents. Because the
proposed amendments would provide
for the electronic submission and
availability of continuing disclosure
documents, the costs to issuers and
obligated persons of gathering and
submitting this information ultimately
could be reduced because they no
longer would have to gather and submit
documents in a paper format. As
described more fully in Section IV.
above, Commission staff estimates that
the ongoing annual information
collection burden under the proposed
amendments would be 64,500 hours.113
This is a reduction of 59,350 hours from
the 2006 PRA Submission.114 This
overall reduction in the Rule’s
paperwork burden—and the costs
associated with that burden—
principally would benefit issuers or
obligated persons.
The Commission also believes that
having a single repository that receives
and makes available submissions in an
electronic format would provide ready
and prompt access to this information
by investors and municipal securities
market participants. Investors and
market participants would be able to go
solely to one location to retrieve
continuing disclosure documents rather
than having to approach multiple
locations, thereby allowing for a more
convenient means to obtain such
information. In addition, the
Commission preliminarily believes that
having one repository electronically
collect and make available all
continuing disclosure documents would
112 Under the proposed amendments to paragraph
(d)(2)(ii) of the Rule, a Participating Underwriter
would be exempt from its obligations under
paragraph (b)(5) of the Rule as long as an issuer or
obligated person has agreed in its limited
undertaking that the publicly available financial
information or operating data described in
paragraph (d)(2)(ii)(A) of the Rule would be
submitted to the MSRB annually, instead of upon
request to any person or at least annually to the
appropriate SID, if any, and that the material event
notices described in paragraph (d)(2)(ii)(B) of the
Rule would be submitted to the MSRB, instead of
to each NRMSIR or the MSRB and to the
appropriate SID, if any, and as long as the other
conditions of the exemption are met.
113 Commission staff estimates that the annual
information collection burden under the proposed
amendments in the first year would be 64,625
hours.
114 In the first year, this is a reduction of 59,225
from the 2006 PRA Submission.
revisions to the current collection of
information titled ‘‘Municipal Securities
Disclosure.’’ Persons submitting
comments on the collection of
information requirements should direct
them to the Office of Management and
Budget, Attention: Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Washington, DC 20503, and
should also send a copy of their
comments to Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–0609, with
reference to File No. S7–21–08, and be
submitted to the Securities and
Exchange Commission, Public Reference
Room, 100 F Street, NE., Washington,
DC 20549. As OMB is required to make
a decision concerning the collection of
information between 30 and 60 days
after publication, a comment to OMB is
best assured of having its full effect if
OMB receives it within 30 days of
publication. Requests for materials
submitted to OMB by the Commission
with regard to this collection of
information should be in writing,
should refer to File No. S7–21–08, and
be submitted to the Securities and
Exchange Commission, Public Reference
Room, 100 F Street, NE., Washington,
DC 20549.
ebenthall on PROD1PC65 with PROPOSALS2
V. Costs and Benefits of Proposed
Amendments to Rule 15c2–12
The Commission is considering the
costs and benefits of the proposed
amendments to Rule 15c2–12 discussed
above. As discussed below, the
Commission believes that there would
be an overall reduction in costs based
on the proposed amendments. The
Commission encourages commenters to
identify, discuss, analyze, and supply
relevant data regarding any such costs
or benefits.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
PO 00000
Frm 00017
Fmt 4701
Sfmt 4702
46153
increase the likelihood that investors
and other market participants would
obtain complete information.
The Commission expects that a single
repository that receives submissions in
an electronic format could simplify
compliance with regulatory
requirements by broker-dealers and
others, such as mutual funds, by
providing them with consistent
availability of continuing disclosure
documents from a single source.
Information vendors (including
NRMSIRs and SIDs) and others also
would have ready access to all
continuing disclosure documents that
they in turn could use in their valueadded products. The Commission also
expects that having a single repository
that receives submissions in an
electronic format would make the
information available to all users.
Under the current Rule, Commission
staff estimates that the current annual
paperwork cost for all four NRMSIRs to
collect, index, store, retrieve and
disseminate continuing disclosure
information requested by the public to
be approximately $7.3 million.115 Based
on information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February
2008, the MSRB staff estimated that the
MSRB’s annual total costs to collect,
index, store, retrieve and make available
continuing disclosure information,
would be $1,350,000 for the first year
and $350,000 per year thereafter.
Providing for a single repository could
reduce the paperwork costs that
NRMSIRs currently incur because they
no longer would have to maintain
personnel and other resources solely in
connection with their status as a
NRMSIR.
Finally, the Commission preliminarily
believes that the proposed amendments
could encourage the dissemination of
information in the information services
markets by providing easier access to
continuing disclosure documents. As a
result, there potentially could be an
increase in the number of information
vendors disseminating continuing
disclosure documents and value-added
products because the cost of entry into
the municipal securities information
services market could be reduced.
115 117,600 hours (total annual hourly burden for
all four NRMSIRs from 2006 PRA Submission) ×
$62 (hourly wage for a compliance clerk) = $7.3
million. The $62 per hour estimate for a compliance
clerk is from SIFMA’s Office Salaries in the
Securities Industry 2007, modified by Commission
staff to account for an 1,800-hour work-year and
multiplied by 2.93 to account for bonuses, firm size,
employee benefits and overhead.
E:\FR\FM\07AUP2.SGM
07AUP2
46154
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
The Commission seeks comment on
the anticipated benefits of the proposed
amendments.
B. Costs
If the amendments to the Rule were
adopted, the Commission would not
expect broker-dealers to incur any
additional recurring costs because the
proposed amendments would not alter
substantively the existing Rule’s
requirements for these entities, except
with respect to the place to which
issuers would agree to make filings. The
proposed amendments would change
the location where the continuing
disclosure documents of issuers or
obligated persons would be submitted
pursuant to continuing disclosure
agreements. As noted above,
Commission staff estimates that the
annual information collection burden
for each broker-dealer under the
proposed amendments to the Rule
would be one hour. This annual burden
is identical to the burden that a brokerdealer has under the current Rule.116
Accordingly, Commission staff
estimates that it would cost each brokerdealer $270 annually to comply with the
Rule.117
In addition, Commission staff
estimates that a broker-dealer could
have a one-time internal cost associated
with having an in-house compliance
attorney prepare and issue a
memorandum advising the brokerdealer’s employees who work on
primary offerings of municipal
securities about the proposed revisions
to Rule 15c2–12, if they are adopted by
the Commission. Commission staff
estimates it would take internal counsel
approximately 30 minutes to prepare
this memorandum, for a cost of
approximately $135.118
The Commission believes that the
ongoing obligations of broker-dealers
under the Rule would be handled
internally because compliance with
these obligations is consistent with the
type of work that a broker-dealer
typically handles internally. The
Commission does not believe that a
broker-dealer would have any recurring
external costs associated with the
proposed amendments to the Rule. The
Commission requests comment on any
116 See
2006 PRA Submission.
hour (estimated annual information
collection burden for each broker-dealer) × $270
(hourly cost for a broker-dealer’s internal
compliance attorney) = $270. The hourly rate for
the compliance attorney is from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2007, modified by Commission
staff to account for an 1,800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
118 See Section IV.D.1., supra.
ebenthall on PROD1PC65 with PROPOSALS2
117 1
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
costs broker-dealers could incur under
the proposed amendments.
Although Rule 15c2–12 relates to the
obligations of broker-dealers, issuers or
obligated persons indirectly could incur
costs as a result of the proposed
amendments. Pursuant to continuing
disclosure agreements, issuers of
municipal securities currently
undertake to provide continuing
disclosure documents to the NRMSIRs
either directly or indirectly through an
indenture trustee or a designated agent.
In either case, some issuers could be
subject to the costs associated with the
proposed electronic filing of annual
filings, material event notices and
failure to file notices, particularly if they
(or their agent) currently submit paper
copies of these documents to the
NRMSIRs. For those issuers that
currently deliver their continuing
disclosure documents electronically to
the NRMSIRs, there should be minimal
change in costs as a result of the
proposed requirement that documents
be submitted electronically.
Issuers that presently do not provide
their annual filings, material event
notices and/or failure to file notices in
an electronic format and that are
currently sending paper copies of their
documents to the NRMSIRs pursuant to
their continuing disclosure agreements
could incur some costs to obtain
electronic copies of such documents
from the party who prepared them or,
alternatively, to have a paper copy
converted into an electronic format.
These costs would vary depending on
how the issuer elected to convert their
continuing disclosure documents into
an electronic format. An issuer could
elect to have a third-party vendor
transfer their paper continuing
disclosure documents into the
appropriate electronic format. An issuer
also could decide to undertake the work
internally, and its costs would vary
depending on the issuer’s current
technology resources. An issuer also
would need to have Internet access to
submit documents electronically and
would incur the costs of maintaining
such service, if the issuer currently does
not have Internet access, unless it relies
on other sources of Internet access.
It is likely, however, that many
issuers of municipal securities currently
possess the computer equipment and
software necessary to convert paper
copies of continuing disclosure
documents to electronic copies and to
electronically transmit the documents to
the MSRB. For issuers that currently
have such capability, the start-up costs
to provide continuing disclosure
documents to the MSRB would be
PO 00000
Frm 00018
Fmt 4701
Sfmt 4702
minimal because they already would
have the necessary resources internally.
As described more fully in section IV.
above, Commission staff estimates that
the costs to some issuers to submit
continuing disclosure documents to a
single repository in an electronic format
may include: (i) An approximate cost of
$8 per notice to use a third party vendor
to scan a material event notice or failure
to file notice, and an approximate cost
of $64 to use a third party vendor to
scan an average-sized annual financial
statement; (ii) an approximate cost
ranging from $750 and $4,300 to acquire
technology resources to convert
continuing disclosure documents into
an electronic format; (iii) $50 to $300 to
upgrade or acquire the software to
submit documents in an electronic
format; (iv) approximately $50 per
month to acquire Internet access; and (v)
an approximate cost of $16 per
continuing disclosure document to have
a designated agent submit electronically
continuing disclosure documents and
identifying information to the MSRB.
Also, as more fully described in Section
IV. above, the total estimated cost of five
designated agents developing computerto-computer interfaces for the
submission of documents to the MSRB
would be $693,600.
Issuers or obligated persons also
would have to provide certain
identifying information to the repository
pursuant to their undertakings in
continuing disclosure agreements. As
described more fully in section IV.
above, Commission staff estimates that
each issuer would submit one to five
continuing disclosure documents
annually to the MSRB, for a maximum
estimated annual labor cost of
approximately $232.50 per issuer.119
The Commission expects that the
costs to issuers could vary somewhat,
depending on the issuer’s size. The
Commission believes that any such
difference would be attributable to the
fact that larger issuers may tend to have
more issuances of municipal securities;
thus, larger issuers may tend to submit
more documents than smaller issuers.
Thus, the costs of submitting documents
119 5 (maximum estimated number of continuing
disclosure filed per year per issuer) × $62 (hourly
wage for a compliance clerk) × 45 minutes (.75
hours) (average estimated time for compliance clerk
to submit a continuing disclosure document
electronically) = $232.50. The $62 per hour estimate
for a compliance clerk is from SIFMA’s Office
Salaries in the Securities Industry 2007, modified
by Commission staff to account for an 1,800-hour
work-year and multiplied by 2.93 to account for
bonuses, firm size, employee benefits and overhead.
In order to provide an estimate of total costs for
issuers that would not be under-inclusive, the
Commission elected to use the higher end of the
estimate of annual submissions of continuing
disclosure documents.
E:\FR\FM\07AUP2.SGM
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
could be greater for larger issuers. The
Commission requests comments on
costs that issuers and obligated persons
could incur as a result of the proposed
amendments.
Further, the Commission does not
anticipate that issuers would incur any
costs associated with the need to revise
the template for continuing disclosure
agreements, if the proposed
amendments are adopted. Commission
staff contacted National Association of
Bond Lawyers (‘‘NABL’’) staff in April
2008 regarding the potential costs to
issuers for bond lawyers to revise the
provisions of continuing disclosure
agreements that would be affected by
the proposed amendments. According to
NABL staff, the NABL members advised
that the cost of revising the template for
continuing disclosure agreements to
reflect the proposed amendments would
be insignificant and stated their belief
that the costs would not be passed on
to issuers.
As discussed in section IV. above, the
MSRB would incur costs to develop the
computer system to allow it to collect,
store, process, retrieve, and make
available continuing disclosure
documents furnished to it by issuers of
municipal securities. Based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February
2008, MSRB’s start-up costs associated
with developing the portal for
continuing disclosure documents,
including hardware, an additional
hosting site, and software licensing and
acquisition costs, would be
approximately $1,000,000. Based on
information provided to Commission
staff by MSRB staff in a series of
telephone conversations in February
2008, the MSRB staff estimated that the
MSRB’s ongoing costs of operating the
system, including allocated costs
associated with such items as office
space and licensing fees, would be
approximately $1,350,000 for the first
year and $350,000 per year thereafter. In
addition, MSRB staff advised
Commission staff that the personnel
costs associated with operating the
portal for continuing disclosure
documents would be approximately
$400,000 per year.120
Some NRMSIRs and other vendors of
municipal disclosure information could
incur costs in transitioning their
business models if the Commission
were to adopt the proposal to establish
120 Based on information provided to Commission
staff by MSRB staff in telephone conversations in
May 2008, this amount represents the estimated
personnel costs associated with the MSRB’s having
three and one-half persons devoted to operating the
continuing disclosure portal.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
a single repository for municipal
disclosure documents. In fact, existing
NRMSIRs could be adversely affected by
the proposed amendments because the
proposal contemplates a single
repository. Any NRMSIR that currently
provides municipal disclosure
documents as its primary business
model could face a significant decline in
its business, and thus in income, as a
result of the proposed amendments.121
In addition, to transition from multiple
repositories to a single repository, the
Commission is considering whether to
direct its staff to withdraw the ‘‘no
action’’ letters issued to the NRMSIRs
and to designate the MSRB as the
NRMSIR. As a result, the NRMSIRs
could experience an immediate decline
in income with respect to those parts of
their business that provide municipal
disclosure documents to persons who
request them. Also, NRMSIRs could
have some costs if they continued to
maintain historical continuing
disclosure information that they have
already received under existing
continuing disclosure agreements. The
Commission requests comment and
empirical data on any anticipated costs
that NRMSIRs could incur.
Finally, under the proposed
amendments, Rule 15c2–12 no longer
would refer to SIDs. The proposed
amendments would not affect the legal
obligations of issuers or obligated
persons to provide continuing
disclosure documents, along with any
other submissions, to the appropriate
SID, if any, that may be required under
the appropriate state law. In addition,
the proposed amendments would have
no effect on the obligations of issuers
and obligated persons under
outstanding continuing disclosure
agreements entered into prior to any
effective date of amendments to the
Rule, if the Commission were to adopt
such amendments, to submit continuing
disclosure documents to the appropriate
SID, if any, as stated in their existing
continuing disclosure agreements, nor
on their obligation to make any other
submissions that may be required under
the appropriate state law. Unlike
NRMSIRs, SIDs are membership
organizations and use information
submitted to them in products for their
members. While SIDs can charge fees for
requested documents, the Commission
believes, based on telephone
conversations between Commission staff
and representatives of SIDs in April
2008, that this is not a primary source
121 See, e.g., Letter from Peter J. Schmitt, Chief
Executive Officer, DPC Data, dated January 23,
2008, regarding SR–MSRB–2007–06, submitted to
www.sec.gov/comments. (‘‘DPC Data Letter’’).
PO 00000
Frm 00019
Fmt 4701
Sfmt 4702
46155
of revenue for them. The Commission
does not expect that SIDs would
experience a decline in operations or
incur any costs as a result of the
proposed amendments, but seeks
comment on any anticipated impact that
the proposed amendments could have
on SIDs.
C. Request for Comment on Costs and
Benefits
To assist the Commission in
evaluating the costs and benefits that
could result from the proposed
amendments to the Rule, the
Commission requests comments on the
potential costs and benefits identified in
this proposal, as well as any other costs
or benefits that could result from the
proposed amendments to the Rule.
Commenters should provide analysis
and data to support their views on the
costs and benefits. In particular, the
Commission requests comment on the
costs and benefits of the proposed
amendments on broker-dealers, issuers,
the MSRB, NRMSIRs and other vendors,
as well as any costs on others, including
market participants and investors.
VI. Consideration of Burden and
Promotion of Efficiency, Competition,
and Capital Formation
Section 3(f) of the Exchange Act 122
requires the Commission, whenever it
engages in rulemaking and is required to
consider or determine whether an action
is necessary or appropriate in the public
interest, to consider whether the action
would promote efficiency, competition,
and capital formation. In addition,
section 23(a)(2) of the Exchange Act 123
requires the Commission, when
adopting rules under the Exchange Act,
to consider the impact such rules would
have on competition. Section 23(a)(2) of
the Exchange Act also prohibits the
Commission from adopting any rule that
would impose a burden on competition
not necessary or appropriate in
furtherance of the purposes of the
Exchange Act.
The proposed amendments to the
Rule would revise subparagraph (b)(5)
of Rule 15c2–12 to require Participating
Underwriters to reasonably determine
that the issuer or obligated person has
agreed at the time of a primary offering:
(1) To provide the continuing disclosure
documents to the MSRB instead of to
each NRMSIR and appropriate SID; and
(2) to provide the continuing disclosure
documents in an electronic format and
accompanied by identifying information
as prescribed by the MSRB.
122 15
123 15
E:\FR\FM\07AUP2.SGM
U.S.C. 78c(f).
U.S.C. 78w(a)(2).
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
46156
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
The Commission preliminarily
believes that the proposed amendments
to the Rule should help make the
municipal securities disclosure process
more efficient and help conserve
resources for municipal security issuers,
as well as investors and market
participants. Under the current
regulatory framework, issuers of
municipal securities in their continuing
disclosure agreements undertake to
submit continuing disclosure
documents to four separate NRMSIRs,
and they submit such documents in
paper or electronic form. The
Commission anticipates that amending
the Rule could promote the efficiency of
the municipal disclosure process by
reducing the resources municipal
security issuers would need to devote to
the process of submitting continuing
disclosure documents.
As noted above, the Commission has
long been interested in improving the
timing and availability of disclosure in
the municipal securities market. At the
time the Commission adopted Rule
15c2–12 in 1989 and adopted the 1994
Amendments, disclosure documents
were submitted in paper form. The
Commission believed that, in such an
environment where document retrieval
would be handled manually, the
establishment of one or more
repositories could be beneficial in
widening the retrieval and availability
of information in the secondary market,
since the public could obtain the
disclosure documents from multiple
locations. The Commission’s objective
of encouraging greater availability of
municipal securities information
remains unchanged.
However, there have been significant
inefficiencies in the current use of
multiple repositories that likely have
affected the public’s ability to retrieve
continuing disclosure documents.124 In
this regard, the Commission noted in
the 1989 Adopting Release that ‘‘the
creation of multiple repositories should
be accompanied by the development of
an information linkage among these
repositories’’ so as to afford ‘‘the widest
retrieval and dissemination of
information in the secondary
market.’’125 Although the Commission
in the 1989 Adopting Release supported
the development of an information
linkage among the repositories, none
was established to help broaden the
availability of the disclosure
information. Also, since the adoption of
the 1994 Amendments, there have been
significant advancements in technology
and information systems, including the
124 See
125 See
note 19, supra.
1989 Adopting Release, supra note 3.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
use of the Internet, to provide
information quickly and inexpensively
to market participants and investors. In
this regard, the Commission
preliminarily believes that the use of a
single repository to receive, in an
electronic format, and make available
continuing disclosure documents in an
electronic format would substantially
and effectively increase the availability
of municipal securities information
about municipal issues and enhance the
efficiency of the secondary trading
market for these securities.
In addition, the Commission
preliminarily believes that having a
single repository for electronically
submitted information would provide
investors, market participants, and
others with a more efficient and
convenient means to obtain continuing
disclosure documents and would help
increase the likelihood that investors,
market participants, and others would
make more informed investment
decisions regarding whether to buy, sell
or hold municipal securities.
With respect to the Exchange Act goal
of promoting competition, the
Commission notes that, when it adopted
Rule 15c2–12 in 1989, it strongly
supported the development of one or
more central repositories for municipal
disclosure documents.126 The
Commission ‘‘recognize[d] the benefits
that may accrue from the creation of
competing private repositories,’’ and
indicated that ‘‘the creation of central
sources for municipal offering
documents is an important first step that
may eventually encourage widespread
use of repositories to disseminate
annual reports and other current
information about issuers to the
secondary markets.’’ 127 Further, when it
adopted the 1994 Amendments, the
Commission stated that the
‘‘requirement to deliver disclosure to
the NRMSIRs and the appropriate SID
also allay[ed] the anti-competitive
concerns raised by the creation of a
single repository.’’ 128
There have been significant advances
in technology and information
collection and delivery since that time,
as discussed throughout this release,
that indicate that having multiple
repositories may not be necessary
because the widespread availability and
dissemination of information can be
achieved through different, more
efficient, means. Because the current
environment differs markedly from the
126 See 1989 Adopting Release at 54 FR 28807,
supra note 3. See also 1994 Proposing Release,
supra note 43.
127 See 1989 Adopting Release, supra note 3. See
also 1994 Proposing Release, supra note 43.
128 See 1994 Amendments, supra note 5.
PO 00000
Frm 00020
Fmt 4701
Sfmt 4702
time when Rule 15c2–12 was adopted in
1989 and subsequently amended in
1994, the Commission believes that it is
appropriate to propose an approach that
utilizes the significant technological
advances, such as the development and
use of various electronic formats, that
have occurred in the intervening years.
The Commission’s proposal to
provide for the establishment of a single
repository for continuing disclosure
documents would help further the
Exchange Act objective of promoting
competition because information about
municipal securities, provided in an
electronic format, would be more
widely available to market
professionals, investors, information
vendors, and others as a result of the
proposed amendments. For example,
the Commission believes competition
among vendors could increase because
vendors could utilize this information to
provide value-added services to
municipal market participants. The
Commission’s proposal also could
promote competition in the purchase
and sale of municipal securities because
the greater availability of information as
a result of the proposed amendments
could instill greater investor confidence
in the municipal securities market.
Moreover, the greater availability of
information also could encourage
improvement in the completeness and
timeliness of issuer disclosures and
could foster interest in municipal
securities by retail and institutional
customers. As a result, more investors
could be attracted to this market sector
and broker-dealers could compete for
their business.
The Commission acknowledges that,
if the proposed amendments were
adopted to provide for a single
repository, they potentially could have
an adverse impact on one or more
existing NRMSIRs, especially if their
business models depended on their
status as a NRMSIR.129 Moreover,
NRMSIRs have received compensation
for providing copies of continuing
disclosure documents to persons who
request them. Thus, one or more
NRMSIRs possibly could be adversely
affected by the proposal, if they no
longer have available to them a steady
flow of funds from providing for a fee
129 In responding to the MSRB’s proposed rule
change to revise its MSIL system, one NRMSIR
expressed concern about the MSRB’s proposed
competition with vendors to offer what it viewed
as value-added features and services relating to
disclosure documents. This NRMSIR stated that, if
the MSRB were permitted to offer value-added
content and features in connection with its
proposed Internet-based portal for disclosure
documents, it would inflict economic harm on
existing data vendors. See DPC Data Letter, supra
note 121.
E:\FR\FM\07AUP2.SGM
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
copies of continuing disclosure
documents to persons who request
them. As a result of the proposed
amendments, a NRMSIR could find that
it would have to revise its current
manner of doing business or face a
significant downturn in its business
operations. Vendors of information
about municipal securities, other than
NRMSIRs, also could be affected by the
proposed amendments if the sole
repository provides information
electronically for no charge.
In addition, there would be just one
repository, and not four NRMSIRs as is
currently the case, if the Commission
were to adopt the proposed Rule 15c2–
12 amendments. Thus, the proposal
could reduce competition with respect
to services provided by NRMSIRs as
information vendors. In addition to
supplying municipal disclosure
documents upon request, NRMSIRs also
provide value-added market data
services to municipal investors that
incorporate continuing disclosure
information. If NRMSIRs were adversely
affected by the proposal to establish a
single repository, it is possible that there
could be a reduction in these valueadded market data services relating to
municipal securities or a loss of
innovation in offering competing
information services regarding
municipal securities.
The Commission preliminarily does
not believe that having a single
repository would have a significant
adverse effect on the ability or
willingness of private information
vendors to compete to create and market
value-added data products. Commercial
vendors could readily access the
information made available by the
repository to re-disseminate it or use it
in whatever value-added products they
may wish to provide. In fact, a single
repository in which documents are
submitted in an electronic format could
encourage the private information
vendors to disseminate municipal
securities information by reducing the
cost of entry into the information
services market. Existing vendors could
need to make some adjustments to their
infrastructure or facilities. However,
some vendors could determine that they
no longer need to invest in the
infrastructure and facilities necessary to
collect and store continuing disclosure
documents, and new entrants into the
market would not need to obtain the
information from multiple locations, but
rather could readily access such
information from one centralized
source. Thus, all vendors should be able
to obtain easily continuing disclosure
documents and should be able to
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
compete in providing value-added
services.
The Commission, therefore,
preliminarily believes that any potential
effect on competition that could result
from the proposed amendments would
be justified by the more efficient and
effective process for the collection and
availability of continuing disclosure
documents. A single repository for the
electronic collection and availability of
these documents would foster the
Exchange Act objective of promoting
competition by simplifying the method
of submission of continuing disclosure
documents to one location and making
the documents more readily accessible
to investors and others by virtue of the
documents being in an electronic
format.
The Commission previously stated
that it would specifically consider the
competitive implications of the MSRB
becoming a repository.130 In addition,
the Commission stated that if the
Commission were to conclude that the
MSRB’s status as a repository might
have adverse competitive implications,
it would consider whether it should
take any action to address these
effects.131 As noted earlier, the
Commission recognizes that
competition with respect to certain
information services regarding
municipal securities that are provided
by the existing NRMSIRs could decline
should the MSRB become the central
repository. The Commission believes
that one of the benefits in having the
MSRB be the sole repository would be
its ability to provide a ready source of
continuing disclosure documents to
other information vendors who wish to
use that information for their products.
Private vendors could utilize the MSRB
in its capacity as a repository as a means
to collect information from the
continuing disclosure documents to
create value-added products for their
customers.
In addition, the Commission believes
that the reasons it provided above
regarding the competitive implications
with respect to having a single
repository similarly would apply if the
MSRB were the sole repository. The
Commission does not believe that there
are competitive implications that would
uniquely apply to the MSRB in its
capacity as the sole repository as
opposed to any another entity that could
be the sole repository. In fact, the
Commission believes that, if the MSRB
were the sole repository, its status as an
SRO would provide an additional level
130 See Securities Exchange Act Release No.
28081, supra note 55.
131 Id.
PO 00000
Frm 00021
Fmt 4701
Sfmt 4702
46157
of Commission oversight, as changes to
its rules relating to continuing
disclosure documents would have to be
filed for Commission consideration as a
proposed rule change under section
19(b) of the Exchange Act. Accordingly,
the Commission believes that any
competitive impact that could result
from the MSRB’s status as the sole
repository would be justified by the
benefits that such status could provide.
The Commission preliminarily
believes that the proposed amendments
could have a positive effect on capital
formation by municipal securities
issuers. The Rule is addressed to the
obligations of broker-dealers
participating in a primary offering of
municipal securities (i.e., Participating
Underwriters). Because continuing
disclosure documents would be
submitted electronically to a single
repository, investors and other market
participants potentially could obtain
information about these issuers more
readily than they can today. They no
longer would have to contact several
NRMSIRs to make sure that they have
obtained complete information about
the municipal issuer. Easier access to
continuing disclosure documents
regarding municipal securities could
provide investors and other market
participants with more complete
information about municipal issuers.
Moreover, this ready availability of
continuing disclosure documents could
encourage investors to consider
purchasing new issuances of municipal
securities because they could readily
access information from a single
repository and review that information
in making an investment decision. As a
result, the proposed amendments could
help foster the Exchange Act goal of
capital formation.
The Commission proposes to delete
references to the SIDs in Rule 15c2–12.
Since the Commission is now proposing
to amend the Rule to provide for a
single repository for the electronic
collection and availability of continuing
disclosure documents that the
Commission believes would efficiently
and effectively improve disclosure in
the municipal securities market, the
Commission believes that it is no longer
necessary to require in the Rule that
Participating Underwriters reasonably
determine that issuers and obligated
persons have contractually agreed to
provide continuing disclosure
documents to the SIDs.
The proposed amendments would not
affect the legal obligations of issuers and
obligated persons to provide continuing
disclosure documents, along with any
other submissions, to the appropriate
SID, if any, that are required under the
E:\FR\FM\07AUP2.SGM
07AUP2
46158
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
appropriate state law. In addition, the
proposed amendments would have no
effect on the obligations of issuers and
obligated persons under outstanding
continuing disclosure agreements
entered into prior to any effective date
of the proposed amendments to the Rule
to submit continuing disclosure
documents to the appropriate SID, if
any, as stated in their existing
continuing disclosure agreements, nor
on their obligation to make any other
submissions that are required under the
appropriate state law. The Commission
preliminarily does not believe that its
proposal to delete references to SIDs in
Rule 15c2–12 would have any potential
effect on efficiency, competition or
capital formation.
Based on the analysis above, the
Commission preliminarily believes that
the proposed amendments to the Rule
would not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. The
Commission requests comment on all
aspects of this analysis and, in
particular, on whether the proposed
amendments to the Rule would place a
burden on competition, as well as the
effect of the proposed amendments on
efficiency, competition, and capital
formation. The Commission specifically
seeks comment on whether the
proposed amendments would place a
burden on competition or have an effect
on efficiency, competition, and capital
formation with respect to issuers,
NRMSIRs or other vendors, the MSRB,
broker-dealers, other market
participants, investors, or others.
VII. Consideration of Impact on the
Economy
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996, or ‘‘SBREFA,’’ 132 the Commission
must advise the OMB as to whether the
proposed regulation constitutes a
‘‘major’’ rule. Under SBREFA, a rule is
considered ‘‘major’’ where, if adopted, it
results or is likely to result in: (1) An
annual effect on the economy of $100
million or more (either in the form of an
increase or a decrease); (2) a major
increase in costs or prices for consumers
or individual industries; or (3)
significant adverse effect on
competition, investment or innovation.
The Commission requests comment
on the potential impact of the proposed
rule amendments on the economy on an
annual basis. Commenters are requested
to provide empirical data and other
factual support for their view to the
extent possible.
VIII. Regulatory Flexibility Act
Certification
Section 603(a) of the Regulatory
Flexibility Act 133 (‘‘RFA’’) requires the
Commission to undertake an initial
regulatory flexibility analysis of the
proposed amendments to the Rule on
small entities, unless the Commission
certifies that the proposed amendments,
if adopted, would not have a significant
economic impact on a substantial
number of small entities.134
For purposes of Commission
rulemaking in connection with the RFA,
a broker-dealer is a small business if its
total capital (net worth plus
subordinated liabilities) on the last day
of its most recent fiscal year was
$500,000 or less, and is not affiliated
with any entity that is not a ‘‘small
business.’’ 135 Some broker-dealers that
would be subject to the proposed
amendments meet these definitions of a
‘‘small business.’’ In addition, for
purposes of Commission rulemaking in
connection with the RFA, a ‘‘small
business’’ may also include a municipal
securities dealer that is a bank
(including a separately identifiable
department or division of a bank) which
has total assets of less than $10 million
at all times during the preceding fiscal
year; had an average monthly volume of
municipal securities transactions in the
preceding fiscal year of less than
$100,000; and is not affiliated with any
entity that is not a ‘‘small business.’’ 136
The proposed amendments to the
Rule would not substantively change
any of the current obligations of brokerdealers or municipal securities dealers,
except to the extent that they would
have to reasonably determine that the
issuer or obligated person has agreed in
writing to provide continuing disclosure
documents to a single repository instead
of to multiple NRMSIRs. The paperwork
burden for broker-dealers or municipal
securities dealers would not be altered
by the proposed amendments, except to
the extent that the firm’s compliance
attorney would need to prepare and
issue a notice to members or a
memorandum explaining the impact of
the proposed amendments to pertinent
personnel, if the proposal is adopted by
the Commission.137
For purposes of Commission
rulemaking in connection with the RFA,
an issuer or person, other than an
133 5
U.S.C. 603(a).
U.S.C. 605(b).
135 17 CFR 240.0–10(c).
136 17 CFR 240.0–10(f).
137 See Section IV.D.1., supra.
134 5
132 Pub. L. No. 104–121, Title II, 110 Stat. 857
(1996) (codified in various sections of 5 U.S.C., 15
U.S.C. and as a note to 5 U.S.C. 601).
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
PO 00000
Frm 00022
Fmt 4701
Sfmt 4702
investment company, is a ‘‘small
business’’ or ‘‘small organization’’ if its
‘‘total assets on the last day of its most
recent fiscal year were $5 million or
less.’’ 138 The Commission believes that
at least three of the four NRMSIRs are
part of large business entities that have
assets in excess of $5 million.139 One of
the current four NRMSIRs and possibly
one or more vendors of continuing
disclosure documents may be a ‘‘small
business’’ for purposes of the RFA. As
noted above, the proposed amendments
could have a significant economic
impact on the business model of one
NRMSIR and possibly on the business
models of one or more other vendors of
municipal securities information. While
the Commission acknowledges that the
proposed amendments to the Rule could
have a significant economic impact on
certain vendors of municipal securities
information, the Commission does not
believe that the number of such vendors
that could be affected by the proposed
amendments represents a substantial
number of small businesses.
In addition, the Commission believes
that two of the three SIDS may be a
‘‘small business’’ or ‘‘small
organization’’ for purposes of the RFA.
The proposed amendments, however,
would not affect any legal obligations
issuers or obligated persons may have to
provide continuing disclosure
documents, along with any other
submissions, to the appropriate SID, if
any, that may be required under the
appropriate state law.
A ‘‘small governmental jurisdiction’’
is defined by the RFA to include
‘‘governments of cities, counties, towns,
townships, villages, school districts, or
special districts, with a population of
less than fifty thousand.’’ 140 Since the
Rule applies to primary offerings of
municipal securities with an aggregate
principal amount of at least $1,000,000
or more, some issuances by small
governmental jurisdictions would not be
covered by the Rule. For those small
issuers whose primary offerings of
municipal securities are impacted by
the Rule, the Commission notes that
issuers of municipal securities currently
are familiar with, and provide, pursuant
to their continuing disclosure
agreements, continuing disclosure
documents. Under the proposal, issuers
would submit, pursuant to their
undertakings in continuing disclosure
agreements, continuing disclosure
documents to the MSRB in an electronic
138 17
CFR 230.157. See also 17 CFR 240.0–10(a).
staff based this determination on
its review of various public sources of financial
information about these three NRMSIRs.
140 5 U.S.C. 601(5).
139 Commission
E:\FR\FM\07AUP2.SGM
07AUP2
ebenthall on PROD1PC65 with PROPOSALS2
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
format and accompanied by identifying
information, instead of to each of the
four existing NRMSIRs. Accordingly, to
the extent a small governmental
jurisdiction has conducted a primary
offering of municipal securities for
which a Participating Underwriter has
reasonably determined that the issuer
has entered into a contractual
undertaking covered by the Rule, its
continuing disclosure documents would
be submitted to one repository, instead
of multiple ones as is the case today,
and thus the small governmental
jurisdiction would incur no significant
additional economic impact as a result
of the proposed amendments to the
Rule. The Commission believes that
many municipal issuers currently have
the capability to convert paper
documents to electronic documents.
Those small governmental jurisdictions
that: (i) Do not have continuing
disclosure information in an electronic
format; or (ii) do not have the internal
means to convert continuing disclosure
information into an electronic format,
would have to incur a cost to convert
their paper documents into an
electronic file.141 Although some small
governmental jurisdictions could incur
costs to submit documents
electronically to a single repository, the
Commission does not believe that these
costs would result in a significant
economic impact for a substantial
number of small governmental
jurisdictions.142
In the Commission’s view, the
proposed amendments would not have
a significant economic impact on a
substantial number of small entities,
including broker-dealers, municipal
securities dealers, small governmental
jurisdictions, NRMSIRs and other
vendors of municipal disclosure
documents, SIDs, or other small
businesses or small organizations. For
the above reasons, the Commission
certifies that the proposed amendment
to the Rule would not have a significant
economic impact on a substantial
number of small entities. The
Commission requests comments
regarding this certification. The
Commission requests that commenters
describe the nature of any impact on
small entities, including broker-dealers
and municipal securities dealers, small
governmental jurisdictions, NRMSIRs
and other vendors of municipal
disclosure documents, SIDS, or other
small businesses or small organizations,
and provide empirical data to support
the extent of the impact.
141 See
Section V.B., supra.
142 Id.
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
IX. Statutory Authority
Pursuant to the Exchange Act, and
particularly sections 3(b), 15(c), 15B and
23(a)(1) thereof, 15 U.S.C. 78c(b), 78o(c),
78o–4, and 78w(a)(1), the Commission
is proposing amendments to § 240.15c2–
12 of Title 17 of the Code of Federal
Regulations in the manner set forth
below.
List of Subjects in 17 CFR Part 240
Brokers, Reporting and recordkeeping
requirements, Securities.
Text of Proposed Rule Amendments
For the reasons set out in the
preamble, Title 17, Chapter II, 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 general authority citation for
part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4,
80b–11, and 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
*
*
*
*
*
2. Section 240.15c2–12 is amended by
the following:
A. Revise paragraph (b)(4)(ii), the
introductory text of paragraph (b)(5)(i),
and paragraphs (b)(5)(i)(A) and (B);
B. In the introductory text of
paragraph (b)(5)(i)(C) and in paragraph
(b)(5)(i)(D) remove the phrase ‘‘to each
nationally recognized municipal
securities information repository or to
the Municipal Securities Rulemaking
Board, and to the appropriate state
information depository, if any,’’;
C. In paragraph (b)(5)(ii)(C) remove
the phrase ‘‘, and to whom it will be
provided’’;
D. Add new paragraph (b)(5)(iv);
E. Revise paragraph (d)(2)(ii); and
F. Revise paragraphs (f)(3) and (f)(9).
The additions and revisions read as
follows.
§ 240.15c2–12
disclosure.
Municipal securities
*
*
*
*
*
(b) * * *
(4) * * *
(ii) The time when the official
statement is available to any person
from the Municipal Securities
Rulemaking Board, but in no case less
than twenty-five days following the end
of the underwriting period, the
PO 00000
Frm 00023
Fmt 4701
Sfmt 4702
46159
Participating Underwriter in an Offering
shall send no later than the next
business day, by first-class mail or other
equally prompt means, to any potential
customer, on request, a single copy of
the final official statement.
(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 an issuer of municipal securities, or
an obligated person for whom financial
or operating data is presented in the
final official statement has undertaken,
either individually or in combination
with other issuers of such municipal
securities or obligated persons, in a
written agreement or contract for the
benefit of holders of such securities, to
provide the following to the Municipal
Securities Rulemaking Board in an
electronic format as prescribed by the
Municipal Securities Rulemaking Board,
either directly or indirectly through an
indenture trustee or a designated agent:
(A) Annual financial information for
each obligated person for whom
financial information or operating data
is presented in the final official
statement, or, for each obligated person
meeting the objective criteria specified
in the undertaking and used to select
the obligated persons for whom
financial information or operating data
is presented in the final official
statement, except that, in the case of
pooled obligations, the undertaking
shall specify such objective criteria;
(B) If not submitted as part of the
annual financial information, then when
and if available, audited financial
statements for each obligated person
covered by paragraph (b)(5)(i)(A) of this
section;
*
*
*
*
*
(iv) Such written agreement or
contract for the benefit of holders of
such securities also shall provide that
all documents provided to the
Municipal Securities Rulemaking Board
shall be accompanied by identifying
information as prescribed by the
Municipal Securities Rulemaking Board.
*
*
*
*
*
(d) * * *
(2) * * *
(ii) An issuer of municipal securities
or obligated person has undertaken,
either individually or in combination
with other issuers of municipal
securities or obligated persons, in a
written agreement or contract for the
benefit of holders of such municipal
securities, to provide the following to
the Municipal Securities Rulemaking
Board in an electronic format as
E:\FR\FM\07AUP2.SGM
07AUP2
46160
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Proposed Rules
ebenthall on PROD1PC65 with PROPOSALS2
prescribed by the Municipal Securities
Rulemaking Board:
(A) At least annually, financial
information or operating data regarding
each obligated person for which
financial information or operating data
is presented in the final official
statement, as specified in the
undertaking, which financial
information and operating data shall
include, at a minimum, that financial
information and operating data which is
customarily prepared by such obligated
person and is publicly available; and
(B) In a timely manner, notice of
events specified in paragraph (b)(5)(i)(C)
of this section with respect to the
securities that are the subject of the
Offering, if material; and
(C) Such written agreement or
contract for the benefit of holders of
such securities also shall provide that
all documents provided to the
Municipal Securities Rulemaking Board
shall be accompanied by identifying
information as prescribed by the
Municipal Securities Rulemaking Board;
and
*
*
*
*
*
(f) * * *
(3) The term final official statement
means a document or set of documents
VerDate Aug<31>2005
14:36 Aug 06, 2008
Jkt 214001
prepared by an issuer of municipal
securities or its representatives that is
complete as of the date delivered to the
Participating Underwriter(s) and that
sets forth information concerning the
terms of the proposed issue of
securities; information, including
financial information or operating data,
concerning such issuers of municipal
securities and those other entities,
enterprises, funds, accounts, and other
persons material to an evaluation of the
Offering; and a description of the
undertakings to be provided pursuant to
paragraph (b)(5)(i), paragraph (d)(2)(ii),
and paragraph (d)(2)(iii) of this section,
if applicable, and of any instances in the
previous five years in which each
person specified pursuant to paragraph
(b)(5)(ii) of this section failed to comply,
in all material respects, with any
previous undertakings in a written
contract or agreement specified in
paragraph (b)(5)(i) of this section.
Financial information or operating data
may be set forth in the document or set
of documents, or may be included by
specific reference to documents
available to the public on the Municipal
Securities Rulemaking Board’s Internet
Web site or filed with the Commission.
*
*
*
*
*
PO 00000
Frm 00024
Fmt 4701
Sfmt 4702
(9) The term annual financial
information means financial
information or operating data, provided
at least annually, of the type included
in the final official statement with
respect to an obligated person, or in the
case where no financial information or
operating data was provided in the final
official statement with respect to such
obligated person, of the type included in
the final official statement with respect
to those obligated persons that meet the
objective criteria applied to select the
persons for which financial information
or operating data will be provided on an
annual basis. Financial information or
operating data may be set forth in the
document or set of documents, or may
be included by specific reference to
documents available to the public on
the Municipal Securities Rulemaking
Board’s Internet Web site or filed with
the Commission.
*
*
*
*
*
By the Commission.
Dated: July 30, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–17856 Filed 8–6–08; 8:45 am]
BILLING CODE 8010–01–P
E:\FR\FM\07AUP2.SGM
07AUP2
]]>Agencies
[Federal Register Volume 73, Number 153 (Thursday, August 7, 2008)]
[Proposed Rules]
[Pages 46138-46160]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-17856]
[[Page 46137]]
-----------------------------------------------------------------------
Part II
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Part 240
Proposed Amendment to Municipal Securities Disclosure; Proposed Rule;
Notice
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 /
Proposed Rules
[[Page 46138]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-58255; File No. S7-21-08]
RIN-3235-AK20
Proposed Amendment to Municipal Securities Disclosure
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing for comment proposed amendments to a rule under the
Securities Exchange Act of 1934 (``Exchange Act'') relating to
municipal securities disclosure. The proposal would amend certain
requirements regarding the information that the broker, dealer, or
municipal securities dealer acting as an underwriter in a primary
offering of municipal securities must reasonably determine that an
issuer of municipal securities or an obligated person has undertaken,
in a written agreement or contract for the benefit of holders of the
issuer's municipal securities, to provide. Specifically, the amendments
would require the broker, dealer, or municipal securities dealer to
reasonably determine that the issuer or obligated person has agreed to
provide the information covered by the written agreement to the
Municipal Securities Rulemaking Board (``MSRB'' or ``Board''), instead
of to multiple nationally recognized municipal securities information
repositories (``NRMSIRs'') and state information depositories
(``SIDs''), as the rule currently provides, and to provide such
information in an electronic format and accompanied by identifying
information as prescribed by the MSRB.
DATES: Comments should be received on or before September 22, 2008.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/proposed.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. S7-21-08 on the subject line; or
Use the Federal eRulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File No. S7-21-08. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments
are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549 on official business days between the hours of 10 a.m. and 3 p.m.
All comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Martha Mahan Haines, Assistant
Director and Chief, Office of Municipal Securities, at (202) 551-5681;
Mary N. Simpkins, Senior Special Counsel, Office of Municipal
Securities, at (202) 551-5683; Cyndi N. Rodriguez, Special Counsel,
Office of Market Supervision, at (202) 551-5636; or Rahman J. Harrison,
Special Counsel, Office of Market Supervision, at (202) 551-5663,
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street, NE., Washington, DC 20549-6628.
SUPPLEMENTARY INFORMATION: The Commission is requesting public comment
on a proposed amendment to Rule 15c2-12 under the Exchange Act.\1\
---------------------------------------------------------------------------
\1\ 17 CFR 240.15c2-12.
---------------------------------------------------------------------------
I. Background
A. History of Rule 15c2-12
The Commission has long been concerned with improving the quality,
timing, and dissemination of disclosure in the municipal securities
markets. In an effort to improve the transparency of the municipal
securities market, in 1989, the Commission adopted Rule 15c2-12\2\
(``Rule'' or ``Rule 15c2-12'') and an accompanying interpretation
modifying a previously published interpretation of the legal
obligations of underwriters of municipal securities.\3\ As adopted in
1989, Rule 15c2-12 required, and still requires, underwriters
participating in primary offerings of municipal securities of
$1,000,000 or more to obtain, review, and distribute to potential
customers copies of the issuer's official statement. Specifically, Rule
15c2-12 required, and still requires, an underwriter acting in a
primary offering of municipal securities: (1) To obtain and review an
official statement ``deemed final'' by an issuer of the securities,
except for the omission of specified information, prior to making a
bid, purchase, offer, or sale of municipal securities; (2) in non-
competitively bid offerings, to send, upon request, a copy of the most
recent preliminary official statement (if one exists) to potential
customers; (3) to send, upon request, a copy of the final official
statement to potential customers for a specified period of time; and
(4) to contract with the issuer to receive, within a specified time,
sufficient copies of the final official statement to comply with the
Rule's delivery requirement, and the requirements of the rules of the
MSRB.
---------------------------------------------------------------------------
\2\ 17 CFR 240.15c2-12.
\3\ See Securities Exchange Act Release No. 26985 (June 28,
1989), 54 FR 28799 (July 10, 1989 (``1989 Adopting Release'').
---------------------------------------------------------------------------
While the availability of primary offering disclosure significantly
improved following the adoption of Rule 15c2-12, there was a continuing
concern about the adequacy of disclosure in the secondary market.\4\ To
enhance the quality, timing, and dissemination of disclosure in the
secondary municipal securities market, the Commission in 1994 adopted
amendments to Rule 15c2-12.\5\ Among
[[Page 46139]]
other things, the 1994 Amendments placed certain requirements on
brokers, dealers, and municipal securities dealers (``Dealers'' or,
when used in connection with primary offerings, ``Participating
Underwriters''). In adopting the 1994 Amendments, the Commission
intended ``to deter fraud and manipulation in the municipal securities
market'' by prohibiting the underwriting and subsequent recommendation
of transactions in municipal securities for which adequate information
was not available on an ongoing basis.\6\
---------------------------------------------------------------------------
\4\ In 1993, the Commission's Division of Market Regulation (n/
k/a the Division of Trading and Markets) conducted a comprehensive
review of many aspects of the municipal securities market, including
secondary market disclosure (``1993 Staff Report''). Findings in the
1993 Staff Report highlighted the need for improved disclosure
practices in both the primary and secondary municipal securities
markets. The 1993 Staff Report 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. Moreover, the 1993 Staff Report found that the
growing participation of individuals as both direct and indirect
purchasers of municipal securities underscored the need for sound
recommendations by brokers, dealers, and municipal securities
dealers. See Securities and Exchange Commission, Division of Market
Regulation (n/k/a Division of Trading and Markets), Staff Report on
the Municipal Securities Market (September 1993) (available at
https://www.sec.gov/info/municipal.shtml).
\5\ See Securities Exchange Act Release No. 34961 (November 10,
1994), 59 FR 59590 (November 17, 1994) (``1994 Amendments'').
In light of the growing volume of municipal securities
offerings, as well as the growing ownership of municipal securities
by individual investors, in March 1994, the Commission published the
Statement of the Commission Regarding Disclosure Obligations of
Municipal Securities Issuers and Others. See Securities Exchange Act
Release No. 33741 (March 9, 1994), 59 FR 12748 (March 17, 1994). The
Commission intended that its statement of views with respect to
disclosures under the federal securities laws in the municipal
market would encourage and expedite the ongoing efforts by market
participants to improve disclosure practices, particularly in the
secondary market, and to assist market participants in meeting their
obligations under the antifraud provisions. Id.
\6\ See 1994 Amendments, supra note 5.
---------------------------------------------------------------------------
Specifically, under the 1994 Amendments, Participating Underwriters
are prohibited, subject to certain exemptions, from purchasing or
selling municipal securities covered by the Rule in a primary offering,
unless the Participating Underwriter has reasonably determined that an
issuer of municipal securities or an obligated person \7\ has
undertaken in a written agreement or contract for the benefit of
holders of such securities (``continuing disclosure agreement'') to
provide specified annual information and event notices to certain
information repositories. The information to be provided consists of:
(1) Certain annual financial and operating information and audited
financial statements (``annual filings''); \8\ (2) notices of the
occurrence of any of eleven specific events (``material event
notices'') \9\ and (3) notices of the failure of an issuer or other
obligated person to make a submission required by a continuing
disclosure agreement (``failure to file notices'').\10\ The 1994
Amendments require the Participating Underwriter to reasonably
determine that an issuer of municipal securities or an obligated person
has undertaken in the continuing disclosure agreement to provide: (1)
Annual filings to each NRMSIR; (2) material event notices and failure
to file notices either to each NRMSIR or to the MSRB; and (3) in the
case of states that established SIDs, all continuing disclosure
documents to the appropriate SID. Finally, the 1994 Amendments revise
the definition of ``final official statement'' to include a description
of the issuer's or obligated person's continuing disclosure
undertakings for the securities being offered, and of any instances in
the previous five years in which the issuer or obligated person failed
to comply, in all material respects, with undertakings in previous
continuing disclosure agreements.
---------------------------------------------------------------------------
\7\ Obligated persons include persons, including the issuer,
committed by contract or other arrangement to support payment of all
or part of the obligations on the municipal securities to be sold in
an offering. See 17 CFR 240.15c2-12(f)(10).
\8\ 17 CFR 240.15c2-12(b)(5)(i)(A) and (B).
\9\ 17 CFR 240.15c2-12(b)(5)(i)(C). The following events, if
material, require notice: (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)
release, substitution, or sale of property securing repayment of the
securities; and (11) rating changes.
In addition, Rule 15c2-12(d)(2) provides an exemption from the
application of paragraph (b)(5) of the Rule with respect to primary
offerings if, among other things, the issuer or obligated person has
agreed to a limited disclosure obligation, including sending certain
material event notices to each NRMSIR or the MSRB, as well as the
appropriate SID. See 17 CFR 240.15c2-12(d)(2).
\10\ 17 CFR 240.15c2-12(b)(5)(i)(D). Annual filings, material
event notices, and failure to file notices are referred to
collectively herein as ``continuing disclosure documents.''
---------------------------------------------------------------------------
B. Disclosure Practices in the Secondary Market and Need for Improved
Availability to Continuing Disclosure
Since the adoption of Rule 15c2-12 in 1989 and its subsequent
amendment in 1994, the size of the municipal securities market has
grown considerably.\11\ There were over $2.6 trillion of municipal
securities outstanding at the end of 2007.\12\ Notably, at the end of
2007, retail investors held approximately 35% of outstanding municipal
securities directly and up to another 36% indirectly through money
market funds, mutual funds, and closed end funds.\13\ There is also
substantial trading volume in the municipal securities market.
According to the MSRB, more than $6.6 trillion of long and short term
municipal securities were traded in 2007 in more than 9 million
transactions.\14\ Further, the municipal securities market is extremely
diverse, with more than 50,000 state and local issuers of these
securities.\15\
---------------------------------------------------------------------------
\11\ According to statistics assembled by the Securities
Industry and Financial Markets Association (SIFMA), the amount of
outstanding municipal securities grew from $1.2616 trillion in 1996
to $2.6174 trillion at the end of 2007. See SIFMA ``Outstanding U.S.
Bond Market Debt'' (available at https://www.sifma.org/research/pdf/
Overall_Outstanding.pdf ).
\12\ See SIFMA ``Outstanding U.S. Bond Market Debt'' (available
at https://www.sifma.org/research/pdf/Overall_Outstanding.pdf ).
\13\ See SIFMA ``Holders of U.S. Municipal Securities''
(available at https://www.sifma.org/research/pdf/Holders_Municipal_
Securities.pdf ).
\14\ See MSRB's Real-Time Transaction Reporting Statistical
Information, Monthly Summaries 2007 (available at https://
www.msrb.org/msrb1/TRSweb/MarketStats/statistical_patterns_in_
the_muni.htm).
\15\ See Securities Exchange Act Release No. 33741, supra note
5.
---------------------------------------------------------------------------
Currently, there are four NRMSIRs \16\ and three SIDs.\17\ Each of
the NRMSIRs utilizes the information obtained from continuing
disclosure documents to create proprietary information products that
are primarily sold to and used by dealers, institutional investors and
other market participants who subscribe to such products. With respect
to the availability of municipal securities information to retail
investors, each of the NRMSIRs also make continuing disclosure
documents available for sale to non-subscribers.\18\
---------------------------------------------------------------------------
\16\ The four NRMSIRs are the Bloomberg Municipal Repository,
DPC Data, Inc., Interactive Data Pricing and Reference Data, Inc.,
and Standard & Poor's Securities Evaluations, Inc.
\17\ The three SIDs are the Municipal Advisory Council of
Michigan, the Municipal Advisory Council of Texas, and the Ohio
Municipal Advisory Council.
\18\ See https://www.bloomberg.com/markets/rates/
municontacts.html (Bloomberg Municipal Repository); https://
www.munifilings.com/help/help.cfm (DPC Data, Inc.); https://
www.interactivedata-prd.com/07company_info/about_us/MN/
NRMSIR.shtml (Interactive Data Pricing and Reference Data, Inc.);
and https://www.disclosuredirectory.standardandpoors.com/ (Standard &
Poor's Securities Evaluations, Inc.).
---------------------------------------------------------------------------
Although the existing practice for the collection and availability
of municipal securities disclosures has substantially improved the
availability of information to the market, the Commission believes that
improvements could achieve more efficient, effective, and wider
availability of municipal securities information to market
participants.\19\ Among other things, improvements in information
availability may allow investors to obtain information more readily and
may help them to make
[[Page 46140]]
more informed investment decisions. Specifically, the Commission
believes that municipal securities disclosure documents should be made
more readily and more promptly available to the public and that all
investors should have better access to important market information
that may affect the price of a municipal security, such as information
in financial statements and notices regarding defaults and changes in
ratings, credit enhancement provider, and tax status.
---------------------------------------------------------------------------
\19\ The Commission notes that the aspects of the Rule that
relate to the provision of continuing disclosure documents to
multiple locations (i.e., to each NRMSIR and SID) may have
engendered certain inefficiencies in the current system. See 17 CFR
240.15c2-12(b)(5)(i)(A) through (D). For instance, there have been
reports that NRMSIRs may not receive continuing disclosure documents
concurrently, resulting in the uneven availability of documents from
the various NRMSIRs for some period of time. There also have been
reports of inconsistent document collections among NRMSIRs, possibly
due to the failure of some issuers or obligated persons to provide
continuing disclosure documents to each NRMSIR. Finally, there have
been reports indicating possible weaknesses in document retrieval at
the NRMSIRs. See, e.g., Troy L. Kilpatrick and Antonio Portuondo, Is
This the Last Chance for the Muni Industry to Self-Regulate?, THE
BOND BUYER, August 6, 2007, and comments made at the 2001 Municipal
Market Roundtable--``Secondary Market Disclosure for the 21st
Century'' held November 14, 2001 (``2001 Roundtable''), and the 2000
Municipal Market Roundtable held October 12, 2000 (available at
https://www.sec.gov/info/municipal/roundtables/thirdmuniround.htm and
https://www.sec.gov/info/municipal/roundtables/2000participants.htm,
respectively).
---------------------------------------------------------------------------
Furthermore, the Commission believes that improved access to the
information in continuing disclosure documents not only would provide
the investing public with important information regarding municipal
securities, both during offerings and on an ongoing basis, but also
would help fulfill the regulatory and information needs of municipal
market participants, including Dealers, Participating Underwriters,
mutual funds, and others. For example, many mutual funds include
municipal securities in their portfolios that they routinely monitor
for regulatory and other reasons.\20\ They do so by reviewing annual
filings, as well as material event notices and failure to file notices,
obtained from NRMSIRs and SIDs.\21\ In addition, the MSRB requires
Dealers to disclose to a customer at the time of trade all material
facts about a transaction known by the Dealer.\22\ Further, the MSRB
requires a Dealer to disclose material facts about a security when such
facts are reasonably accessible to the market.\23\ Accordingly, a
Dealer is responsible for disclosing to a customer any material fact
concerning a municipal security transaction made publicly available
through sources such as NRMSIRs, the MSRB's Municipal Securities
Information Library[supreg] (``MSIL''[supreg]) system,\24\ the MSRB's
Real-Time Transaction Reporting System (``RTRS''), rating agency
reports and other sources of information relating to the municipal
securities transaction generally used by Dealers that effect
transactions in the type of municipal securities at issue.\25\ Dealers
use the information contained in the continuing disclosure documents to
carry out these obligations. Therefore, improving access to information
in the continuing disclosure documents would help facilitate and
simplify the process of gathering the necessary information to carry
out their obligations. For these reasons, the Commission believes that
municipal market participants should have more efficient access to
information in continuing disclosure documents to satisfy their
regulatory requirements and informational needs.
---------------------------------------------------------------------------
\20\ For example, Rule 2a-7 under the Investment Company Act of
1940 specifies the characteristics of investments that may be
purchased and held by money market funds. Among other requirements,
Rule 2a-7 requires a money market fund to limit its portfolio
investments to those securities that the fund's board of directors
determines present minimal credit risks (including factors in
addition to any assigned rating). See Rule 2a-7(c)(3), 17 CFR
270.2a-7(c)(3).
\21\ See, e.g., the comments of Leslie Richards-Yellen,
Principal, The Vanguard Group, at the 2001 Roundtable, supra note
19.
\22\ See MSRB ``Interpretive Notice Regarding Rule G-17 on
Disclosure of Material Facts'' (March 20, 2002) (available at http:/
/www.msrb.org/msrb1/rules/notg17.htm). See also Securities Exchange
Act Release No. 45591 (March 18, 2002), 67 FR 13673 (March 25, 2002)
(SR-MSRB-2002-01) (order approving MSRB's proposed interpretation of
the duty to deal fairly set forth in MSRB Rule G-17).
\23\ Id.
\24\ Municipal Securities Information Library and MSIL are
registered trademarks of the MSRB. The Official Statement and
Advance Refunding Document (``OS/ARD'') system of the MSIL system
was initially approved by the Commission in 1991 and was amended in
2001 to establish the MSRB's current optional electronic system for
underwriters to submit official statements and advance refunding
documents. See Securities Exchange Act Release Nos. 29298 (June 13,
1991), 56 FR 28194 (June 19, 1991) (File No. SR-MSRB-90-2) (order
approving MSRB's proposal to establish and operate the OS/ARD of the
MSIL system, through which information collected pursuant to MSRB
Rule G-36 would be made available electronically to market
participants and information vendors) and 44643 (August 1, 2001), 66
FR 42243 (August 10, 2001) (File No. SR-MSRB-2001-03) (order
approving MSRB's proposal to amend the OS/ARD system to establish an
optional procedure for electronic submissions of required materials
under MSRB Rule G-36).
\25\ See note 22, supra.
---------------------------------------------------------------------------
C. The MSRB's Electronic Systems
In 2006, the Commission published for comment proposed amendments
to Rule 15c2-12 in response to a petition from the MSRB \26\ that would
permit the MSRB to close its Continuing Disclosure Information Net
(``CDINet'') system, thereby eliminating the MSRB as a location to
which issuers could submit material event notices and failure to file
notices.\27\ In the 2006 Proposed Amendments, the Commission indicated
its belief that, given the limited usage of the MSRB's CDINet system,
among other things, the proposed elimination of the provision in Rule
15c2-12 that allows the filing of material event notices with the MSRB
was warranted.\28\
---------------------------------------------------------------------------
\26\ See Letter from Diane G. Klinke, General Counsel, MSRB, to
Jonathan G. Katz, Secretary, Commission, dated September 8, 2005
(``MSRB Petition'').
\27\ See Securities Exchange Act Release No. 54863 (December 4,
2006), 71 FR 71109 (December 8, 2006) (``2006 Proposed
Amendments''). According to the MSRB Petition, the CDINet system was
designed to permit issuers to satisfy their undertakings to provide
material event notices through a single submission to the MSRB,
rather than through separate submissions to each of the NRMSIRs. The
MSRB stated that relatively few issuers had opted to use the CDINet
system, and, in recent years, usage of the CDINet system had
diminished. See MSRB Petition, supra note 26.
\28\ See 2006 Proposed Amendments, supra note 27.
---------------------------------------------------------------------------
The Commission recently approved the MSRB's proposed rule change,
filed under section 19(b) of the Exchange Act,\29\ to establish a pilot
program for an Internet-based public access portal (``pilot portal'')
for the consolidated availability of primary offering information about
municipal securities that currently is made available in paper form,
subject to copying charges, at the MSRB's public access facility, and
electronically by paid subscription on a daily over-night basis and by
purchase of annual back-log collections.\30\ The MSRB is implementing
the pilot portal as a service of its new Internet-based public access
system, which it is designating as the Electronic Municipal Market
Access (``EMMA'') system, as a pilot facility within the MSIL system.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b).
\30\ See Securities Exchange Act Release No. 57577 (March 28,
2008), 73 FR 18022 (April 2, 2008) (File No. SR-MSRB-2007-06) (order
approving the pilot portal). Primary offering information consists
of the official statement and the advance refunding document that
Participating Underwriters are required to send to the MSRB under
MSRB Rule G-36.
---------------------------------------------------------------------------
In the course of developing the primary offering information
component of the EMMA system, the MSRB determined that it could
incorporate in the EMMA system the collection and availability of
continuing disclosure documents, thus eliminating the need for the
Commission to adopt its proposed changes to Rule 15c2-12 to remove the
MSRB as a repository of material event notices.\31\ As a result, the
MSRB recently submitted to the Commission a proposed rule change, filed
under section 19(b) of the Exchange Act,\32\ to expand the EMMA system
to accommodate the collection and availability of annual filings,
material event notices and failure to file notices.\33\ While the MSRB
still intends to propose to terminate its CDINet System, subject to
Commission approval,\34\ the MSRB's subsequent decision to file a
proposed rule change to expand the EMMA system to accommodate annual
filings, material event notices, and failure to file notices \35\ has
led the MSRB to consider whether to withdraw the MSRB Petition.\36\ In
light of the collection and availability of continuing disclosure
[[Page 46141]]
documents and in conjunction with the Commission's proposal today to
amend Rule 15c2-12, the Commission is considering whether to withdraw
its 2006 Proposed Amendments.
---------------------------------------------------------------------------
\31\ See Securities Exchange Act Release No. 58256 (July 30,
2008) (File No. MSRB-2008-05).
\32\ 15 U.S.C. 78s(b).
\33\ See Securities Exchange Act Release No. 58256, supra note
31.
\34\ Id.
\35\ Id.
\36\ Id.
---------------------------------------------------------------------------
Under the MSRB's proposed rule change--filed under section 19(b) of
the Exchange Act \37\ and under separate consideration by the
Commission \38\--the EMMA system would be expanded from the pilot
program to allow for the electronic collection through the MSRB's Web
site of continuing disclosure documents and related information
received by the MSRB from issuers and obligated persons pursuant to
undertakings under the Rule and for free public access to such
information through MSRB web-based systems.\39\ Information regarding
the continuing disclosure documents would also be made available
through a data stream by subscription for a fee.\40\
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78s(b).
\38\ The Commission is publishing for public comment this
proposed rule change at the same time as it publishes these proposed
amendments to Rule 15c2-12. Comments on the MSRB's proposed rule
change should be directed to File No. SR-MSRB-2008-05.
\39\ See Securities Exchange Act Release No. 58256, supra note
31.
\40\ The Commission notes that the MSRB would be required to
file a proposed rule change with the Commission under Section 19(b)
of the Exchange Act regarding any fees it proposes to establish for
the subscription service.
---------------------------------------------------------------------------
II. Description of the Proposal
A. Proposed Amendments to Rule 15c2-12
The Commission is considering whether the development of a
centralized system for the electronic collection and availability of
information about outstanding municipal securities would improve the
current paper-based system. Since the adoption of the 1994 Amendments,
there have been significant advancements in technology and information
systems that allow market participants and investors, both retail and
institutional, easily, quickly, and inexpensively to obtain information
through electronic means. The exponential growth of the Internet and
the capacity it affords to investors, particularly retail investors, to
obtain, compile and review information has likely helped to keep
investors better informed. In addition to the Commission's EDGAR
system, which contains filings by public companies required to file
periodic reports and by mutual funds, the Commission has increasingly
encouraged and, in some cases required, the use of the Internet and Web
sites by public reporting companies and mutual funds to provide
disclosures and communicate with investors.\41\
---------------------------------------------------------------------------
\41\ See, e.g., Securities Exchange Act Release Nos. 52056 (July
19, 2005), 70 FR 44722 (August 3, 2005) (File No. S7-38-04)
(adopting amendments to encourage and, in some cases, mandate the
use of an Internet site in securities offering) and 56135 (July 26,
2007), 72 FR 42222 (August 1, 2007) (File No. S7-03-07) (adopting
amendments to the proxy rules under the Exchange Act requiring
issuers and other soliciting persons to post their proxy materials
on an Internet Web site and providing shareholders with a notice of
the Internet availability of the materials).
---------------------------------------------------------------------------
The Commission believes that, at present, information about
municipal issuers and their securities that is accessible on the
Internet may not be as consistently available or comprehensive as
information about other classes of issuers and their securities. This
may be due, in part, to the lack of a central point of collection and
availability of information in the municipal securities sector.\42\
Therefore, the Commission is proposing to amend Rule 15c2-12 to provide
for a single centralized repository that receives submissions in an
electronic format to encourage a more efficient and effective process
for the collection and availability of continuing disclosure documents.
In the Commission's view, a single repository that receives submissions
in an electronic format could assist in facilitating and simplifying
submissions of continuing disclosure documents under the Rule by
enabling issuers and obligated persons to comply with their
undertakings by submitting their continuing disclosure documents only
to one repository, as opposed to multiple repositories.
---------------------------------------------------------------------------
\42\ Historically, there has been support for the concept of a
central repository. For example, in response to the proposing
release for Rule 15c2-12 in 1988, a majority of the comment letters
supported a central repository and indicated a need to have a
readily accessible central source of information about municipal
bonds. See 1989 Adopting Release, supra note 3.
---------------------------------------------------------------------------
The Commission also believes that having a centralized repository
that receives submissions in an electronic format would provide ready
and prompt access to continuing disclosure documents by investors and
other municipal securities market participants. Rather than having to
approach multiple locations, investors and other market participants
would be able to go solely to one location to retrieve continuing
disclosure documents, thereby allowing for a more convenient means to
obtain such information. Moreover, the Commission believes that having
one repository electronically collect and make available all continuing
disclosure documents would increase the likelihood that investors and
other market participants obtain complete information about a municipal
security or its issuer, since the information would not be dispersed
across multiple repositories. In addition, the Commission preliminarily
expects that the consistent availability of such information from a
single source could simplify compliance with regulatory requirements by
Participating Underwriters and others, such as mutual funds and
Dealers. Information vendors (including NRMSIRs and SIDs) and others
also would have ready access from a single source to continuing
disclosure documents for use in their value-added products.
The Commission notes that, when it adopted Rule 15c2-12 in 1989, it
strongly supported the development of one or more central repositories
for municipal disclosure documents.\43\ In this regard, the Commission
noted in the 1989 Adopting Release that ``the creation of multiple
repositories should be accompanied by the development of an information
linkage among these repositories'' so as to afford ``the widest
retrieval and dissemination of information in the secondary market.''
\44\ The Commission further stated that the ``use of such repositories
will substantially increase the availability of information on
municipal issues and enhance the efficiency of the secondary trading
market.'' \45\ In addition, the Commission stated when it adopted the
1994 Amendments that the ``requirement to deliver disclosure to the
NRMSIRs and the appropriate SID also allay[ed] the anti-competitive
concerns raised by the creation of a single repository.'' \46\
---------------------------------------------------------------------------
\43\ See 1989 Adopting Release at 54 FR 28807, supra note 3. See
also Securities Exchange Act Release No. 33742 (March 9, 1994), 59
FR 12759 (March 17, 1994) (File No. S7-5-94) (proposing release for
the 1994 Amendments) (``1994 Proposing Release'').
\44\ See 1989 Adopting Release, supra note 3.
\45\ Id.
\46\ See 1994 Amendments, supra note 5.
---------------------------------------------------------------------------
As noted earlier, the Commission has long been interested in
improving the availability of disclosure in the municipal securities
market. At the time the Commission adopted Rule 15c2-12 and amended it
in 1994, disclosure documents were submitted in paper form. The
Commission believed that, in such an environment where document
retrieval would be handled manually, the establishment of one or more
repositories could be beneficial in widening the retrieval and
availability of information in the secondary market, since the public
could obtain the disclosure documents from multiple locations. The
Commission's objective
[[Page 46142]]
of encouraging greater availability of municipal securities information
remains unchanged. However, as indicated earlier, there have been
significant inefficiencies in the current use of multiple repositories
that likely have impacted the public's ability to retrieve continuing
disclosure documents.\47\ Although the Commission in the 1989 Adopting
Release supported the development of an information linkage among the
repositories, none was established to help broaden the availability of
the disclosure information. Also, since the adoption of the 1994
Amendments, there have been significant advancements in technology and
information systems, including the use of the Internet, to provide
information quickly and inexpensively to market participants and
investors. In this regard, the Commission preliminarily believes that
the use of a single repository to receive, in an electronic format, and
make available continuing disclosure documents, in an electronic
format, would substantially and effectively increase the availability
of municipal securities information about municipal issues and enhance
the efficiency of the secondary trading market.
---------------------------------------------------------------------------
\47\ See note 19, supra.
---------------------------------------------------------------------------
The Commission acknowledges that, if the proposed amendments were
adopted to provide for a single repository, competition with respect to
services provided by the existing NRMSIRs could decline, including a
potential reduction in current services relating to municipal
securities that are not within the ambit of Rule 15c2-12 or a potential
narrowing of competing information services regarding municipal
securities.\48\ The Commission, however, preliminarily believes that
any potential effect on competition that could result from having a
single repository would be justified by the more efficient and
effective process for the collection and availability of continuing
disclosure documents by a single repository. For instance, utilizing
the Internet for the collection and availability of continuing
disclosure documents would modernize the method of delivery of such
documents to the single repository and make the documents more readily
and easily accessible to investors and others. Moreover, in providing
for a single repository for continuing disclosure documents that
investors and others could easily access, the proposed amendments would
foster the goals of the Exchange Act to protect investors and promote
the public interest. For example, investors would be able to readily
retrieve information from the central repository about municipal
securities, and thus it would be easier for them to make more informed
decisions in assessing whether to purchase, sell, or hold municipal
securities. Similarly, commercial vendors could readily access the
information to redisseminate it or use it in whatever value-added
products they may wish to provide.
---------------------------------------------------------------------------
\48\ See also discussion in Sections V. and VI., infra.
---------------------------------------------------------------------------
As a result, the Commission preliminarily does not believe that
having a single repository would have a significant adverse effect on
the ability or willingness of private information vendors to compete to
create and market value-added products. In fact, a single repository
where documents are submitted in an electronic format could encourage
the private information vendors to disseminate municipal securities
information by reducing the cost of entry into the information services
market. Vendors may need to make some adjustments to their
infrastructure or facilities. However, some vendors could determine
they no longer need to invest in the infrastructure and facilities
necessary to collect and store continuing disclosure documents, and new
entrants into the market would not need to purchase the information
from multiple locations, but rather could readily access such
information from one centralized source. Thus, all vendors would have
equal availability to the continuing disclosure documents and be able
to compete in providing value-added services.
The Commission requests comment on whether it should amend Rule
15c2-12 as proposed in this release, or whether it is preferable to
continue to have multiple sources for such information. The Commission
requests comment on whether having one repository instead of multiple
repositories for the submission of, and access to, continuing
disclosure documents would improve access to secondary market
disclosure for investors and municipal securities market participants.
The Commission also requests comment on whether the availability of
such information from a single source would simplify compliance with
regulatory requirements by Participating Underwriters and others. The
Commission seeks comment on any possible disadvantages in having only
one repository responsible for the collection of, and access to,
municipal securities information. Furthermore, the Commission requests
comment whether it should contemplate alternative ways of improving the
efficiency of the current structure, including the use of the existing
NRMSIRs, instead of amending the Rule to provide for only one
repository. In this regard, the Commission seeks comment concerning
whether instead Rule 15c2-12 should be amended to require Participating
Underwriters to reasonably determine that the continuing disclosure
agreements provide solely for the electronic submission of such
documents to each of the NRMSIRs. Commenters should provide reasons why
submitting documents, electronically or otherwise, to multiple NRMSIRs,
rather than to a single repository, would be preferable.
If the Commission should determine to amend the Rule to refer to
one repository, the Commission also is proposing to revise Rule 15c2-12
to delete all references to NRMSIRs and instead to insert references to
the MSRB. Established pursuant to an act of Congress \49\ as a self-
regulatory organization (``SRO'') for brokers, dealers and municipal
securities dealers engaged in transactions in municipal securities, the
MSRB is subject to Commission oversight, as provided by the Exchange
Act. As an SRO, the MSRB is required to file its rules and changes to
those rules with the Commission for notice and comment and Commission
review under Section 19(b) of the Exchange Act.\50\ Pursuant to Section
15B(b)(2)(C) of the Exchange Act, the MSRB's rules are required to be
designed, in part, ``to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, * * * to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in municipal securities, to remove
impediments to and perfect the mechanism of a free and open market in
municipal securities, and, in general, to protect investors and the
public interest.'' \51\ The MSRB's existing RTRS and MSIL systems, and
the primary offering information component of the EMMA system that has
been approved by the Commission (relating to the submission of official
statements and advance refunding documents),\52\ were subject to notice
and comment and Commission review. Similarly, the MSRB's proposal to
establish a continuing disclosure
[[Page 46143]]
component within the EMMA system, as well as any future changes to that
component, would be subject to Commission review under section 19(b) of
the Exchange Act.\53\ Further, the Commission believes that, in
addition to being subject to Commission oversight as an SRO, the MSRB
is both familiar with the complexities of municipal securities and the
municipal securities market and has experience in developing and
maintaining electronic information systems for that market.\54\
Collectively, these factors lead the Commission to propose to amend
Rule 15c2-12 to provide that the MSRB be the centralized location for
collecting (in an electronic format) and making information about
municipal securities available to the public at no cost.
---------------------------------------------------------------------------
\49\ 15 U.S.C. 78o-4.
\50\ 15 U.S.C. 78s(b).
\51\ 15 U.S.C. 78o-4(b)(2)(C).
\52\ See Securities Exchange Act Release No. 57577, supra note
30.
\53\ See Securities Exchange Act Release No. 58256, supra note
31.
\54\ For example, the MSRB is experienced with operating CDINet,
the MSIL system, and the RTRS system.
---------------------------------------------------------------------------
The Commission previously stated that it would specifically
consider the competitive implications of the MSRB becoming a
repository.\55\ In addition, the Commission stated that, if the
Commission were to conclude that the MSRB's status as a repository
might have adverse competitive implications, it would consider whether
it should take any action to address these effects.\56\ As noted above,
the Commission recognizes that competition with respect to certain
information services regarding municipal securities that are provided
by the existing NRMSIRs could decline should the MSRB become the
central repository. However, the Commission believes that the reasons
it provided above regarding the competitive implications with respect
to having a single repository similarly would apply if the MSRB were
the sole repository. The Commission does not believe that there are
competitive implications that would uniquely apply to the MSRB in its
capacity as the sole repository, as opposed to any other entity that
could be the sole repository. In fact, the Commission believes that, if
the MSRB were the sole repository, its status as an SRO would provide
an additional level of Commission oversight, as any changes to its
rules relating to continuing disclosure documents would have to be
filed for Commission consideration as a proposed rule change under
section 19(b) of the Exchange Act.
---------------------------------------------------------------------------
\55\ Specifically, the Commission stated that it would consider
the competitive implications of an MSRB request for NRMSIR status.
See Securities Exchange Act Release No. 28081 (June 1, 1990), 55 FR
23333 (June 7, 1990) (File No. SR-MSRB-89-9). See also 1994
Proposing Release and 1994 Amendments, supra notes 43 and 5,
respectively. Although the MSRB is not seeking NRMSIR status, the
MSRB essentially would become a repository if the proposed
amendments were adopted.
\56\ See Securities Exchange Act Release No. 28081, supra note
55.
---------------------------------------------------------------------------
Accordingly, similar to the discussion above, the Commission
believes that any competitive impact that could result from the MSRB's
status as the sole repository would be justified by the benefits that
such status could provide. The Commission believes that one of the
benefits in having the MSRB be the sole repository would be its ability
to provide a ready source of continuing disclosure documents to all
investors, broker-dealers and information vendors who wish to use that
information for their products. Private vendors could utilize the MSRB
in its capacity as a repository as a means to collect information from
the continuing disclosure documents to create value-added products for
their customers. As noted earlier, vendors may need to make some
adjustments to their infrastructure or facilities in using the MSRB's
services as a repository of continuing disclosure documents. However,
some vendors could determine they no longer need to incur the cost of
obtaining and storing continuing disclosure documents, and new entrants
into the information services market would not need to purchase the
information from multiple locations. Thus, all vendors would have equal
availability to these public documents and would be able to develop
whatever services they choose.
The Commission requests comment concerning whether the MSRB should
serve as the sole repository of continuing disclosure documents or
whether another entity, such as a private vendor, should serve as the
sole repository, instead of the MSRB. If commenters believe another
entity should be the sole repository, commenters should provide reasons
for their viewpoint. The Commission seeks comment on whether the MSRB
would be an appropriate operator of a centralized repository for the
collection and availability of continuing disclosure information about
municipal securities, and whether there is a more appropriate location
or means through which such information could be made readily available
to the public without charge. Commenters are also asked to address
whether the MSRB's status as an SRO would be an advantage or
disadvantage to its serving as the sole repository. In addition, the
Commission requests comment on whether having the MSRB serve as the
sole repository would encourage or discourage competition between the
MSRB and private vendors, or others.
If the Commission were to amend the Rule to provide for the MSRB to
serve as the sole repository, the Commission would amend Rule 15c2-
12(b)(5), which sets forth the undertakings to which Participating
Underwriters must reasonably determine that issuers or other obligated
persons have contractually agreed to provide in connection with primary
offerings subject to the Rule. The proposed amendments would revise
subparagraphs (b)(5)(i)(A) through (D) of Rule 15c2-12 to require
Participating Underwriters to reasonably determine that the issuer or
obligated person has agreed at the time of a primary offering: (1) To
provide the continuing disclosure documents directly to the MSRB
instead of to each NRMSIR and appropriate SID, and (2) to provide the
continuing disclosure documents in an electronic format and accompanied
by identifying information as prescribed by the MSRB. Specifically, the
Commission proposes to amend Rule 15c2-12(b)(5)(i)(A) through (D) by
deleting references in each of those provisions to NRMSIR and SID and
adding language to require Participating Underwriters to reasonably
determine that issuers or obligated persons have undertaken to provide
continuing disclosure documents to the MSRB in an electronic format as
prescribed by the MSRB.\57\
---------------------------------------------------------------------------
\57\ The Commission notes that the MSRB would be required to
file a proposed rule change with the Commission under Section 19(b)
of the Exchange Act regarding the electronic format it proposes to
use.
---------------------------------------------------------------------------
The Rule requires that Participating Underwriters reasonably
determine that the information undertaken to be provided, in addition
to being submitted to the NRMSIRs, or, in some cases, to the MSRB, must
be submitted to a SID, if an appropriate SID has been established by
that state.\58\ The Commission adopted an exemption from paragraph
(b)(5) of the Rule that, among other things, contains conditions on
limited undertakings relating to making financial information or
operating data available upon request or at least annually to a SID,
and providing material event notices to each NRMSIR or the MSRB, and to
a SID.\59\ Because the Commission is now proposing to amend the Rule to
provide for a single repository for the electronic collection and
availability of continuing disclosure documents that the Commission
believes would efficiently and effectively improve disclosure in the
municipal securities market, the Commission believes that it is no
longer necessary to specifically require in the
[[Page 46144]]
Rule that Participating Underwriters reasonably determine that issuers
and obligated persons have contractually agreed to provide continuing
disclosure documents to the SIDs. The Commission, therefore, is
proposing to delete references to the SIDs in the Rule. As discussed
further below, the Commission, however, notes that there may be an
obligation to provide such documents to a SID, if required by
applicable state law, which also could be beneficial in improving
disclosure in the municipal securities market.
---------------------------------------------------------------------------
\58\ 17 CFR 240.15c2-12(b)(5)(i)(A) through (D).
\59\ 17 CFR 240.15c2-12(d)(2)(ii)(A) and (B).
---------------------------------------------------------------------------
Specifically, the Commission is proposing to delete references to
the SIDs in Rule 15c2-12(b)(5)(i)(A) through (D). Under these proposed
amendments, Participating Underwriters no longer would need to
reasonably determine that issuers or obligated persons have agreed in
the continuing disclosure agreements to provide continuing disclosure
documents to the appropriate SID, if any. The proposed amendments,
however, would not affect the legal obligations of issuers and
obligated persons to provide continuing disclosure documents, along
with any other submissions, to the appropriate SID, if any, that are
required under the appropriate state law. In addition, the proposed
amendments would have no effect on the obligations of issuers and
obligated persons under outstanding continuing disclosure agreements
entered into prior to any effective date of the proposed amendments to
the Rule to submit continuing disclosure documents to the appropriate
SID, if any, as stated in their existing continuing disclosure
agreements, nor on their obligation to make any other submissions that
may be required under the appropriate state law.
The Commission requests comment on whether the reference to the
SIDs should be deleted in the Rule. The Commission requests comment on
the impact of deleting the references to the SIDs in the Rule,
including the impact of the proposed deletion on the obligations of
Participating Underwriters, issuers and obligated persons. The
Commission also requests comment on the effect of the proposed deletion
on SIDs and their role in the collection and disclosure of continuing
disclosure documents.
The proposed amendments also would revise Rule 15c2-12(d)(2)(ii),
which is part of an exemptive provision from Rule 15c2-12(b)(5). The
exemption in Rule 15c2-12(d)(2) currently provides that paragraph
(b)(5) of the Rule, which relates to the submission of continuing
disclosure documents pursuant to continuing disclosure agreements, does
not apply to a primary offering if three conditions are met: (1) The
issuer or the obligated person has less than $10 million of debt
outstanding; \60\ (2) the issuer or obligated person has undertaken in
a written agreement or contract (``limited undertaking'') to provide:
(i) Financial information or operating data regarding each obligated
person for which financial information or operating data is presented
in the final official statement, including financial information and
operating data which is customarily prepared by such obligated person
and is publicly available, upon request to any person or at least
annually to the appropriate SID,\61\ and (ii) material event notices to
each NRMSIR or the MSRB, as well as the appropriate SID; \62\ and (3)
the final official statement identifies by name, address and telephone
numbers the persons from which the foregoing information, data and
notices can be obtained. The proposed amendments would revise the
limited undertaking set forth in 15c2-12(d)(2)(ii)(A) and (B) by
deleting references to the NRMSIRs and SIDs and solely referencing the
MSRB. Accordingly, under the proposed amendment to Rule 15c2-
12(d)(2)(ii), a Participating Underwriter would be exempt from their
obligations under paragraph (b)(5) of the Rule as long as an issuer or
obligated person has agreed in its limited undertaking to provide
financial information, operating data and material event notices to the
MSRB in an electronic format as prescribed by the MSRB, and the
exemption's other conditions are satisfied. In conjunction with this
proposed change, the Commission also would amend the provision of the
exemption relating to the limited undertaking to provide that the type
of financial information or operating data described in Rule 15c2-
12(d)(2)(ii)(A) regarding each obligated person be submitted at least
annually to the MSRB.\63\
---------------------------------------------------------------------------
\60\ 17 CFR 240.15c2-12(d)(2)(i).
\61\ 17 CFR 240.15c2-12(d)(2)(ii)(A).
\62\ 17 CFR 240.15c2-12(d)(2)(ii)(B).
\63\ Similar to the earlier discussion regarding the deletion of
references to the SIDs in Rule 15c2-12(b)(5)(i), the proposed
amendments to Rule 15c2-12(d)(2)(ii)(A) and (B) would not affect the
legal obligations of issuers and obligated persons to provide
financial information, operating data and material event notices,
along with any other submissions, to the appropriate SID, if any,
that are required under the appropriate state law. Furthermore, the
proposed amendments to Rule 15c2-12(d)(2)(ii)(A) and (B) would have
no effect on the obligations of issuers and obligated persons under
outstanding limited undertakings entered into prior to any effective
date of the proposed amendments to the Rule to submit financial
information, operating data and material event notices to the
appropriate SID, if any, as stated in their existing limited
undertakings, nor on their obligation to make other submissions that
may be required under the appropriate state law.
---------------------------------------------------------------------------
With respect to the proposed electronic submission of continuing
disclosure documents, the Commission believes that this method would
better enable the information to be promptly posted and made available
to the public without charge. Electronic submission also would
eliminate the need for manual handling of paper documents, which can be
a less efficient and more costly process. For instance, the submission
of paper documents would require the repository to manually review,
sort and store such documents. There is also a potential for a less
complete record of continuing disclosure documents at the repository if
such documents are submitted in paper to the repository and, for
instance, are misplaced or misfiled. As discussed below, the Commission
believes that submissions in an electronic format should not be very
burdensome on issuers or other obligated persons, since many continuing
disclosure documents already are being created in an electronic format
and, as a result, are readily transmitted by electronic means.\64\
---------------------------------------------------------------------------
\64\ In addition, the availability of audited financial
statements and other financial and statistical data in an electronic
format by issuers subject to the Rule could encourage the
establishment of the necessary taxonomies and permit states and
local governments to make use of XBRL in the future, should they
wish to do so.
---------------------------------------------------------------------------
The Commission requests comment on the proposed amendment to
provide continuing disclosure documents in an electronic format. The
Commission requests comment on whether submitting continuing disclosure
documents in an electronic format would increase the efficiency of
submission and availability of continuing disclosure documents, and
whether submitting the documents in an electronic format would
facilitate wider availability of the information. The Commission also
requests comment on alternative methods of providing secondary market
disclosure, including whether commenters instead believe that the
NRMSIRs should establish new comprehensive electronic systems for the
submission of such documents. Furthermore, the Commission requests
comment concerning whether the proposed amendments to Rule 15c2-12
should allow for the submission of paper documents and, if so, whether
any conditions should be imposed in connection with paper submissions.
Comments are also requested on whether the proposed amendments to Rule
15c2-12 should allow for the
[[Page 46145]]
availability of paper copies upon request from the central repository.
To enable the continuing disclosure documents to be identified and
retrieved accurately, the Commission is proposing new subparagraph
(b)(5)(iv) of Rule 15c2-12 to require Participating Underwriters to
reasonably determine that the issuer or obligated person has undertaken
in writing to accompany all documents submitted to the MSRB with
identifying information as prescribed by the MSRB. Similarly, the
Commission is proposing a conforming change in subparagraph
(d)(2)(ii)(C) of Rule 15c2-12 relating to the limited undertaking set
forth in Rule 15c2-12(d)(2)(ii) to provide that all documents provided
to the MSRB would be required to be accompanied by identifying
information as prescribed by the MSRB.\65\
---------------------------------------------------------------------------
\65\ The Commission notes that the MSRB would be required to
file a proposed rule change with the Commission pursuant to Section
19(b) of the Exchange Act regarding any such identifying information
that it wished to specify.
---------------------------------------------------------------------------
The Commission believes that providing identifying information with
each submitted document would permit the repository to sort and
categorize the document efficiently and accurately. The Commission also
anticipates that including in each submission the basic information
needed to accurately identify the document would facilitate the ability
of investors, market participants, and others to reliably search for
and locate relevant disclosure documents. Furthermore, the Commission
preliminarily expects that there would be a minimal burden on
Participating Underwriters to comply with the proposed new subparagraph
(b)(5)(iv) of Rule 15c2-12 since it would only require that the
Participating Underwriters reasonably determine that issuers and
obligated persons have contractually agreed to one additional provision
relating to the identifying information, while there would be a
significant benefit to investors and other municipal market
participants to easily retrieve the information. Indeed, issuers and
other obligated persons that choose to submit continuing disclosure
documents through some existing dissemination agents and document
delivery services already are supplying identifying information with
their submissions.\66\
---------------------------------------------------------------------------
\66\ The commitment by an issuer to provide identifying
information would exist only if it were included in a continuing
disclosure agreement. As a result, issuers submitting continuing
disclosure documents pursuant to the terms of undertakings entered
into prior to the effective date of the proposed amendments that did
not require identifying information could submit documents without
supplying identifying information.
---------------------------------------------------------------------------
The
