Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Additional Voluntary Submissions by Issuers to the MSRB's Electronic Municipal Market Access System (EMMA®), 30876-30887 [2010-13155]

Download as PDF 30876 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices sroberts on DSKD5P82C1PROD with NOTICES withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the Participants to satisfy tax withholding obligations related to the vesting of Restricted Stock and the exercise of options to purchase shares of the Company’s common stock granted pursuant to the Plans or the Amended Plans. The Amended Plans further provide the Company’s Board with discretion to permit the Participants to pay the exercise price of options to purchase shares of the Company’s stock with shares of the Company’s stock already held by such Participants or pursuant to net share settlement. Applicant’s Legal Analysis 1. Section 23(c) of the Act, which is made applicable to BDCs by section 63 of the Act, generally prohibits a BDC from purchasing any securities of which it is the issuer except in the open market, pursuant to tender offers or under other circumstances as the Commission may permit to ensure that the purchase is made on a basis that does not unfairly discriminate against any holders of the class or classes of securities to be purchased. Applicant states that the withholding or purchase of shares of Restricted Stock and common stock in payment of applicable withholding tax obligations or of common stock in payment for the exercise price of a stock option might be deemed to be purchases by the Company of its own securities within the meaning of section 23(c) and therefore prohibited by the Act. 2. Section 23(c)(3) provides that the Commission may issue an order that would permit a BDC to repurchase its shares in circumstances in which the repurchase is made in a manner or on a basis that does not unfairly discriminate against any holders of the class or classes of securities to be purchased. Applicant states that it believes that the requested relief meets the standards of section 23(c)(3). 3. Applicant states that these purchases will be made on a basis which does not unfairly discriminate against the stockholders of the Company because all purchases of the Company’s stock will be at the closing price of the common stock on the NASDAQ Global Select Market (or any other such exchange on which the shares may be traded in the future) on the date of the transaction. Applicant further states that no transactions will be conducted pursuant to the requested order on days where there are no reported market transactions involving the Company’s shares. Applicant submits that because all transactions would take place at the VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 public market price for the Company’s common stock, the transactions would not be significantly different than could be achieved by any stockholder selling in a market transaction. 4. Applicants submit that the proposed purchases do not raise concerns about preferential treatment of the Company’s insiders because the Amended Plans are bona fide compensation plans of the type that is common among corporations generally. Further, the vesting schedule is determined at the time of the initial grant of the Restricted Stock and the option exercise price is determined at the time of the initial grant of the options. Applicant represents that all purchases may be made only as permitted by the Amended Plans. Applicant argues that granting the requested relief would be consistent with policies underlying the provisions of the Act permitting the use of equity compensation as well as prior exemptive relief granted by the Commission for relief under section 23(c) of the Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–13154 Filed 6–1–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, June 3, 2010 at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), (8), 9(ii) and (10), permit consideration of the scheduled matters at the Closed Meeting. Commissioner Paredes, as duty officer, voted to consider the items listed for the Closed Meeting in a closed session. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 The subject matter of the Closed Meeting scheduled for Thursday, June 3, 2010 will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; A regulatory matter regarding a financial institution; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: May 27, 2010. Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–13329 Filed 5–28–10; 4:15 pm] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62183, File No. SR–MSRB– 2009–10] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Additional Voluntary Submissions by Issuers to the MSRB’s Electronic Municipal Market Access System (EMMA®) May 26, 2010. I. Introduction On July 14, 2009, the Municipal Securities Rulemaking Board (‘‘MSRB’’), filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change relating to additional voluntary submissions by issuers to the MSRB’s Electronic Municipal Market Access System (‘‘EMMA’’). The proposed rule change was published for comment in the Federal Register on July 22, 2009.3 The Commission received 27 comment 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 60315 (July 15, 2009), 74 FR 36294 (‘‘Original Notice’’) (the ‘‘original proposed rule change’’). 2 17 E:\FR\FM\02JNN1.SGM 02JNN1 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices letters about the proposed rule change.4 On December 18, 2009, the MSRB filed with the Commission, pursuant to Section 19(b)(1) of the Exchange Act 5 and Rule 19b-4 thereunder,6 Amendment No. 1 to the proposed rule change. Amendment No. 1 to the proposed rule change was published for comment in the Federal Register on January 5, 2010.7 The Commission received three comment letters concerning Amendment No. 1.8 On May 21, 2010, the MSRB filed with the Commission, pursuant to Section 19(b)(1) of the Exchange Act 9 and Rule 19b-4 thereunder,10 Amendment No. 2 to the proposed rule change, which clarified an aspect of the proposed rule change relating to an issuer’s undertaking and requested an additional three months to develop, test, and implement the proposal. The text of Amendment No. 2 is available on the MSRB’s Web site (https://www.msrb.org), at the MSRB’s principal office, and for Web site viewing and printing in the Commission’s Public Reference Room. This order provides notice of Amendment No. 2 and approves the proposed rule change as modified by Amendment Nos. 1 and 2 on an accelerated basis. II. Description of the Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 to the Proposed Rule Change sroberts on DSKD5P82C1PROD with NOTICES Preliminary Official Statements and Other Primary Market Documents The proposed rule change would amend the EMMA primary market disclosure service to permit issuers and their designated agents to make voluntary submissions to the primary market disclosure service of official statements, preliminary official statements and related pre-sale documents, and advance refunding documents (collectively, ‘‘primary market documents’’).11 Pre-sale 4 Copies of the comment letters received by the Commission are available on the Commission’s Internet Web site, located at https://www.sec.gov/ comments/sr-msrb-2009–10/msrb200910.shtml and for Web site viewing and printing in the Commission’s Public Reference Room at its Washington, DC headquarters. 5 15 U.S.C. 78s(b)(1). 6 17 CFR 240.19b–4. 7 See Securities Exchange Act Release No. 61237 (December 23, 2009), 75 FR 485 (January 5, 2010) (‘‘Amendment No. 1 Notice’’). 8 Exhibit A contains the citation key for all comment letters received on the proposed rule change and on Amendment No. 1. 9 15 U.S.C. 78s(b)(1). 10 17 CFR 240.19b–4. 11 Obligated persons would be permitted to submit primary market documents through the EMMA primary market disclosure service only if designated as an agent by the issuer. VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 documents other than a preliminary official statement (including but not limited to notices of sale or supplemental disclosures) would be accepted only if accompanied or preceded by the preliminary official statement.12 An issuer seeking to make submissions of primary market documents to the EMMA primary market disclosure service would use the same accounts established with respect to submissions of continuing disclosure documents to the EMMA continuing disclosure service, subject to additional verification procedures to affirmatively establish the account holder’s authority to act on behalf of the issuer in connection with such primary market disclosure submissions. Submissions of primary market documents by issuers and their designated agents would be accepted on a voluntary basis if, at the time of submission, they are accompanied by information necessary to accurately identify: (i) The category of document being submitted; (ii) the issues or specific securities to which such document is related; and (iii) in the case of an advance refunding document, the specific securities being refunded pursuant thereto. The primary market documents and related indexing information would be displayed on the EMMA Web portal and also would be included in EMMA’s primary market disclosure subscription service. Additional Continuing Disclosure Submissions and Undertakings The proposed rule change also would amend the EMMA continuing disclosure service to permit issuers, obligated persons and their agents to make voluntary submissions to the continuing disclosure service of additional categories of disclosures, as well as information about their continuing disclosure undertakings. Such additional continuing disclosures and related indexing information would be displayed on the EMMA Web portal and also would be included in EMMA’s continuing disclosure subscription service. Such additional items 13 are: 12 The MSRB believes that posting of such presale documents without the related disclosure information provided in a preliminary official statement would be inconsistent with the core disclosure purposes of EMMA. 13 In Amendment No. 1, the MSRB proposes to modify the original proposed rule change by eliminating one item of additional voluntary submissions relating to the award of the Certificate of Achievement for Excellence in Financial Reporting awarded by the Government Finance Officers Association (‘‘GFOA’’) in connection with the preparation of a Comprehensive Annual Financial Report (‘‘CAFR’’) of an issuer. The MSRB notes that CAFRs are already frequently submitted to EMMA by issuers, and in most cases the issuers PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 30877 • An issuer’s or obligated person’s undertaking to prepare audited financial statements pursuant to generally accepted accounting principles (‘‘GAAP’’) as established by the Governmental Accounting Standards Board (‘‘GASB’’), or pursuant to GAAP as established by the Financial Accounting Standards Board (‘‘FASB’’), as applicable to such issuer or obligated person and as further described below (the ‘‘voluntary GAAP undertaking’’); 14 • An issuer’s or obligated persons’ undertaking to submit annual financial information to EMMA within 120 calendar days after the end of the fiscal year or, as a transitional alternative that may be elected through December 31, 2013, within 150 calendar days after the end of the applicable fiscal year, as further described below (the ‘‘voluntary annual filing undertaking’’); 15 and • Uniform resource locator (URL) of the issuer’s or obligated person’s Internet-based investor relations or other repository of financial/operating information. Voluntary GAAP Undertaking. The voluntary GAAP undertaking would consist of a voluntary undertaking by an issuer or obligated person, either at the time of a primary offering or at any time thereafter, that the issuer or obligated person will prepare its audited financial statements in accordance with GAAP. The MSRB contemplates that State or local governments or any other entities to which GASB standards are applicable would apply GAAP as established by GASB and that any other entities to which FASB standards are applicable would apply GAAP as established by FASB. The voluntary GAAP undertaking would assist investors and other market participants in understanding how audited financial statements were prepared. The fact that an issuer or obligated person has entered into a voluntary GAAP undertaking, and the include the GFOA certificate in the submitted CAFR. According to the MSRB, EMMA already effectively serves as a venue through which CAFRs and GFOA certificates are made available to investors. 14 In response to the comments received on the original proposed rule change, the MSRB in Amendment No. 1 proposes to modify the original proposed rule change by permitting issuers and obligated persons to elect either the GASB standard or the FASB standard for GAAP, as appropriate. The original proposed rule change contemplated the use of the GASB standard only. 15 In response to the comments received on the original proposed rule change, the MSRB in Amendment No. 1 proposes to modify the original proposed rule change by permitting issuers and obligated persons to elect to undertake to submit annual financial information either within 120 days or 150 days after the end of the fiscal year. The original proposed rule change contemplated a 120day timeframe only. E:\FR\FM\02JNN1.SGM 02JNN1 sroberts on DSKD5P82C1PROD with NOTICES 30878 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices standard under which audited financial statements are to be prepared, would be prominently disclosed on the EMMA Web portal as a distinctive characteristic of the securities to which such undertaking applies. In Amendment No. 2, the MSRB proposes to clarify that the EMMA indicator with regard to the voluntary GAAP undertaking would be indicative of an issuer’s or obligated person’s voluntary undertaking, entered into as a contractual obligation, for the benefit of bondholders, under a continuing disclosure agreement or another contract, that it will prepare its audited financial statements in accordance with GAAP, either based on GASB or FASB standards as appropriate. If the issuer or obligated person later rescinds such undertaking through an amendment to its continuing disclosure agreement or other contractual arrangement, the issuer or obligated person would be expected to remove the indicator of its voluntary GAAP undertaking on EMMA. Amendment No. 2 clarifies that the voluntary EMMA GAAP indicator solely could be used in situations where the issuer has entered into an undertaking via a contractual obligation. While this is consistent with a number of statements in Amendment No. 1, there was a statement by the MSRB in Amendment No. 1 to the effect that the making of a voluntary GAAP undertaking through EMMA by an issuer or obligated person would reflect the bona fide intent of the issuer or obligated person to perform as undertaken but would not, by itself, necessarily create a contractual obligation of such issuer or obligated person. This statement may have caused some confusion with regard to the issuer’s need to undertake, in a continuing disclosure agreement or separate contract, that it will prepare its audited financial statements in accordance with GAAP, either based on GASB or FASB standards as appropriate in order to use the voluntary EMMA GAAP indicator. The MSRB would not review whether an entity has selected the appropriate accounting standard, would not review or confirm the conformity of submitted audited financial statements to GAAP, and would not review whether the information submitted by such entity to the EMMA continuing disclosure service regarding the voluntary GAAP undertaking accurately reflects the provisions of, or is included within, the continuing disclosure agreement or other contractual arrangement of such entity. Voluntary Annual Filing Undertaking. The voluntary annual filing undertaking VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 would consist of a voluntary undertaking by an issuer or obligated person, either at the time of a primary offering or at any time thereafter, that the issuer or obligated person, as appropriate, would submit to EMMA its annual financial information as contemplated by Rule 15c2–12 under the Act by no later than 120 calendar days after the end of such issuer’s or obligated person’s fiscal year (the ‘‘120day undertaking’’).16 Alternatively, to and including December 31, 2013, the EMMA continuing disclosure service would provide the option for an issuer or obligated person to indicate its undertaking to submit to EMMA its annual financial information by no later than 150 calendar days after the end of such issuer’s or obligated person’s fiscal year (the ‘‘transitional 150-day undertaking’’).17 An issuer or obligated person that has made a transitional 150day undertaking could convert such election to a 120-day undertaking at any time. On and after January 1, 2014, the transitional 150-day undertaking option would no longer be available for selection. The voluntary annual filing undertaking would assist investors and other market participants in understanding when the annual financial information is expected to be available in the future. The fact that an issuer or obligated person has entered into a voluntary annual filing undertaking would be prominently disclosed on the EMMA Web portal as a distinctive characteristic of the securities to which such undertaking applies. A transitional 150-day undertaking would continue to be displayed on the EMMA Web portal through June 30, 2014, and would automatically cease to be displayed on the EMMA Web portal after such date, unless the issuer or obligated person has 16 According to the MSRB, under the Exchange Act, smaller public reporting companies, as nonaccelerated filers, generally are required to file their annual reports on Form 10–K with the Commission within 90 days after the end of their fiscal year. The MSRB States that the longer 120-day period included in the voluntary annual filing undertaking of the proposed rule change is designed to accommodate additional steps that State and local governments often must take—under state law, pursuant to their own requirements, or otherwise— in completing the work necessary to prepare their annual financial information as contemplated under Exchange Act Rule 15c2–12. 17 The MSRB states that the option to elect, through December 31, 2013, a transitional 150-day undertaking acknowledges that the 120-day undertaking may not be immediately achievable by most issuers and obligated persons, and is designed to provide a means by which to recognize issuers and obligated persons that are taking steps toward ultimately making their annual financial information available within 120 days of fiscal year end in the future. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 previously changed or rescinded such undertaking. Amendment No. 2 clarifies that the EMMA indicator with regard to the voluntary annual filing undertaking would be indicative of an issuer’s or obligated person’s voluntary undertaking, entered into as a contractual obligation, for the benefit of bondholders, under a continuing disclosure agreement or another contract, that it will submit to EMMA its annual financial information as contemplated under Rule 15c2–12 by no later than 120 calendar days (or 150 calendar days, in the case of the transitional 150-day undertaking option) after the end of such issuer’s or obligated person’s fiscal year. If the issuer or obligated person later modifies the timeframe for submitting the annual financial information in its continuing disclosure agreement or other contractual arrangement to a period longer than contemplated by the voluntary annual filing undertaking, the issuer or obligated person would be expected to remove the indicator of its voluntary annual filing undertaking on EMMA. While Amendment No. 1 in several places clearly stated the MSRB’s view that such an undertaking would be contained in a continuing disclosure agreement or a separate contract,18 one statement in Amendment No. 1 may have caused some confusion.19 Amendment No. 2 thus clarifies that the voluntary EMMA indicator could be used solely in situations where an issuer had made such an undertaking as a contractual obligation (whether in a continuing disclosure agreement or in a separate contract). The MSRB would not review or confirm the compliance of an issuer or obligated person with its voluntary annual filing undertaking and would not review whether the information submitted by such entity to the EMMA continuing disclosure service regarding the voluntary annual filing undertaking accurately reflects the provisions of, or is included within, the continuing disclosure agreement or other contractual arrangement of such entity. Investor Relation URL Posting. The proposed rule change would permit issuers or obligated persons to post the URLs for their Internet-based investor relations or other repository of 18 See, e.g., Amendment No. 1 Notice at 486. MSRB contemplates that the making of a voluntary GAAP undertaking through EMMA by an issuer or obligated person would reflect the bona fide intent of the issuer or obligated person to perform as undertaken but would not, by itself, necessarily create a contractual obligation of such issuer or obligated person.’’ See Amendment No. 1 Notice at 486. 19 ‘‘The E:\FR\FM\02JNN1.SGM 02JNN1 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices financial/operating information, which would provide investors with an additional avenue for obtaining further financial, operating or other investmentrelated information about such issuer or obligated person. Manner of Submission. Issuers and obligated persons would indicate the existence of a voluntary GAAP undertaking or voluntary annual filing undertaking through a data input election on EMMA. Changes to or rescissions of such voluntary contractual undertakings could also be indicated through the same EMMA interface process.20 Effective Date of Proposed Rule Change The MSRB originally requested an effective date for the proposed rule change of a date to be announced by the MSRB in a notice published on the MSRB Web site, which date shall be no later than nine months after Commission approval of the proposed rule change and shall be announced no later than sixty (60) days prior to the effective date.21 In Amendment No. 2, the MSRB requested that the Commission approve a revised effective date for the proposed rule change of a date to be announced by the MSRB in a notice published on the MSRB Web site, which date shall be no later than one year after Commission approval of the proposed rule change and shall be announced no later than sixty (60) days prior to the effective date. sroberts on DSKD5P82C1PROD with NOTICES III. Discussion and Commission Findings The Commission has carefully considered the proposed rule change, the comment letters received, and the MSRB’s responses to the comment letters and finds that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the MSRB 22 and, in particular, the requirements of Section 15B(b)(2)(C) of the Exchange Act 23 and the rules and regulations thereunder. 20 The Commission notes that continuing disclosure undertakings pursuant to Rule 15c2–12 under the Exchange Act cannot be unilaterally rescinded or amended by either the issuer, an obligated person, or by any other party. See Securities Exchange Act Release No. 34961 (November 10, 1994), 59 FR 59560 (November 17, 1994); Letter from Robert L.D. Colby, Deputy Director, Division of Trading and Markets, Commission, to Securities Law and Disclosure Committee, National Association of Bond Lawyers, dated June 23, 1995 (Question 2). 21 See Original Notice. 22 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 23 15 U.S.C. 78o–4(b)(2)(C). VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 Section 15B(b)(2)(C) of the Exchange Act requires, among other things, that the MSRB’s rules be designed 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.24 In particular, the Commission finds that the proposed rule change is consistent with the Exchange Act in that it serves to remove impediments to and help perfect the mechanisms of a free and open market in municipal securities and would serve to promote the statutory mandate of the MSRB to protect investors and the public interest. Voluntary dissemination of preliminary official statements through EMMA, particularly if made available prior to the sale of a primary offering to the underwriters, would provide timely access by investors and other market participants to key information useful in making an investment decision in a manner that is consistent with the Exchange Act. The voluntary GAAP undertaking would assist investors’ understanding of how such information was prepared and may provide them with the knowledge that the financial statements were prepared according to generally accepted accounting principles. The voluntary annual filing undertaking would assist investors’ understanding regarding when such information is expected to be available in the future and may encourage greater timeliness in the preparation and dissemination of municipal financial information. A URL provided by an issuer or obligated person would provide investors with an additional avenue for obtaining further financial, operating or other investment-related information about the issuer or obligated person. General Summary of Comment Letters The Commission received 27 comment letters responding to the Original Notice and three comment letters responding to the Amendment No. 1 Notice. Two comment letters concerned procedural issues with the filing.25 Most of the remaining 25 24 Id. 25 The MSRB Letter indicated that it was filing an extension of time for the Commission to act. One commenter requested an extension of the comment period (Virginia GFOA Letter I). PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 30879 comment letters responding to the Original Notice generally supported the proposed rule change, except that most commenters believed that the 120-day voluntary annual filing undertaking would be too burdensome or not feasible.26 Several commenters, including a commenter representative of buyers of municipal securities, strongly supported the voluntary annual filing undertaking.27 Most commenters supported the proposals to submit voluntary information to EMMA, the voluntary GAAP undertaking and the issuer’s ability to post links to other sources of disclosure information,28 although some commenters raised concerns about various aspects of the proposals, suggested alternatives, or requested clarifications.29 As noted above, Amendment No. 1 proposed to add a transitional alternative of a 150day voluntary filing deadline through December 31, 2013, to provide a means by which to recognize issuers and obligated persons for taking steps toward voluntarily making their annual financial information available within 120 days of their fiscal year end. The three commenters who responded to the Amendment No. 1 Notice believed that the voluntary 150-day transitional alternative also was too burdensome and not achievable.30 On May 21, 2010, the MSRB submitted Amendment No. 2 to the proposed rule change. The comment letters received regarding the Original Notice and the Amendment No. 1 Notice, as set forth in Amendment Nos. 1 and 2, as well as the MSRB’s response to the comment letters, as set forth in Amendment Nos. 1 and 2, are more fully discussed below. Preliminary Official Statements and Other Primary Market Documents The proposal would amend the EMMA primary market disclosure service to permit issuers and their designated agents to make voluntary submissions to the primary market disclosure service of official statements, preliminary official statements and related pre-sale documents, and advance refunding documents. Pre-sale documents other than a preliminary 26 See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter. 27 See ICI Letter, SIFMA Letter, Hinsdale Letter. 28 See, e.g. VGFOA Letter II, Inland Letter, Brookfield Letter, OMFOA Letter, Rock Hill Letter. 29 See, e.g. SIFMA Letter, NABL Letter, GFOA Letter II, Consortium Letter, NAST Letter. 30 See GFOA Letter III, Connecticut Letter II, NAIPFA Letter. E:\FR\FM\02JNN1.SGM 02JNN1 30880 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices official statement (including but not limited to notices of sale or supplemental disclosures) would be accepted only if accompanied or preceded by the preliminary official statement. Most commenters who addressed the matter specifically supported the amendment of the EMMA primary market disclosure service to allow voluntary submissions.31 One commenter welcomed the expansion of the EMMA system to allow the voluntary submission of primary market documents because the expansion would allow issuers that offer their bonds through a competitive bidding process to be able to utilize the same distribution channels as issuers with offerings made on a negotiated basis.32 This commenter also suggested that the usefulness of the EMMA system would be enhanced by the ability to make and retrieve submissions identified in a manner other than by CUSIP numbers, such as by issuer.33 Only one commenter raised concerns about this aspect of the proposal.34 This commenter recommended that the submitters of primary disclosure documents continue to be restricted to underwriters and their agents except for submission of pre-sale documents prepared in connection with competitively sold municipal securities, in order to avoid the submission of duplicate or contradictory filings by underwriters and issuers or obligated persons.35 The MSRB addressed these comments in Amendment No. 1. The MSRB stated that it believes that there is considerable value in providing a means for centralized access to preliminary official statements at or prior to the time of the trade and in sufficient time for an investor to make use of the information in coming to an investment decision.36 The MSRB indicated that it expects to provide search capabilities tailored to the types of indexing information that would be available for preliminary official statements, including issuer name, issue description, State, and appropriate date ranges, among other things.37 Submissions made by issuers would be noted as such on the EMMA Web portal.38 The MSRB believed that postings of preliminary official sroberts on DSKD5P82C1PROD with NOTICES 31 See Virginia GFOA Letter II, Connecticut Letter I, ICI Letter, Brookfield Letter, OMFOA Letter, Rock Hill Letter, NAST Letter, NAIPFA Letter. 32 See Connecticut Letter I. 33 Id. 34 See NABL Letter. 35 Id. 36 See Amendment No. 1. 37 Id. 38 Id. VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 statements by issuers should be available for any new issue, not just those sold on a competitive basis, and the EMMA primary market submission process would be designed to discourage duplicative submissions by issuers and underwriters.39 The Commission agrees that it is appropriate that postings of preliminary official statements by issuers be available for offerings sold on a negotiated as well as competitive basis, and believes that the MSRB has adequately addressed the commenters’ concerns and suggestions about duplicative filings and indexing. Additional Continuing Disclosure Submissions and Undertakings One commenter believed that all four of the proposed additional categories to the EMMA continuing disclosure service (the GASB–GAAP undertaking, the annual filing undertaking, the originally proposed GFOA–CAFR Certificate undertaking and the URL of the issuer’s or obligated person’s Internet-based investor relations or other repository of financial/operating information) were unnecessary because this feature of EMMA already contains a catch-all category that is broad enough to include any of the proposed categories.40 Several commenters expressed concern that the undertakings created by the proposal could lead to mistaken impressions by investors regarding the soundness or quality of the disclosures that either are or are not highlighted by these categories 41 and one commenter expressed concern that by prominently highlighting certain voluntary undertakings, the MSRB could be construed to have recommended the creditworthiness of the municipal securities.42 The MSRB indicated in Amendment No. 1 and in Amendment No. 2 that it will include explanations of the nature of both the voluntary annual filing undertaking and the voluntary GAAP undertaking on the EMMA Web portal. The Commission believes that users of the EMMA system will benefit from the additional disclosures provided by these undertakings and that concerns that the additional disclosures provided on EMMA could lead to erroneous impressions can be monitored by the Commission through its oversight of the MSRB. 39 Id. 40 See NABL Letter. NABL Letter, NAHEFFA Letter, Connecticut Letter I. 42 See NABL Letter. 41 See PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 Voluntary Annual Filing Undertaking The original proposed rule change would amend the EMMA continuing disclosure service to permit issuers and obligated persons to undertake, on a voluntary basis, to submit annual financial information to EMMA within 120 calendar days after the end of the fiscal year. This provision would consist of a voluntary undertaking by an issuer or obligated person, either at the time of a primary offering or at any time thereafter, that the issuer or obligated person, as appropriate, would submit to EMMA its annual financial information as contemplated under Rule 15c2–12 (including audited financials, when and if available) by no later than 120 calendar days after the end of such issuer’s or obligated person’s fiscal year. Most commenters, the majority of whom were representative of issuers or obligated persons, believed that the 120day deadline for voluntary annual financial filings was too burdensome, arbitrary, unnecessary, harmful or not feasible,43 and many believed a majority of issuers could not meet this deadline.44 One commenter stated that often governments now struggle to meet the 180-day filing deadline to meet the requirements of the GFOA’s Certificate of Achievement Program, which promotes the preparation of comprehensive annual financial reports (CAFRs) that go beyond the requirements of GAAP.45 This commenter believed that promoting a 120-day deadline might reasonably be expected to persuade any number of issuers to abandon a CAFR altogether in favor of a plain set of basic financial statements, which, in its view, would likely be harmful to the quality of financial reporting.46 Many commenters noted that external factors can inhibit the ability of issuers to complete annual financial reporting within 120 days, such as the need to obtain financial data from multiple component units, the need for outside governmental or governing body reviews of financial statements, required investment valuations by third parties, receipts and adjusting entries occurring after the close of the fiscal year, conflicts with State law and a limited 43 See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter. 44 See Tennessee Letter, GFOA Letter I, GFOA Letter II, Inland Letter, Rutherford Letter, Portland Letter, OMFOA Letter, Consortium Letter. 45 See GFOA Letter II. 46 Id. E:\FR\FM\02JNN1.SGM 02JNN1 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices sroberts on DSKD5P82C1PROD with NOTICES number of auditing firms well qualified to complete governmental audits.47 Commenters also noted that many issuers have limited resources to prepare financial statements.48 Many commenters believed that the voluntary timeframe would increase costs and impose significant financial and personnel burdens while providing questionable benefits.49 Several commenters observed that small issuers may not be able to meet this timeframe and that small issuers often are given low priority by their auditors as compared to larger clients.50 Other commenters also noted the variances among issuers,51 including one commenter who stated that there could be unintended adverse consequences with respect to a ‘‘one-size-fits-all’’ 120day deadline.52 Several commenters expressed concern that pressure to meet the voluntary deadline could cause professional staff and their auditors to produce less accurate information that would reduce the quality of financial reporting and auditing standards 53 and would lead to greater reliance on estimated financial data.54 Other commenters expressed concern that the 120-day deadline would encourage governments to engage the services of auditing firms that are not well qualified in governmental accounting and auditing standards.55 Several commenters distinguished the municipal market from the corporate market; indicated that State and local governments surpass their private sector counterparts in financial reporting transparency; or stated that financial reporting goals applicable to the corporate market should not apply to the municipal market.56 One commenter stated that governments should not be under the same pressure to provide instantaneous and quarterly financial information because governments do 47 See NAHEFFA Letter, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, Utah GFOA Letter, Portland Letter, OMFOA Letter, Consortium Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter, GFOA Letter III, Connecticut Letter II. 48 See Inland Letter, Greendale Letter, Utah GFOA Letter. 49 See Virginia GFOA Letter II, GFOA Letter II, Portland Letter, OMFOA Letter. 50 See Brookfield Letter, Greendale Letter, Inland Letter, OMFOA Letter, Portland Letter, Rock Hill Letter, and Consortium Letter. 51 See GFOA Letter II, NAHEFFA Letter. 52 See GFOA Letter II. 53 See Inland Letter, Lower Merion Letter, Consortium Letter. 54 See GFOA Letter II, OMFOA Letter, Consortium Letter. 55 See GFOA Letter I, Consortium Letter. 56 See Rock Hill Letter, Consortium Letter, Inland Letter, GFOA Letter II. VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 not exist to make profits.57 This commenter also believed that there is no demand for quicker completion of governmental audits in the marketplace.58 A number of commenters addressed whether 120 days would be an appropriate number of days for the voluntary timeframe.59 Some commenters suggested that the 120-day timeframe be deleted altogether.60 Others noted that the 120-day standard would conflict with the 180-day standard used by GFOA in connection with its CAFR program,61 and some commenters stated that the 180-day standard is a more appropriate timeframe.62 Others suggested that additional studies be performed before a timeframe is selected.63 One commenter cited difficulties in simultaneously meeting GFOA’s CAFR timeframe and State law requirements.64 Two commenters recommended that issuers certify that they are making filings in compliance with their continuing disclosure agreements, without a specific deadline.65 Another commenter was concerned that issuers might engage in deceptive practices by highlighting an undertaking, but then failing to comply with it.66 This commenter noted that there appears to be nothing to preclude the issuer from effectively advertising the undertaking on EMMA irrespective of actual compliance.67 Others were concerned that a decision not to make an undertaking would create prejudicial and unjustified marketplace distinctions or ‘‘a figurative black eye in the mind of investors.’’ 68 A number of commenters expressed concern that the voluntary annual filing undertaking likely would become a de facto standard that issuers would feel compelled to meet, or that the voluntary standard would set the stage for 57 See Rock Hill Letter. 58 Id. 59 See Utah GFOA Letter, Portland Letter, OMFOA Letter, Tennessee Letter, Virginia GFOA Letter II, Inland Letter, OMFOA Letter, Consortium Letter, NAST Letter, Michigan Letter, Inland Letter, Rutherford Letter. 60 See Utah GFOA Letter, Portland Letter, OMFOA Letter. 61 See Tennessee Letter, Virginia GFOA Letter II, Inland Letter, OMFOA Letter, Consortium Letter, NAST Letter. 62 See Michigan Letter, Inland Letter, Rutherford Letter, Utah GFOA Letter, Portland Letter. 63 See Tennessee Letter, Virginia GFOA Letter II. 64 See Virginia GFOA Letter II. 65 See GFOA Letter II, NAHEFFA Letter. 66 See NAHEFFA Letter. 67 Id. 68 See NAHEFFA Letter, Inland Letter. PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 30881 mandating over time the proposed 120day schedule.69 A few commenters supported the 120day deadline or enhanced disclosure about the timeliness of issuer financial reporting.70 One commenter, the only commenter primarily representative of buyers of municipal securities, was particularly supportive of the proposed disclosure regarding an issuer’s decision to undertake submitting annual financial information to EMMA within 120 calendar days after the end of the fiscal year, and also recommended the establishment of a meaningful, mandatory timeframe for filing financial reports.71 This commenter noted that disclosure of annual financial information currently can take anywhere from three months to twelve months, or even longer, and that the financial status of an issuer can change materially during the course of a year— a fact that it observed has been highlighted by the recent credit crisis.72 This commenter recognized that establishing a specific timeframe for filing financial reports after the end of the fiscal year would necessitate a significant shift in current practices employed by municipal issuers, but believed that such a change is not only warranted but also long overdue. Another commenter stated that ‘‘the proposed 120 day period for submitting annual financial information is a good start toward meeting the objective of making financial statements of governments timely and useful in the public securities market.’’ 73 A third commenter that supported this part of the proposal remarked that municipal securities issuers should have the same mandatory reporting requirement for timely financials as public corporations.74 In light of the commenters’ widespread concerns regarding the attainability of the 120-day timeframe, the MSRB in Amendment No. 1 provided a transitional option for issuers and obligated persons to elect a 150-day undertaking as an alternative to the 120-day undertaking. This alternative election is intended to provide issuers and obligated persons seeking to make the voluntary annual filing undertaking, but that are not currently able to meet a 120-day timeframe, with a reasonable opportunity to overcome existing 69 See Brookfield Letter, Connecticut Letter I, Inland Letter, Consortium Letter, NAHEFFA Letter, NAST Letter, Connecticut Letter II, NAIPFA Letter. 70 See ICI Letter, SIFMA Letter, Hinsdale Letter. 71 See ICI Letter. 72 Id. 73 See Hinsdale Letter. 74 See E-Certus Letter. E:\FR\FM\02JNN1.SGM 02JNN1 sroberts on DSKD5P82C1PROD with NOTICES 30882 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices barriers to more rapid dissemination of financial information in an orderly and cost-effective manner. The MSRB accordingly modified the original proposed rule change to allow the election, through December 31, 2013, of a transitional 150-day alternative, which election would be displayed on the EMMA Web portal through June 30, 2014, unless the issuer or obligated person changed or rescinded such undertaking. On and after January 1, 2014, the transitional 150-day undertaking option no longer would be available. An issuer or obligated person that made a transitional 150-day undertaking could convert such election to a 120-day undertaking at any time. An issuer or obligated person that believed that it is able to meet the 120-day timeframe could make the 120-day undertaking immediately upon the effectiveness of the proposed rule change. The fact that an issuer or obligated person entered into such an undertaking, including the timeframe elected, would be prominently disclosed on the EMMA Web portal as a distinctive characteristic of the securities to which such undertaking applies. The EMMA Web portal would not include information regarding the availability or existence of the voluntary annual filing undertaking in those cases where an issuer or obligated person did not make a voluntary annual filing undertaking. The MSRB reiterated in Amendment No. 1 that the voluntary annual filing undertaking would in fact be voluntary. The MSRB would include an explanation of the nature of the voluntary annual filing undertaking on the EMMA Web portal. In particular, the MSRB would disclose that the voluntary annual filing undertaking is voluntary; is solely indicative of the timing by which the annual financial information is intended to be made available; and is not indicative of the accuracy or completeness of the annual financial information or of the financial health of the issuer or obligated person. Further, the MSRB would disclose that a decision by an issuer or obligated person not to make such an undertaking would not raise a negative inference with regard to the accuracy or completeness of the issuer’s or obligated person’s annual financial information or of the financial health of the issuer or obligated person. As previously noted, the Commission received three comment letters in response to the Amendment No. 1 Notice.75 The three commenters responding to the Amendment No. 1 75 See Exhibit A. VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 Notice believed that the voluntary 150day transitional alternative also was too burdensome and not achievable.76 Two of the commenters reiterated and expanded upon comments they had made previously with respect to the original proposed rule change.77 The third commenter stated that the established GASB and FASB requirements for preparing the audited statements are a significant impediment to developing statements in less than 180 days.78 The MSRB addressed the issues raised by the comment letters on the original proposed rule change in Amendment No. 1, and addressed the comments on the original proposed rule change as well as the comments on the Amendment No. 1 Notice in Amendment No. 2. In Amendment No. 2, the MSRB stated that the determination to establish 120 days as the timeframe in the original proposed rule change was not arbitrary.79 The MSRB indicated that, under the Federal securities laws, smaller public reporting companies, as non-accelerated filers, generally are required to file their annual reports on Form 10–K with the Commission within 90 days after the end of their fiscal year.80 The MSRB stated that, after consulting with Commission staff, it believed that providing issuers and obligated persons with 120 days to voluntarily submit annual financial information for purposes of the undertaking would provide an ample timeframe to accommodate the additional steps that State and local governments often must take—under State law, pursuant to their own requirements, or otherwise—in completing the work necessary to prepare their annual financial information as contemplated under Rule 15c2–12.81 The MSRB noted that the alternative 150-day timeframe was added in Amendment No. 1 to provide additional time for undertaking such steps during a transitional period in response to concerns that, as State and local governments currently prepare their financial information, the additional 30 days beyond the Form 10– K timeframe for non-accelerated filers would not be sufficient for many municipal issuers.82 The MSRB stated that the timeframe provided for under 76 See GFOA Letter III, Connecticut Letter II, NAIPFA Letter. 77 See GFOA Letter III, Connecticut Letter II. 78 See NAIPFA Letter. 79 See Amendment No. 2. 80 Id. 81 Id. 82 Id. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 the proposed rule change, as amended, is appropriate and was arrived at on a rational basis.83 According to the MSRB, issuers that seek to make their financial information available under the voluntary annual filing undertaking also would be bringing the timing of their disclosures into closer conformity with the timeframes that investors in the registered securities market have come to rely upon.84 The MSRB noted that recent experiences of issuers who have begun to issue Build America Bonds that are marketed at least in part to investors who typically did not purchase municipal securities suggest that important benefits both to investors and issuers may be realized from moving toward a more universal disclosure timeframe.85 The MSRB in Amendment No. 2 also recognized the voluntary nature of the annual filing undertaking in responding to concerns that the undertaking would be impracticable or impossible and does not take into account variances in the size and complexities of issuers. The MSRB stated that it is aware that the nature of municipal issuers varies widely and that these significant differences may in fact make it more difficult for some types of issuers, or issuers in certain States, or issuers facing certain sets of facts and circumstances, to make and comply with the voluntary undertaking. In this regard, the MSRB noted that some issuers may be separate and distinct units in governmental structures that require information from third parties to complete their audited financial statements, and such third parties may operate under timeframes that differ from the issuers’ own fiscal year cycles, thereby creating additional barriers to meeting the timeframe of the voluntary undertaking. Given this complex variety of issuer types, the MSRB believed that a single consistent voluntary submission timeframe available to all issuers provides an appropriately uniform initial target under the voluntary annual filing undertaking. The MSRB did not attempt to parse the essential structure of the marketplace to develop numerous separate timeframes based on very limited information. After a period of experience with the uniform timeframe of the undertaking, the MSRB advised that it could revisit the question of whether multiple timeframes for different types of issuers would be appropriate. 83 Id. 84 Id. 85 Id. E:\FR\FM\02JNN1.SGM 02JNN1 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices sroberts on DSKD5P82C1PROD with NOTICES In Amendment No. 2, the MSRB also addressed concerns of some commenters that the existence of the annual filing undertaking could create negative perceptions of issuers that do not make the voluntary undertaking and thereby create a two-tiered market.86 The MSRB stated that, in its view, the decision by an issuer not to submit annual financial information under the voluntary annual filing undertaking would not, by itself, cause an inappropriate negative perception of such issuer.87 According to the MSRB, the EMMA portal would provide clear disclosure of the purpose of the voluntary undertaking and that the undertaking should not be viewed as indicative of the accuracy or completeness of financial information or of the financial health of the issuer.88 Thus, the MSRB noted, the voluntary undertaking as disclosed on the EMMA portal would be an accurate representation of an issuer’s affirmative undertaking as to the timing of its disclosure, and nothing more.89 The MSRB stated that no indicator would be provided for issuers that choose not to make the voluntary undertaking.90 The MSRB did not believe that there is any significant risk of a tiered market perception developing in the near future based solely on the voluntary undertaking.91 The MSRB indicated that it would make the appropriate EMMA portal disclosures regarding the limited nature of the undertaking to help minimize the possibility that market participants would place undue emphasis on a single factor when making an investment decision.92 The MSRB opined that the marketplace would correctly view the voluntary undertaking as an initial step in a process toward more rapid dissemination of disclosure information to the public.93 The MSRB did not believe that the voluntary annual filing undertaking would create an excessive burden on issuers or that issuers would reduce the quality of disclosures in order to meet the timeframe.94 The MSRB remarked that the existence of this optional undertaking is not intended to create an inference that issuers should sacrifice the quality of the information provided in their annual filings in order to meet a specific timeframe, and it did not 86 See Amendment No. 2. believe that the undertaking would have such a negative effect.95 In discussing financial disclosure standards for municipal securities, the MSRB noted that in the past, any de facto standards have been the result of slow evolution in the market through natural economic forces or the result of collaboration among the various interested parties, such as with the evolving de facto standard for quarterly information provided by many hospital borrowers arising from the collaborative work of issuers, obligated persons and investors in recent years.96 The MSRB believed that the single consistent voluntary submission timeframe under the voluntary annual filing undertaking, available to all issuers with the full knowledge that only some issuers would be able to make the voluntary undertaking at the current time, would serve to provide an appropriately uniform initial target for those market participants seeking to work toward more timely availability of financial information in the marketplace.97 In response to some commenters’ recommendation that EMMA should allow issuers to specify a specific date by which annual financial information is expected to be submitted and should indicate whether the issuer was in compliance with such deadline, the MSRB noted that it has filed a separate proposed rule change with the Commission that addresses these concerns.98 The MSRB remarked that that filing would require underwriters, in connection with new issues that they underwrite, to provide to EMMA information regarding the deadline for submitting annual financial information by issuers to EMMA pursuant to their continuing disclosure agreements.99 The MSRB noted that this deadline would be displayed on the EMMA portal in close proximity to information showing the timing of actual submissions made by issuers of their annual financial information, thus achieving the objectives set out by the commenters.100 According to the MSRB, information regarding the voluntary undertaking also would be displayed in close proximity to information showing the timing of actual submissions made by issuers, thus providing a method for investors to check on the issuer’s performance in connection with the 95 Id. 87 Id. 96 Id. 88 Id. 97 Id. 89 Id. 98 Id. See Securities Exchange Act Release Nos. 60314 (July 15, 2009), 74 FR 36300 (July 22, 2009) and 61238 (December 23, 2009), 75 FR 492 (January 5, 2010) (File No. SR–MSRB–2009–09). 99 See Amendment No. 2. 100 Id. 90 Id. 91 Id. 92 Id. 93 Id. 94 Id. VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 30883 undertaking.101 The Commission notes that it has approved the MSRB’s filing to allow these displays on EMMA at the same time it is approving the instant proposed rule change, and believes that the enhancements to EMMA relating to underwriters’ requirements will address the commenters’ recommendations concerning issuers’ compliance with existing undertakings regarding submission of financial information.102 In response to some commenters’ suggestion that the timeframe be 180 days, the MSRB noted that the timeframe set forth in the voluntary undertaking should be shorter than other timeframes currently in use, such as the GFOA CAFR certificate program’s 180-day timeframe, and that the transitional 150-day timeframe included in Amendment No. 1 would provide a mid-point between the original 120-day timeframe of the voluntary undertaking and the GFOA’s 180-day timeframe.103 The Commission believes that the MSRB has adequately addressed the concerns of commenters with respect to the voluntary annual filing undertaking. Importantly, the Commission notes that this undertaking is voluntary and will provide investors, as well as brokerdealers, analysts and other market professionals, with financial information about municipal securities within a timeframe voluntarily agreed to by the issuer. The Commission is sensitive to the great variety of municipal issuers and obligated persons and the many fiscal and other pressures that they face, but is also sensitive to the concerns of investors and other participants in our capital markets, who need timely information to make informed decisions. The Commission believes that investors, broker-dealers, analysts and other users of the EMMA system will greatly benefit from the ability to easily identify those issuers and obligated persons that have committed to providing financial information by a specific deadline. The 120- and 150-day timeframes are voluntary and will assist investors in making investment decisions and in monitoring their securities portfolios; will reward those issuers and obligated persons that are able to achieve greater timeliness in financial reporting; and may encourage greater timeliness by other issuers and obligated persons over time as they work to surmount the obstacles that currently prevent them from preparing and disseminating financial information within the 101 Id. 102 See Securities Exchange Act Release No. 62182 (May 26, 2010) (SR–MSRB–2009–09). 103 See Amendment No. 2. E:\FR\FM\02JNN1.SGM 02JNN1 30884 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices sroberts on DSKD5P82C1PROD with NOTICES proposed timeframes and without sacrificing the quality of their reporting. Voluntary GAAP Undertaking The original proposed rule change would amend the EMMA continuing disclosure service to permit issuers and obligated persons to undertake, on a voluntary basis, to prepare audited financial statements pursuant to GAAP as established by GASB. This would consist of a voluntary undertaking by an issuer or obligated person (in the case of an obligated person that is a State or local governmental entity), either at the time of a primary offering or at any time thereafter, that the issuer or obligated person would prepare its audited financial statements in accordance with GAAP as established by GASB. Commenters generally supported the voluntary ‘‘GAAP as established by GASB’’ undertaking, although several commenters noted that certain issuers do not use GASB accounting standards and suggested alternative recommendations.104 Two commenters recommended that the proposal not include the accounting standard setting body (indicating only compliance with GAAP),105 and one commenter recommended the inclusion of the accounting standard setting body, GASB or any other standard setting body, in order for the reader of the financial statements to distinguish which standards are being followed.106 Another commenter expressed concern that an issuer that does not elect a voluntary GAAP undertaking would be stigmatized as less creditworthy even where it follows other standards, including statutory standards, and noted that financial statements are accompanied by a statement of the accounting principles applied.107 In Amendment No. 1, the MSRB agreed with commenters that many obligated persons may be subject to FASB standards rather than GASB standards.108 The MSRB therefore modified the voluntary GAAP undertaking to permit the submitter to select either the GASB or FASB standards for GAAP. As noted above, the Commission received three comment letters in response to the Amendment No. 1 Notice. One of these commenters suggested the allowance of modified GAAP.109 This commenter questioned the usefulness of the GASB GAAP undertaking and stated that use of GASB GAAP may not always be clear; because it prepares its information on a modified GAAP basis, it would probably not be able to make this undertaking.110 The second commenter did not support the amended proposal to have a field that references ‘‘a particular standard-setting body’’ and noted that ‘‘it is redundant for the MSRB to also include the body in which GAAP standards are established.’’ 111 The third commenter agreed with the provision to have issuers and obligated persons designate whether their audited financials are prepared pursuant to GAAP but not the use of GASB standards because some issuers may be required to use other GAAP standards.112 The MSRB stated that permitting investors to understand the standards applied to the preparation of an issuer’s or obligated person’s financial statements would be valuable.113 The MSRB indicated that the fact that an issuer or obligated person has entered into a voluntary GAAP undertaking, including whether the financial statements are to be prepared pursuant to GASB or FASB standards, would be prominently disclosed on the EMMA Web portal as a distinctive characteristic of the securities to which such undertaking applies.114 The MSRB noted that it would include an explanation of the nature of the voluntary GAAP undertaking on the EMMA Web portal.115 In particular, the MSRB would disclose that the voluntary GAAP undertaking is voluntary; is solely indicative of the accounting standards that the issuer or obligated person intends to use in preparing its financial statements; and is not indicative of the accuracy or completeness of the financial statements or of the financial health of the issuer or obligated person.116 Further, the MSRB advised that it would disclose that a decision by an issuer or obligated person not to make such an undertaking does not raise a negative inference in regard to the accuracy or completeness of its financial statements or of the financial health of the issuer or obligated person.117 According to the MSRB, each of the undertakings pursuant to the proposal, including the voluntary GAAP undertaking, would permit a free text input field permitting 110 See 104 See NAHEFFA Letter, GFOA Letter II, Connecticut Letter I. 105 See GFOA Letter II, Consortium Letter. 106 See NAST Letter. 107 See NABL Letter. 108 See Amendment No. 1. 109 See Connecticut Letter II. VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 Connecticut Letter I, Connecticut Letter II. GFOA Letter III. 112 See NAIPFA Letter. 113 See Amendment No. 2. 114 Id. 115 See Amendment No. 1. 116 Id. 117 Id. 111 See PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 issuers and obligated persons to include additional information relating to each such item that they may deem appropriate with respect thereto for public dissemination.118 The MSRB believed that this feature should provide such issuers and obligated persons with adequate opportunity to disclose appropriate information to investors.119 The Commission believes that the proposed voluntary GAAP undertaking will assist investors and other users of the EMMA system in determining how financial statements are prepared. The uniformity provided by audited financial statements that are prepared by issuers and obligated persons pursuant to GAAP in accordance with GASB or FASB standards will reduce the need by investors to reconcile the use of disparate accounting principles. The features of the EMMA continuing disclosure service permitting issuers and obligated persons to include additional information should address commenters’ concerns about special situations that require clarification. Investor Relation URL Posting The proposal would amend the EMMA continuing disclosure service to permit issuers and obligated persons to post the URLs for their Internet-based investor relations or other repository of financial/operating information. The URL of an issuer’s or obligated person’s investor relations or other repository of financial/operating information would be entered through a text/data input field on EMMA and no document would be required to be submitted to EMMA. Commenters generally supported the proposal to permit issuers and obligated persons to provide a hyperlink to their investor relations or similar Web page.120 One commenter thought that this field would provide investors with valuable information and would likely be the most useful voluntary field proposed by the MSRB.121 Another commenter noted that this hyperlink may be more useful to the general public than CUSIP-based EMMA filings for general financial information that is not issue-specific.122 One commenter requested that issuers be given an ability to correct or withdraw URLs to ensure that links are accurate, recommended the allowance of multiple links, and requested guidance on the responsibilities of issuers with regard to the posting of 118 See Amendment No. 2. 119 Id. 120 See, e.g., Connecticut Letter I, GFOA Letter III. GFOA Letter III. 122 See Connecticut Letter I. 121 See E:\FR\FM\02JNN1.SGM 02JNN1 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices hyperlinks on EMMA.123 Another commenter asked about the role and obligations of dealers if the proposal is adopted; expressed liability concerns regarding the use of a URL in municipal securities offering documents and EMMA submissions during the underwriting period of a primary offering; and suggested a limit on the use of the URL during the underwriting period of a primary offering.124 The MSRB noted that issuers and obligated persons would be able to make appropriate changes to the URLs posted through EMMA.125 The hyperlinks would be posted in a manner designed to segregate access to the URL from postings of official statements for new issues.126 The MSRB intends to provide flexibility to issuers and obligated persons regarding the posting of appropriate links, including multiple links, and would provide the ability to correct or withdraw URLs to ensure that links are accurate.127 The Commission believes that a URL provided by an issuer or obligated person would provide investors, brokerdealers, analysts and others with an important additional means to obtain further financial operating or other investment-related information about such issuer or obligated person. sroberts on DSKD5P82C1PROD with NOTICES Elimination of Proposed GFOA–CAFR Certificate The original proposed rule change would have amended the EMMA continuing disclosure service to permit issuers to submit the Certificate of Achievement for Excellence in Financial Reporting awarded by GFOA in connection with the preparation of its CAFR. In Amendment No. 1, the MSRB stated that it determined not to proceed with this element of the proposal. The MSRB noted that CAFRs already are frequently submitted to EMMA by issuers as the audited financial statements element of their annual financial information filings, and in most cases the issuers include the GFOA certificate in the submitted CAFR.128 The MSRB stated that as part of its routine EMMA update and maintenance process, it expected to modify the input process for all continuing disclosure submissions to permit issuers and obligated persons to input specific document titles and/or subcategories, which would permit submitters of CAFRs to indicate that their submitted audited financial statements are CAFRs.129 According to the MSRB, this document title/ subcategory would be displayed on the EMMA Web portal.130 GFOA, in commenting on the Amendment No. 1 Notice, recommended that this voluntary field be included within EMMA, noting that such a field is useful to investors as it tells them which governments have exceptional reporting standards.131 In Amendment No. 2, the MSRB stated that the current channels for disseminating CAFRs and the related GFOA certificate are adequate but that it may consider further action in this area in the future.132 The Commission believes that the MSRB’s decision to eliminate the GFOA certificate field is reasonable given that GFOA certificates are typically submitted to EMMA with CAFRs. Other General Comments One commenter recommended that the Commission defer action on the MSRB’s proposal to add additional voluntary submissions by issuers until after the proposed Rule 15c2–12 amendments are considered and adopted in order to accommodate an orderly integration of revised Rule 15c2–12 submissions and EMMA voluntary submissions.133 The Commission notes that the amendments to Rule 15c2–12 are being adopted at the same time that it approves the instant proposed rule change.134 One commenter on the Amendment No. 1 Notice provided a series of comments and suggestions relating to various elements of the proposal.135 These included a suggested edit in the facility language for the EMMA primary market disclosure service regarding issuers being able to designate an agent for purposes of making primary market submissions; support for voluntary submission of information on swaps, swaptions and variable rate debt; and encouragement for the MSRB to pursue submission of ratings from rating agencies. In Amendment No. 2, the MSRB indicated that, with regard to the suggestion regarding facility language, the proposed EMMA revisions contained in Amendment No. 1 appropriately ensure that an issuer can designate an agent and remarked that 123 See 130 Id. 124 See GFOA Letter II, GFOA Letter III. SIFMA Letter. 125 See Amendment No. 1. 126 Id. 127 See Amendment No. 2. 128 See Amendment No. 1. 131 See VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 GFOA Letter III. Amendment No. 2. 133 See NABL Letter. 134 See Press Release 2010–85 (May 26, 2010). 135 See NAIPFA Letter. 132 See PO 00000 Frm 00116 the filing indicates that the term ‘‘designating underwriter’’ has been changed to ‘‘designating party’’ specifically to permit an issuer to make such designation.136 In addition, in Amendment No. 2 the MSRB noted that it currently is in the early stages of developing a process to receive electronic feeds of municipal securities credit rating information from Nationally Recognized Statistical Rating Organizations for purposes of displaying on the EMMA portal.137 Another commenter recommended that the Commission maintain close oversight of EMMA and revisit this matter in two to three years to determine whether the MSRB system is meeting expectations and whether the needs of all market participants are being addressed.138 The Commission notes that, because the MSRB is a selfregulatory organization (‘‘SRO’’), the Commission has, and exercises, oversight authority over the MSRB. The MSRB must file proposed rule changes with the Commission under Section 19(b) of the Exchange Act, including any changes to the EMMA system and any fees relating to the EMMA system. In addition, the MSRB is subject to the recordkeeping requirements of 17(a) of the Exchange Act 139 and is subject to the Commission’s examination authority under Section 17(b) of the Exchange Act.140 Through the Commission’s recordkeeping requirements and examination and rule filing processes, the Commission oversees the MSRB and will be able to ascertain whether the MSRB is implementing EMMA appropriately and meeting EMMA’s stated objectives, as well as whether it is complying with its legal obligations under the Exchange Act. With regard to all other issues raised by the commenters, the Commission believes that the MSRB has adequately addressed the commenters’ concerns. IV. Order Granting Accelerated Approval of Proposed Rule Change Pursuant to Section 19(b)(2) of the Act,141 the Commission may not approve any proposed rule change, or amendment thereto, prior to the 30th day after the date of publication of notice of the filing thereof, unless the Commission finds good cause for so doing and publishes its reasons for so 136 See Amendment No. 2. The Commission notes that, on May 20, 2010, the MSRB filed a proposed rule change relating to the posting of credit rating information on its EMMA system. 138 See Connecticut Letter I. 139 15 U.S.C. 78q(a). 140 15 U.S.C. 78q(b). 141 15 U.S.C. 78s(b)(2). 137 Id. 129 Id. Fmt 4703 Sfmt 4703 30885 E:\FR\FM\02JNN1.SGM 02JNN1 30886 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices finding. The Commission hereby finds good cause for approving the proposed rule change, as modified by Amendment Nos. 1 and 2, before the 30th day after the date of publication of notice of filing thereof in the Federal Register. The Commission notes that the original proposed rule change and Amendment No. 1 were published in the Federal Register on July 15, 2009 142 and January 5, 2010,143 respectively. The Commission does not believe that Amendment No. 2 significantly alters the proposal. In Amendment No. 2, the MSRB requested an additional three months to develop, test, and implement the proposal and clarified that, consistent with statements in Amendment No. 1, the voluntary undertakings to be submitted to the MSRB’s EMMA continuing disclosure service must be entered into as contractual undertakings for the benefit of bondholders. The Commission believes that these revisions are consistent with the proposal’s purpose and raise no new significant issues. Accordingly, pursuant to Section 19(b)(2) of the Act,144 the Commission finds good cause to approve the proposed rule change, as amended, on an accelerated basis. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Exchange Act. Comments may be submitted by any of the following methods: sroberts on DSKD5P82C1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–MSRB–2009–10 on the subject line. 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 Number SR–MSRB–2009–10. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s 142 See Release No. 34–60315, supra note 3. Release No. 34–61237, supra note 7. 144 15 U.S.C. 78s(b)(2). 143 See VerDate Mar<15>2010 19:08 Jun 01, 2010 Jkt 220001 Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing 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. Copies of such filing also will be available for inspection and copying at the principal office of the MSRB. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MSRB–2009–10 and should be submitted on or before June 23, 2010. VII. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Exchange Act and the rules and regulations thereunder applicable to the MSRB 145 and, in particular, the requirements of Section 15B(b)(2)(C) of the Exchange Act 146 and the rules and regulations thereunder. The proposal will become effective on a date to be announced by the MSRB in a notice published on the MSRB Web site, which date shall be no later than one year after Commission approval of the proposed rule change and shall be announced no later than sixty (60) days prior to the effective date. It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,147 that the proposed rule change (SR– MSRB–2009–10), as amended, be, and it hereby is, approved. 145 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 146 15 U.S.C. 78o–4(b)(2)(C). 147 15 U.S.C. 78s(b)(2). PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.148 Florence E. Harmon, Deputy Secretary. Exhibit A Key to Comment Letters Cited in Approval Order Relating to Additional Voluntary Submissions by Issuers to the MSRB’s Electronic Municipal Market Access System (EMMA®) File No. SR–MSRB–2009–10 Comments Relating to Original Proposed Rule Change 1. Ernesto A. Lanza, General Counsel, MSRB, dated August 6, 2009 (‘‘MSRB Letter’’). 2. Robert J. Kleine, Michigan State Treasurer, dated August 10, 2009 (‘‘Michigan Letter’’). 3. Memorandum from the Office of the Chairman regarding a meeting with representatives of Division of Investment Management, Division of Trading and Markets, and the Government Finance Officers Association, dated August 11, 2009 (‘‘August 11th Memorandum’’). 4. Robert Donovan, Executive Director, Rhode Island Health and Educational Building Corporation, Chair, National Association of Health and Educational Facilities Finance Authorities (‘‘NAHEFFA’’) Advocacy Committee, dated August 12, 2009 (‘‘NAHEFFA Letter’’). 5. Jan I. Sylvis, Chief of Accounts, State of Tennessee, dated August 12, 2009 (‘‘Tennessee Letter’’). 6. Leon J. Bijou, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association (‘‘SIFMA’’), dated August 12, 2009 (‘‘SIFMA Letter’’). 7. Susan Gaffney, Director, Federal Liaison Center, Government Finance Officers Association (‘‘GFOA’’), dated August 12, 2009 (‘‘GFOA Letter I’’). 8. John Wallingford, Executive Board Member, Virginia Government Finance Officers Association (‘‘Virginia GFOA’’), dated August 12, 2009 (‘‘Virginia GFOA Letter I’’). 9. William A. Holby, President, The National Association of Bond Lawyers (‘‘NABL’’), dated August 13, 2009 (‘‘NABL Letter’’). 10. Marycarol C. White, CPA, CPFO, President, Virginia Government Finance Officers’ Association (‘‘Virginia GFOA’’), dated August 14, 2009 (‘‘Virginia GFOA Letter II’’). 11. Jeffrey L. Esser, Executive Director and CEO, The Government Finance Officers Association (‘‘GFOA’’), dated August 17, 2009 (‘‘GFOA Letter II’’). 12. Dean Martin, Chief Financial Officer, Inland Empire Utilities Agency, dated August 18, 2009 (‘‘Inland Letter’’). 13. Lisa Nolen, CPA, CGFM, Rutherford County Finance Director, Murfreesboro, Tennessee, dated August 19, 2009 (‘‘Rutherford Letter’’). 148 17 E:\FR\FM\02JNN1.SGM CFR 200.30–3(a)(12). 02JNN1 30887 Federal Register / Vol. 75, No. 105 / Wednesday, June 2, 2010 / Notices 14. Kathryn Kasza, CMTW, ClerkTreasurer, Village of Greendale, Greendale, Wisconsin, dated August 19, 2009 (‘‘Greendale Letter’’). 15. Denise L. Nappier, Connecticut State Treasurer, dated August 20, 2009 (‘‘Connecticut Letter I’’). 16. Heather Traeger, Associate Counsel, Investment Company Institute (‘‘ICI’’), dated August 21, 2009 (‘‘ICI Letter’’). 17. David Muir, President, Utah Government Finance Officers Association (‘‘Utah GFOA’’), Finance Director, Cottonwood Heights City, dated August 25, 2009 (‘‘Utah GFOA Letter’’). 18. Robert Scott, CPA, CPFO, Director of Finance, City of Brookfield, Wisconsin, dated August 30, 2009 (‘‘Brookfield Letter’’). 19. Kenneth L. Rust, Chief Administrative Officer, and Eric H. Johansen, Debt Manager, City of Portland, Oregon, dated September 1, 2009 (‘‘Portland Letter’’). 20. Bernice Bagnall, President, Oregon Municipal Finance Officers Association (‘‘OMFOA’’), Tualatin Valley Water District, dated September 2, 2009 (‘‘OMFOA Letter’’). 21. Gerry Fink, Village of Hinsdale, Illinois, dated September 3, 2009 (‘‘Hinsdale Letter’’). 22. Beth Kellar, International City/County Management Association; Steve Traylor, National Association of Counties; Cornelia Chebinou, National Association of State Auditors, Comptrollers and Treasurers; Lars Etzkorn, National League of Cities; Larry Jones, U.S. Conference of Mayors; Amy Hille, American Public Power Association; and Rick Farrell, Council on Infrastructure Financing Authorities; dated September 3, 2009 (‘‘Consortium Letter’’). 23. Richard C. Kristof, Director of Financial Services, City of Rio Rancho, Rio Rancho, New Mexico, dated September 3, 2009 (‘‘Rio Rancho Letter’’). 24. Eileen Bradley, Assistant Director of Finance, Township of Lower Merion, dated September 4, 2009 (‘‘Lower Merion Letter’’). 25. R.T. McNamar, President, E-Certus, Inc., dated September 8, 2009 (‘‘E-Certus Letter’’). 26. David B. Vehaun, Assistant City Manager, City of Rock Hill, South Carolina, dated September 23, 2009 (‘‘Rock Hill Letter’’). 27. Jeb Spaulding, President, National Association of State Treasurers (‘‘NAST’’), Treasurer, State of Vermont, dated September 25, 2009 (‘‘NAST Letter’’). proposed rule change from interested persons. Comments Relating to Amendment No. 1 1. Jeffrey L. Esser, Executive Director and CEO, Government Finance Officers Association, dated January 25, 2010 (‘‘GFOA Letter III’’). 2. Denise L. Nappier, Connecticut State Treasurer, dated January 27, 2010 (‘‘Connecticut Letter II’’). 3. Steven Apfelbacher, President, National Association of Independent Public Finance Advisors (‘‘NAIPFA’’), dated February 5, 2010 (‘‘NAIPFA Letter’’). The Exchange proposes to modify Rule 7050 governing pricing for NASDAQ members using the NASDAQ Options Market (‘‘NOM’’), NASDAQ’s facility for executing and routing standardized equity and index options. Specifically, NOM proposes to expand the list of options that will be assessed routing fees of $0.30 per contract for customer orders and $0.55 per contract for Firm and Market Maker orders that are routed from NOM to NASDAQ OMX PHLX, Inc. (‘‘Phlx’’). While changes to the Fee Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative for transactions on June 1, 2010. The text of the proposed rule change is set forth below. Proposed new text is in italics and deleted text is in brackets. * * * * * [FR Doc. 2010–13155 Filed 6–1–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62176; File No. SR– NASDAQ–2010–063] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Routing Fees May 26, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1, and Rule 19b–4 thereunder,2 notice is hereby given that on May 26, 2010, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change 7050. NASDAQ Options Market The following charges shall apply to the use of the order execution and routing services of the NASDAQ Options Market by members for all securities. (1)–(3) No Change. (4) Fees for routing contracts to markets other than the NASDAQ Options Market shall be assessed as provided below. The current fees and a historical record of applicable fees related to orders routed to other exchanges shall be posted on the NasdaqTrader.com Web site. sroberts on DSKD5P82C1PROD with NOTICES Exchange Customer BATS .................................................................................................................................................................... BOX ..................................................................................................................................................................... CBOE ................................................................................................................................................................... ISE ....................................................................................................................................................................... NYSE Arca Penny Pilot ....................................................................................................................................... NYSE Arca Non Penny Pilot ............................................................................................................................... NYSE AMEX ........................................................................................................................................................ PHLX (for all options other than the below listed options) ................................................................................. PHLX (for the following options only): AA, AAPL, ABK, ABX, AIG, ALL, AMD, AMR, AMZN, ARIA, AXP, BAC, BRCD, C, CAT, CIEN, CIGX, CSCO, DELL, DIA, DNDN, DRYS, EBAY, EK, F, FAS, FAZ, GDX, GE, GLD, GLW, GS, HAL, IBM, INTC, IWM, IYR, JPM, LVS, MGM, MOT, MSFT, MU, NEM, NOK, NVDA, ONNN, ORCL, PALM, PFE, POT, QCOM, QID, QQQQ, RIG, RIMM, RMBS, SBUX, SDS, SIRI, SKF, SLV, SMH, SNDK, SPY, T, TBT, TZA, UAUA, UNG, USO, UYG, V, VALE, VZ, WYNN, X, XHB, XLF, XRX and YHOO ...................................................................................................................................... * * 1 15 * * * The text of the proposed rule change is available on the Exchange’s Web site U.S.C. 78s(b)(1). VerDate Mar<15>2010 19:08 Jun 01, 2010 2 17 Jkt 220001 PO 00000 Fmt 4703 Sfmt 4703 MM 0.36 0.06 0.06 0.06 0.50 0.06 0.06 0.06 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.55 0.30 0.55 0.55 at https:// www.nasdaqomx.cchwallstreet.com, at CFR 240.19b–4. Frm 00118 Firm E:\FR\FM\02JNN1.SGM 02JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 105 (Wednesday, June 2, 2010)]
[Notices]
[Pages 30876-30887]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-13155]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62183, File No. SR-MSRB-2009-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 Thereto, Relating to Additional Voluntary Submissions by 
Issuers to the MSRB's Electronic Municipal Market Access System 
(EMMA[supreg])

May 26, 2010.

I. Introduction

    On July 14, 2009, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to additional voluntary 
submissions by issuers to the MSRB's Electronic Municipal Market Access 
System (``EMMA''). The proposed rule change was published for comment 
in the Federal Register on July 22, 2009.\3\ The Commission received 27 
comment

[[Page 30877]]

letters about the proposed rule change.\4\ On December 18, 2009, the 
MSRB filed with the Commission, pursuant to Section 19(b)(1) of the 
Exchange Act \5\ and Rule 19b-4 thereunder,\6\ Amendment No. 1 to the 
proposed rule change. Amendment No. 1 to the proposed rule change was 
published for comment in the Federal Register on January 5, 2010.\7\ 
The Commission received three comment letters concerning Amendment No. 
1.\8\ On May 21, 2010, the MSRB filed with the Commission, pursuant to 
Section 19(b)(1) of the Exchange Act \9\ and Rule 19b-4 thereunder,\10\ 
Amendment No. 2 to the proposed rule change, which clarified an aspect 
of the proposed rule change relating to an issuer's undertaking and 
requested an additional three months to develop, test, and implement 
the proposal. The text of Amendment No. 2 is available on the MSRB's 
Web site (https://www.msrb.org), at the MSRB's principal office, and for 
Web site viewing and printing in the Commission's Public Reference 
Room. This order provides notice of Amendment No. 2 and approves the 
proposed rule change as modified by Amendment Nos. 1 and 2 on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60315 (July 15, 
2009), 74 FR 36294 (``Original Notice'') (the ``original proposed 
rule change'').
    \4\ Copies of the comment letters received by the Commission are 
available on the Commission's Internet Web site, located at https://www.sec.gov/comments/sr-msrb-2009-10/msrb200910.shtml and for Web 
site viewing and printing in the Commission's Public Reference Room 
at its Washington, DC headquarters.
    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 61237 (December 23, 
2009), 75 FR 485 (January 5, 2010) (``Amendment No. 1 Notice'').
    \8\ Exhibit A contains the citation key for all comment letters 
received on the proposed rule change and on Amendment No. 1.
    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 17 CFR 240.19b-4.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 to the Proposed Rule Change

Preliminary Official Statements and Other Primary Market Documents

    The proposed rule change would amend the EMMA primary market 
disclosure service to permit issuers and their designated agents to 
make voluntary submissions to the primary market disclosure service of 
official statements, preliminary official statements and related pre-
sale documents, and advance refunding documents (collectively, 
``primary market documents'').\11\ Pre-sale documents other than a 
preliminary official statement (including but not limited to notices of 
sale or supplemental disclosures) would be accepted only if accompanied 
or preceded by the preliminary official statement.\12\ An issuer 
seeking to make submissions of primary market documents to the EMMA 
primary market disclosure service would use the same accounts 
established with respect to submissions of continuing disclosure 
documents to the EMMA continuing disclosure service, subject to 
additional verification procedures to affirmatively establish the 
account holder's authority to act on behalf of the issuer in connection 
with such primary market disclosure submissions.
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    \11\ Obligated persons would be permitted to submit primary 
market documents through the EMMA primary market disclosure service 
only if designated as an agent by the issuer.
    \12\ The MSRB believes that posting of such pre-sale documents 
without the related disclosure information provided in a preliminary 
official statement would be inconsistent with the core disclosure 
purposes of EMMA.
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    Submissions of primary market documents by issuers and their 
designated agents would be accepted on a voluntary basis if, at the 
time of submission, they are accompanied by information necessary to 
accurately identify: (i) The category of document being submitted; (ii) 
the issues or specific securities to which such document is related; 
and (iii) in the case of an advance refunding document, the specific 
securities being refunded pursuant thereto. The primary market 
documents and related indexing information would be displayed on the 
EMMA Web portal and also would be included in EMMA's primary market 
disclosure subscription service.

Additional Continuing Disclosure Submissions and Undertakings

    The proposed rule change also would amend the EMMA continuing 
disclosure service to permit issuers, obligated persons and their 
agents to make voluntary submissions to the continuing disclosure 
service of additional categories of disclosures, as well as information 
about their continuing disclosure undertakings. Such additional 
continuing disclosures and related indexing information would be 
displayed on the EMMA Web portal and also would be included in EMMA's 
continuing disclosure subscription service. Such additional items \13\ 
are:
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    \13\ In Amendment No. 1, the MSRB proposes to modify the 
original proposed rule change by eliminating one item of additional 
voluntary submissions relating to the award of the Certificate of 
Achievement for Excellence in Financial Reporting awarded by the 
Government Finance Officers Association (``GFOA'') in connection 
with the preparation of a Comprehensive Annual Financial Report 
(``CAFR'') of an issuer. The MSRB notes that CAFRs are already 
frequently submitted to EMMA by issuers, and in most cases the 
issuers include the GFOA certificate in the submitted CAFR. 
According to the MSRB, EMMA already effectively serves as a venue 
through which CAFRs and GFOA certificates are made available to 
investors.
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     An issuer's or obligated person's undertaking to prepare 
audited financial statements pursuant to generally accepted accounting 
principles (``GAAP'') as established by the Governmental Accounting 
Standards Board (``GASB''), or pursuant to GAAP as established by the 
Financial Accounting Standards Board (``FASB''), as applicable to such 
issuer or obligated person and as further described below (the 
``voluntary GAAP undertaking''); \14\
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    \14\ In response to the comments received on the original 
proposed rule change, the MSRB in Amendment No. 1 proposes to modify 
the original proposed rule change by permitting issuers and 
obligated persons to elect either the GASB standard or the FASB 
standard for GAAP, as appropriate. The original proposed rule change 
contemplated the use of the GASB standard only.
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     An issuer's or obligated persons' undertaking to submit 
annual financial information to EMMA within 120 calendar days after the 
end of the fiscal year or, as a transitional alternative that may be 
elected through December 31, 2013, within 150 calendar days after the 
end of the applicable fiscal year, as further described below (the 
``voluntary annual filing undertaking''); \15\ and
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    \15\ In response to the comments received on the original 
proposed rule change, the MSRB in Amendment No. 1 proposes to modify 
the original proposed rule change by permitting issuers and 
obligated persons to elect to undertake to submit annual financial 
information either within 120 days or 150 days after the end of the 
fiscal year. The original proposed rule change contemplated a 120-
day timeframe only.
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     Uniform resource locator (URL) of the issuer's or 
obligated person's Internet-based investor relations or other 
repository of financial/operating information.
    Voluntary GAAP Undertaking. The voluntary GAAP undertaking would 
consist of a voluntary undertaking by an issuer or obligated person, 
either at the time of a primary offering or at any time thereafter, 
that the issuer or obligated person will prepare its audited financial 
statements in accordance with GAAP. The MSRB contemplates that State or 
local governments or any other entities to which GASB standards are 
applicable would apply GAAP as established by GASB and that any other 
entities to which FASB standards are applicable would apply GAAP as 
established by FASB.
    The voluntary GAAP undertaking would assist investors and other 
market participants in understanding how audited financial statements 
were prepared. The fact that an issuer or obligated person has entered 
into a voluntary GAAP undertaking, and the

[[Page 30878]]

standard under which audited financial statements are to be prepared, 
would be prominently disclosed on the EMMA Web portal as a distinctive 
characteristic of the securities to which such undertaking applies.
    In Amendment No. 2, the MSRB proposes to clarify that the EMMA 
indicator with regard to the voluntary GAAP undertaking would be 
indicative of an issuer's or obligated person's voluntary undertaking, 
entered into as a contractual obligation, for the benefit of 
bondholders, under a continuing disclosure agreement or another 
contract, that it will prepare its audited financial statements in 
accordance with GAAP, either based on GASB or FASB standards as 
appropriate. If the issuer or obligated person later rescinds such 
undertaking through an amendment to its continuing disclosure agreement 
or other contractual arrangement, the issuer or obligated person would 
be expected to remove the indicator of its voluntary GAAP undertaking 
on EMMA. Amendment No. 2 clarifies that the voluntary EMMA GAAP 
indicator solely could be used in situations where the issuer has 
entered into an undertaking via a contractual obligation. While this is 
consistent with a number of statements in Amendment No. 1, there was a 
statement by the MSRB in Amendment No. 1 to the effect that the making 
of a voluntary GAAP undertaking through EMMA by an issuer or obligated 
person would reflect the bona fide intent of the issuer or obligated 
person to perform as undertaken but would not, by itself, necessarily 
create a contractual obligation of such issuer or obligated person. 
This statement may have caused some confusion with regard to the 
issuer's need to undertake, in a continuing disclosure agreement or 
separate contract, that it will prepare its audited financial 
statements in accordance with GAAP, either based on GASB or FASB 
standards as appropriate in order to use the voluntary EMMA GAAP 
indicator.
    The MSRB would not review whether an entity has selected the 
appropriate accounting standard, would not review or confirm the 
conformity of submitted audited financial statements to GAAP, and would 
not review whether the information submitted by such entity to the EMMA 
continuing disclosure service regarding the voluntary GAAP undertaking 
accurately reflects the provisions of, or is included within, the 
continuing disclosure agreement or other contractual arrangement of 
such entity.
    Voluntary Annual Filing Undertaking. The voluntary annual filing 
undertaking would consist of a voluntary undertaking by an issuer or 
obligated person, either at the time of a primary offering or at any 
time thereafter, that the issuer or obligated person, as appropriate, 
would submit to EMMA its annual financial information as contemplated 
by Rule 15c2-12 under the Act by no later than 120 calendar days after 
the end of such issuer's or obligated person's fiscal year (the ``120-
day undertaking'').\16\ Alternatively, to and including December 31, 
2013, the EMMA continuing disclosure service would provide the option 
for an issuer or obligated person to indicate its undertaking to submit 
to EMMA its annual financial information by no later than 150 calendar 
days after the end of such issuer's or obligated person's fiscal year 
(the ``transitional 150-day undertaking'').\17\ An issuer or obligated 
person that has made a transitional 150-day undertaking could convert 
such election to a 120-day undertaking at any time. On and after 
January 1, 2014, the transitional 150-day undertaking option would no 
longer be available for selection.
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    \16\ According to the MSRB, under the Exchange Act, smaller 
public reporting companies, as non-accelerated filers, generally are 
required to file their annual reports on Form 10-K with the 
Commission within 90 days after the end of their fiscal year. The 
MSRB States that the longer 120-day period included in the voluntary 
annual filing undertaking of the proposed rule change is designed to 
accommodate additional steps that State and local governments often 
must take--under state law, pursuant to their own requirements, or 
otherwise--in completing the work necessary to prepare their annual 
financial information as contemplated under Exchange Act Rule 15c2-
12.
    \17\ The MSRB states that the option to elect, through December 
31, 2013, a transitional 150-day undertaking acknowledges that the 
120-day undertaking may not be immediately achievable by most 
issuers and obligated persons, and is designed to provide a means by 
which to recognize issuers and obligated persons that are taking 
steps toward ultimately making their annual financial information 
available within 120 days of fiscal year end in the future.
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    The voluntary annual filing undertaking would assist investors and 
other market participants in understanding when the annual financial 
information is expected to be available in the future. The fact that an 
issuer or obligated person has entered into a voluntary annual filing 
undertaking would be prominently disclosed on the EMMA Web portal as a 
distinctive characteristic of the securities to which such undertaking 
applies. A transitional 150-day undertaking would continue to be 
displayed on the EMMA Web portal through June 30, 2014, and would 
automatically cease to be displayed on the EMMA Web portal after such 
date, unless the issuer or obligated person has previously changed or 
rescinded such undertaking.
    Amendment No. 2 clarifies that the EMMA indicator with regard to 
the voluntary annual filing undertaking would be indicative of an 
issuer's or obligated person's voluntary undertaking, entered into as a 
contractual obligation, for the benefit of bondholders, under a 
continuing disclosure agreement or another contract, that it will 
submit to EMMA its annual financial information as contemplated under 
Rule 15c2-12 by no later than 120 calendar days (or 150 calendar days, 
in the case of the transitional 150-day undertaking option) after the 
end of such issuer's or obligated person's fiscal year. If the issuer 
or obligated person later modifies the timeframe for submitting the 
annual financial information in its continuing disclosure agreement or 
other contractual arrangement to a period longer than contemplated by 
the voluntary annual filing undertaking, the issuer or obligated person 
would be expected to remove the indicator of its voluntary annual 
filing undertaking on EMMA. While Amendment No. 1 in several places 
clearly stated the MSRB's view that such an undertaking would be 
contained in a continuing disclosure agreement or a separate 
contract,\18\ one statement in Amendment No. 1 may have caused some 
confusion.\19\ Amendment No. 2 thus clarifies that the voluntary EMMA 
indicator could be used solely in situations where an issuer had made 
such an undertaking as a contractual obligation (whether in a 
continuing disclosure agreement or in a separate contract).
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    \18\ See, e.g., Amendment No. 1 Notice at 486.
    \19\ ``The MSRB contemplates that the making of a voluntary GAAP 
undertaking through EMMA by an issuer or obligated person would 
reflect the bona fide intent of the issuer or obligated person to 
perform as undertaken but would not, by itself, necessarily create a 
contractual obligation of such issuer or obligated person.'' See 
Amendment No. 1 Notice at 486.
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    The MSRB would not review or confirm the compliance of an issuer or 
obligated person with its voluntary annual filing undertaking and would 
not review whether the information submitted by such entity to the EMMA 
continuing disclosure service regarding the voluntary annual filing 
undertaking accurately reflects the provisions of, or is included 
within, the continuing disclosure agreement or other contractual 
arrangement of such entity.
    Investor Relation URL Posting. The proposed rule change would 
permit issuers or obligated persons to post the URLs for their 
Internet-based investor relations or other repository of

[[Page 30879]]

financial/operating information, which would provide investors with an 
additional avenue for obtaining further financial, operating or other 
investment-related information about such issuer or obligated person.
    Manner of Submission. Issuers and obligated persons would indicate 
the existence of a voluntary GAAP undertaking or voluntary annual 
filing undertaking through a data input election on EMMA. Changes to or 
rescissions of such voluntary contractual undertakings could also be 
indicated through the same EMMA interface process.\20\
---------------------------------------------------------------------------

    \20\ The Commission notes that continuing disclosure 
undertakings pursuant to Rule 15c2-12 under the Exchange Act cannot 
be unilaterally rescinded or amended by either the issuer, an 
obligated person, or by any other party. See Securities Exchange Act 
Release No. 34961 (November 10, 1994), 59 FR 59560 (November 17, 
1994); Letter from Robert L.D. Colby, Deputy Director, Division of 
Trading and Markets, Commission, to Securities Law and Disclosure 
Committee, National Association of Bond Lawyers, dated June 23, 1995 
(Question 2).
---------------------------------------------------------------------------

Effective Date of Proposed Rule Change

    The MSRB originally requested an effective date for the proposed 
rule change of a date to be announced by the MSRB in a notice published 
on the MSRB Web site, which date shall be no later than nine months 
after Commission approval of the proposed rule change and shall be 
announced no later than sixty (60) days prior to the effective 
date.\21\ In Amendment No. 2, the MSRB requested that the Commission 
approve a revised effective date for the proposed rule change of a date 
to be announced by the MSRB in a notice published on the MSRB Web site, 
which date shall be no later than one year after Commission approval of 
the proposed rule change and shall be announced no later than sixty 
(60) days prior to the effective date.
---------------------------------------------------------------------------

    \21\ See Original Notice.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB's responses to the comment 
letters and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB \22\ and, in particular, the 
requirements of Section 15B(b)(2)(C) of the Exchange Act \23\ and the 
rules and regulations thereunder. Section 15B(b)(2)(C) of the Exchange 
Act requires, among other things, that the MSRB's rules be designed 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.\24\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the Exchange Act in that it serves to remove 
impediments to and help perfect the mechanisms of a free and open 
market in municipal securities and would serve to promote the statutory 
mandate of the MSRB to protect investors and the public interest. 
Voluntary dissemination of preliminary official statements through 
EMMA, particularly if made available prior to the sale of a primary 
offering to the underwriters, would provide timely access by investors 
and other market participants to key information useful in making an 
investment decision in a manner that is consistent with the Exchange 
Act. The voluntary GAAP undertaking would assist investors' 
understanding of how such information was prepared and may provide them 
with the knowledge that the financial statements were prepared 
according to generally accepted accounting principles. The voluntary 
annual filing undertaking would assist investors' understanding 
regarding when such information is expected to be available in the 
future and may encourage greater timeliness in the preparation and 
dissemination of municipal financial information. A URL provided by an 
issuer or obligated person would provide investors with an additional 
avenue for obtaining further financial, operating or other investment-
related information about the issuer or obligated person.
---------------------------------------------------------------------------

    \22\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78o-4(b)(2)(C).
    \24\ Id.
---------------------------------------------------------------------------

General Summary of Comment Letters

    The Commission received 27 comment letters responding to the 
Original Notice and three comment letters responding to the Amendment 
No. 1 Notice. Two comment letters concerned procedural issues with the 
filing.\25\ Most of the remaining 25 comment letters responding to the 
Original Notice generally supported the proposed rule change, except 
that most commenters believed that the 120-day voluntary annual filing 
undertaking would be too burdensome or not feasible.\26\ Several 
commenters, including a commenter representative of buyers of municipal 
securities, strongly supported the voluntary annual filing 
undertaking.\27\ Most commenters supported the proposals to submit 
voluntary information to EMMA, the voluntary GAAP undertaking and the 
issuer's ability to post links to other sources of disclosure 
information,\28\ although some commenters raised concerns about various 
aspects of the proposals, suggested alternatives, or requested 
clarifications.\29\ As noted above, Amendment No. 1 proposed to add a 
transitional alternative of a 150-day voluntary filing deadline through 
December 31, 2013, to provide a means by which to recognize issuers and 
obligated persons for taking steps toward voluntarily making their 
annual financial information available within 120 days of their fiscal 
year end. The three commenters who responded to the Amendment No. 1 
Notice believed that the voluntary 150-day transitional alternative 
also was too burdensome and not achievable.\30\ On May 21, 2010, the 
MSRB submitted Amendment No. 2 to the proposed rule change. The comment 
letters received regarding the Original Notice and the Amendment No. 1 
Notice, as set forth in Amendment Nos. 1 and 2, as well as the MSRB's 
response to the comment letters, as set forth in Amendment Nos. 1 and 
2, are more fully discussed below.
---------------------------------------------------------------------------

    \25\ The MSRB Letter indicated that it was filing an extension 
of time for the Commission to act. One commenter requested an 
extension of the comment period (Virginia GFOA Letter I).
    \26\ See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA 
Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, 
Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield 
Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower 
Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter.
    \27\ See ICI Letter, SIFMA Letter, Hinsdale Letter.
    \28\ See, e.g. VGFOA Letter II, Inland Letter, Brookfield 
Letter, OMFOA Letter, Rock Hill Letter.
    \29\ See, e.g. SIFMA Letter, NABL Letter, GFOA Letter II, 
Consortium Letter, NAST Letter.
    \30\ See GFOA Letter III, Connecticut Letter II, NAIPFA Letter.
---------------------------------------------------------------------------

Preliminary Official Statements and Other Primary Market Documents

    The proposal would amend the EMMA primary market disclosure service 
to permit issuers and their designated agents to make voluntary 
submissions to the primary market disclosure service of official 
statements, preliminary official statements and related pre-sale 
documents, and advance refunding documents. Pre-sale documents other 
than a preliminary

[[Page 30880]]

official statement (including but not limited to notices of sale or 
supplemental disclosures) would be accepted only if accompanied or 
preceded by the preliminary official statement.
    Most commenters who addressed the matter specifically supported the 
amendment of the EMMA primary market disclosure service to allow 
voluntary submissions.\31\ One commenter welcomed the expansion of the 
EMMA system to allow the voluntary submission of primary market 
documents because the expansion would allow issuers that offer their 
bonds through a competitive bidding process to be able to utilize the 
same distribution channels as issuers with offerings made on a 
negotiated basis.\32\ This commenter also suggested that the usefulness 
of the EMMA system would be enhanced by the ability to make and 
retrieve submissions identified in a manner other than by CUSIP 
numbers, such as by issuer.\33\
---------------------------------------------------------------------------

    \31\ See Virginia GFOA Letter II, Connecticut Letter I, ICI 
Letter, Brookfield Letter, OMFOA Letter, Rock Hill Letter, NAST 
Letter, NAIPFA Letter.
    \32\ See Connecticut Letter I.
    \33\ Id.
---------------------------------------------------------------------------

    Only one commenter raised concerns about this aspect of the 
proposal.\34\ This commenter recommended that the submitters of primary 
disclosure documents continue to be restricted to underwriters and 
their agents except for submission of pre-sale documents prepared in 
connection with competitively sold municipal securities, in order to 
avoid the submission of duplicate or contradictory filings by 
underwriters and issuers or obligated persons.\35\
---------------------------------------------------------------------------

    \34\ See NABL Letter.
    \35\ Id.
---------------------------------------------------------------------------

    The MSRB addressed these comments in Amendment No. 1. The MSRB 
stated that it believes that there is considerable value in providing a 
means for centralized access to preliminary official statements at or 
prior to the time of the trade and in sufficient time for an investor 
to make use of the information in coming to an investment decision.\36\ 
The MSRB indicated that it expects to provide search capabilities 
tailored to the types of indexing information that would be available 
for preliminary official statements, including issuer name, issue 
description, State, and appropriate date ranges, among other 
things.\37\ Submissions made by issuers would be noted as such on the 
EMMA Web portal.\38\ The MSRB believed that postings of preliminary 
official statements by issuers should be available for any new issue, 
not just those sold on a competitive basis, and the EMMA primary market 
submission process would be designed to discourage duplicative 
submissions by issuers and underwriters.\39\ The Commission agrees that 
it is appropriate that postings of preliminary official statements by 
issuers be available for offerings sold on a negotiated as well as 
competitive basis, and believes that the MSRB has adequately addressed 
the commenters' concerns and suggestions about duplicative filings and 
indexing.
---------------------------------------------------------------------------

    \36\ See Amendment No. 1.
    \37\ Id.
    \38\ Id.
    \39\ Id.
---------------------------------------------------------------------------

Additional Continuing Disclosure Submissions and Undertakings

    One commenter believed that all four of the proposed additional 
categories to the EMMA continuing disclosure service (the GASB-GAAP 
undertaking, the annual filing undertaking, the originally proposed 
GFOA-CAFR Certificate undertaking and the URL of the issuer's or 
obligated person's Internet-based investor relations or other 
repository of financial/operating information) were unnecessary because 
this feature of EMMA already contains a catch-all category that is 
broad enough to include any of the proposed categories.\40\ Several 
commenters expressed concern that the undertakings created by the 
proposal could lead to mistaken impressions by investors regarding the 
soundness or quality of the disclosures that either are or are not 
highlighted by these categories \41\ and one commenter expressed 
concern that by prominently highlighting certain voluntary 
undertakings, the MSRB could be construed to have recommended the 
creditworthiness of the municipal securities.\42\ The MSRB indicated in 
Amendment No. 1 and in Amendment No. 2 that it will include 
explanations of the nature of both the voluntary annual filing 
undertaking and the voluntary GAAP undertaking on the EMMA Web portal. 
The Commission believes that users of the EMMA system will benefit from 
the additional disclosures provided by these undertakings and that 
concerns that the additional disclosures provided on EMMA could lead to 
erroneous impressions can be monitored by the Commission through its 
oversight of the MSRB.
---------------------------------------------------------------------------

    \40\ See NABL Letter.
    \41\ See NABL Letter, NAHEFFA Letter, Connecticut Letter I.
    \42\ See NABL Letter.
---------------------------------------------------------------------------

Voluntary Annual Filing Undertaking

    The original proposed rule change would amend the EMMA continuing 
disclosure service to permit issuers and obligated persons to 
undertake, on a voluntary basis, to submit annual financial information 
to EMMA within 120 calendar days after the end of the fiscal year. This 
provision would consist of a voluntary undertaking by an issuer or 
obligated person, either at the time of a primary offering or at any 
time thereafter, that the issuer or obligated person, as appropriate, 
would submit to EMMA its annual financial information as contemplated 
under Rule 15c2-12 (including audited financials, when and if 
available) by no later than 120 calendar days after the end of such 
issuer's or obligated person's fiscal year.
    Most commenters, the majority of whom were representative of 
issuers or obligated persons, believed that the 120-day deadline for 
voluntary annual financial filings was too burdensome, arbitrary, 
unnecessary, harmful or not feasible,\43\ and many believed a majority 
of issuers could not meet this deadline.\44\ One commenter stated that 
often governments now struggle to meet the 180-day filing deadline to 
meet the requirements of the GFOA's Certificate of Achievement Program, 
which promotes the preparation of comprehensive annual financial 
reports (CAFRs) that go beyond the requirements of GAAP.\45\ This 
commenter believed that promoting a 120-day deadline might reasonably 
be expected to persuade any number of issuers to abandon a CAFR 
altogether in favor of a plain set of basic financial statements, 
which, in its view, would likely be harmful to the quality of financial 
reporting.\46\
---------------------------------------------------------------------------

    \43\ See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA 
Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, 
Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield 
Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower 
Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter.
    \44\ See Tennessee Letter, GFOA Letter I, GFOA Letter II, Inland 
Letter, Rutherford Letter, Portland Letter, OMFOA Letter, Consortium 
Letter.
    \45\ See GFOA Letter II.
    \46\ Id.
---------------------------------------------------------------------------

    Many commenters noted that external factors can inhibit the ability 
of issuers to complete annual financial reporting within 120 days, such 
as the need to obtain financial data from multiple component units, the 
need for outside governmental or governing body reviews of financial 
statements, required investment valuations by third parties, receipts 
and adjusting entries occurring after the close of the fiscal year, 
conflicts with State law and a limited

[[Page 30881]]

number of auditing firms well qualified to complete governmental 
audits.\47\
---------------------------------------------------------------------------

    \47\ See NAHEFFA Letter, Virginia GFOA Letter II, GFOA Letter 
II, Inland Letter, Utah GFOA Letter, Portland Letter, OMFOA Letter, 
Consortium Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter, 
GFOA Letter III, Connecticut Letter II.
---------------------------------------------------------------------------

    Commenters also noted that many issuers have limited resources to 
prepare financial statements.\48\ Many commenters believed that the 
voluntary timeframe would increase costs and impose significant 
financial and personnel burdens while providing questionable 
benefits.\49\ Several commenters observed that small issuers may not be 
able to meet this timeframe and that small issuers often are given low 
priority by their auditors as compared to larger clients.\50\ Other 
commenters also noted the variances among issuers,\51\ including one 
commenter who stated that there could be unintended adverse 
consequences with respect to a ``one-size-fits-all'' 120-day 
deadline.\52\
---------------------------------------------------------------------------

    \48\ See Inland Letter, Greendale Letter, Utah GFOA Letter.
    \49\ See Virginia GFOA Letter II, GFOA Letter II, Portland 
Letter, OMFOA Letter.
    \50\ See Brookfield Letter, Greendale Letter, Inland Letter, 
OMFOA Letter, Portland Letter, Rock Hill Letter, and Consortium 
Letter.
    \51\ See GFOA Letter II, NAHEFFA Letter.
    \52\ See GFOA Letter II.
---------------------------------------------------------------------------

    Several commenters expressed concern that pressure to meet the 
voluntary deadline could cause professional staff and their auditors to 
produce less accurate information that would reduce the quality of 
financial reporting and auditing standards \53\ and would lead to 
greater reliance on estimated financial data.\54\ Other commenters 
expressed concern that the 120-day deadline would encourage governments 
to engage the services of auditing firms that are not well qualified in 
governmental accounting and auditing standards.\55\
---------------------------------------------------------------------------

    \53\ See Inland Letter, Lower Merion Letter, Consortium Letter.
    \54\ See GFOA Letter II, OMFOA Letter, Consortium Letter.
    \55\ See GFOA Letter I, Consortium Letter.
---------------------------------------------------------------------------

    Several commenters distinguished the municipal market from the 
corporate market; indicated that State and local governments surpass 
their private sector counterparts in financial reporting transparency; 
or stated that financial reporting goals applicable to the corporate 
market should not apply to the municipal market.\56\ One commenter 
stated that governments should not be under the same pressure to 
provide instantaneous and quarterly financial information because 
governments do not exist to make profits.\57\ This commenter also 
believed that there is no demand for quicker completion of governmental 
audits in the marketplace.\58\
---------------------------------------------------------------------------

    \56\ See Rock Hill Letter, Consortium Letter, Inland Letter, 
GFOA Letter II.
    \57\ See Rock Hill Letter.
    \58\ Id.
---------------------------------------------------------------------------

    A number of commenters addressed whether 120 days would be an 
appropriate number of days for the voluntary timeframe.\59\ Some 
commenters suggested that the 120-day timeframe be deleted 
altogether.\60\ Others noted that the 120-day standard would conflict 
with the 180-day standard used by GFOA in connection with its CAFR 
program,\61\ and some commenters stated that the 180-day standard is a 
more appropriate timeframe.\62\ Others suggested that additional 
studies be performed before a timeframe is selected.\63\ One commenter 
cited difficulties in simultaneously meeting GFOA's CAFR timeframe and 
State law requirements.\64\ Two commenters recommended that issuers 
certify that they are making filings in compliance with their 
continuing disclosure agreements, without a specific deadline.\65\
---------------------------------------------------------------------------

    \59\ See Utah GFOA Letter, Portland Letter, OMFOA Letter, 
Tennessee Letter, Virginia GFOA Letter II, Inland Letter, OMFOA 
Letter, Consortium Letter, NAST Letter, Michigan Letter, Inland 
Letter, Rutherford Letter.
    \60\ See Utah GFOA Letter, Portland Letter, OMFOA Letter.
    \61\ See Tennessee Letter, Virginia GFOA Letter II, Inland 
Letter, OMFOA Letter, Consortium Letter, NAST Letter.
    \62\ See Michigan Letter, Inland Letter, Rutherford Letter, Utah 
GFOA Letter, Portland Letter.
    \63\ See Tennessee Letter, Virginia GFOA Letter II.
    \64\ See Virginia GFOA Letter II.
    \65\ See GFOA Letter II, NAHEFFA Letter.
---------------------------------------------------------------------------

    Another commenter was concerned that issuers might engage in 
deceptive practices by highlighting an undertaking, but then failing to 
comply with it.\66\ This commenter noted that there appears to be 
nothing to preclude the issuer from effectively advertising the 
undertaking on EMMA irrespective of actual compliance.\67\ Others were 
concerned that a decision not to make an undertaking would create 
prejudicial and unjustified marketplace distinctions or ``a figurative 
black eye in the mind of investors.'' \68\
---------------------------------------------------------------------------

    \66\ See NAHEFFA Letter.
    \67\ Id.
    \68\ See NAHEFFA Letter, Inland Letter.
---------------------------------------------------------------------------

    A number of commenters expressed concern that the voluntary annual 
filing undertaking likely would become a de facto standard that issuers 
would feel compelled to meet, or that the voluntary standard would set 
the stage for mandating over time the proposed 120-day schedule.\69\
---------------------------------------------------------------------------

    \69\ See Brookfield Letter, Connecticut Letter I, Inland Letter, 
Consortium Letter, NAHEFFA Letter, NAST Letter, Connecticut Letter 
II, NAIPFA Letter.
---------------------------------------------------------------------------

    A few commenters supported the 120-day deadline or enhanced 
disclosure about the timeliness of issuer financial reporting.\70\ One 
commenter, the only commenter primarily representative of buyers of 
municipal securities, was particularly supportive of the proposed 
disclosure regarding an issuer's decision to undertake submitting 
annual financial information to EMMA within 120 calendar days after the 
end of the fiscal year, and also recommended the establishment of a 
meaningful, mandatory timeframe for filing financial reports.\71\ This 
commenter noted that disclosure of annual financial information 
currently can take anywhere from three months to twelve months, or even 
longer, and that the financial status of an issuer can change 
materially during the course of a year--a fact that it observed has 
been highlighted by the recent credit crisis.\72\ This commenter 
recognized that establishing a specific timeframe for filing financial 
reports after the end of the fiscal year would necessitate a 
significant shift in current practices employed by municipal issuers, 
but believed that such a change is not only warranted but also long 
overdue.
---------------------------------------------------------------------------

    \70\ See ICI Letter, SIFMA Letter, Hinsdale Letter.
    \71\ See ICI Letter.
    \72\ Id.
---------------------------------------------------------------------------

    Another commenter stated that ``the proposed 120 day period for 
submitting annual financial information is a good start toward meeting 
the objective of making financial statements of governments timely and 
useful in the public securities market.'' \73\ A third commenter that 
supported this part of the proposal remarked that municipal securities 
issuers should have the same mandatory reporting requirement for timely 
financials as public corporations.\74\
---------------------------------------------------------------------------

    \73\ See Hinsdale Letter.
    \74\ See E-Certus Letter.
---------------------------------------------------------------------------

    In light of the commenters' widespread concerns regarding the 
attainability of the 120-day timeframe, the MSRB in Amendment No. 1 
provided a transitional option for issuers and obligated persons to 
elect a 150-day undertaking as an alternative to the 120-day 
undertaking. This alternative election is intended to provide issuers 
and obligated persons seeking to make the voluntary annual filing 
undertaking, but that are not currently able to meet a 120-day 
timeframe, with a reasonable opportunity to overcome existing

[[Page 30882]]

barriers to more rapid dissemination of financial information in an 
orderly and cost-effective manner.
    The MSRB accordingly modified the original proposed rule change to 
allow the election, through December 31, 2013, of a transitional 150-
day alternative, which election would be displayed on the EMMA Web 
portal through June 30, 2014, unless the issuer or obligated person 
changed or rescinded such undertaking. On and after January 1, 2014, 
the transitional 150-day undertaking option no longer would be 
available. An issuer or obligated person that made a transitional 150-
day undertaking could convert such election to a 120-day undertaking at 
any time. An issuer or obligated person that believed that it is able 
to meet the 120-day timeframe could make the 120-day undertaking 
immediately upon the effectiveness of the proposed rule change. The 
fact that an issuer or obligated person entered into such an 
undertaking, including the timeframe elected, would be prominently 
disclosed on the EMMA Web portal as a distinctive characteristic of the 
securities to which such undertaking applies. The EMMA Web portal would 
not include information regarding the availability or existence of the 
voluntary annual filing undertaking in those cases where an issuer or 
obligated person did not make a voluntary annual filing undertaking.
    The MSRB reiterated in Amendment No. 1 that the voluntary annual 
filing undertaking would in fact be voluntary. The MSRB would include 
an explanation of the nature of the voluntary annual filing undertaking 
on the EMMA Web portal. In particular, the MSRB would disclose that the 
voluntary annual filing undertaking is voluntary; is solely indicative 
of the timing by which the annual financial information is intended to 
be made available; and is not indicative of the accuracy or 
completeness of the annual financial information or of the financial 
health of the issuer or obligated person. Further, the MSRB would 
disclose that a decision by an issuer or obligated person not to make 
such an undertaking would not raise a negative inference with regard to 
the accuracy or completeness of the issuer's or obligated person's 
annual financial information or of the financial health of the issuer 
or obligated person.
    As previously noted, the Commission received three comment letters 
in response to the Amendment No. 1 Notice.\75\ The three commenters 
responding to the Amendment No. 1 Notice believed that the voluntary 
150-day transitional alternative also was too burdensome and not 
achievable.\76\ Two of the commenters reiterated and expanded upon 
comments they had made previously with respect to the original proposed 
rule change.\77\ The third commenter stated that the established GASB 
and FASB requirements for preparing the audited statements are a 
significant impediment to developing statements in less than 180 
days.\78\
---------------------------------------------------------------------------

    \75\ See Exhibit A.
    \76\ See GFOA Letter III, Connecticut Letter II, NAIPFA Letter.
    \77\ See GFOA Letter III, Connecticut Letter II.
    \78\ See NAIPFA Letter.
---------------------------------------------------------------------------

    The MSRB addressed the issues raised by the comment letters on the 
original proposed rule change in Amendment No. 1, and addressed the 
comments on the original proposed rule change as well as the comments 
on the Amendment No. 1 Notice in Amendment No. 2.
    In Amendment No. 2, the MSRB stated that the determination to 
establish 120 days as the timeframe in the original proposed rule 
change was not arbitrary.\79\ The MSRB indicated that, under the 
Federal securities laws, smaller public reporting companies, as non-
accelerated filers, generally are required to file their annual reports 
on Form 10-K with the Commission within 90 days after the end of their 
fiscal year.\80\
---------------------------------------------------------------------------

    \79\ See Amendment No. 2.
    \80\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, after consulting with Commission staff, it 
believed that providing issuers and obligated persons with 120 days to 
voluntarily submit annual financial information for purposes of the 
undertaking would provide an ample timeframe to accommodate the 
additional steps that State and local governments often must take--
under State law, pursuant to their own requirements, or otherwise--in 
completing the work necessary to prepare their annual financial 
information as contemplated under Rule 15c2-12.\81\ The MSRB noted that 
the alternative 150-day timeframe was added in Amendment No. 1 to 
provide additional time for undertaking such steps during a 
transitional period in response to concerns that, as State and local 
governments currently prepare their financial information, the 
additional 30 days beyond the Form 10-K timeframe for non-accelerated 
filers would not be sufficient for many municipal issuers.\82\ The MSRB 
stated that the timeframe provided for under the proposed rule change, 
as amended, is appropriate and was arrived at on a rational basis.\83\
---------------------------------------------------------------------------

    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    According to the MSRB, issuers that seek to make their financial 
information available under the voluntary annual filing undertaking 
also would be bringing the timing of their disclosures into closer 
conformity with the timeframes that investors in the registered 
securities market have come to rely upon.\84\ The MSRB noted that 
recent experiences of issuers who have begun to issue Build America 
Bonds that are marketed at least in part to investors who typically did 
not purchase municipal securities suggest that important benefits both 
to investors and issuers may be realized from moving toward a more 
universal disclosure timeframe.\85\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id.
---------------------------------------------------------------------------

    The MSRB in Amendment No. 2 also recognized the voluntary nature of 
the annual filing undertaking in responding to concerns that the 
undertaking would be impracticable or impossible and does not take into 
account variances in the size and complexities of issuers. The MSRB 
stated that it is aware that the nature of municipal issuers varies 
widely and that these significant differences may in fact make it more 
difficult for some types of issuers, or issuers in certain States, or 
issuers facing certain sets of facts and circumstances, to make and 
comply with the voluntary undertaking. In this regard, the MSRB noted 
that some issuers may be separate and distinct units in governmental 
structures that require information from third parties to complete 
their audited financial statements, and such third parties may operate 
under timeframes that differ from the issuers' own fiscal year cycles, 
thereby creating additional barriers to meeting the timeframe of the 
voluntary undertaking.
    Given this complex variety of issuer types, the MSRB believed that 
a single consistent voluntary submission timeframe available to all 
issuers provides an appropriately uniform initial target under the 
voluntary annual filing undertaking. The MSRB did not attempt to parse 
the essential structure of the marketplace to develop numerous separate 
timeframes based on very limited information. After a period of 
experience with the uniform timeframe of the undertaking, the MSRB 
advised that it could revisit the question of whether multiple 
timeframes for different types of issuers would be appropriate.

[[Page 30883]]

    In Amendment No. 2, the MSRB also addressed concerns of some 
commenters that the existence of the annual filing undertaking could 
create negative perceptions of issuers that do not make the voluntary 
undertaking and thereby create a two-tiered market.\86\ The MSRB stated 
that, in its view, the decision by an issuer not to submit annual 
financial information under the voluntary annual filing undertaking 
would not, by itself, cause an inappropriate negative perception of 
such issuer.\87\ According to the MSRB, the EMMA portal would provide 
clear disclosure of the purpose of the voluntary undertaking and that 
the undertaking should not be viewed as indicative of the accuracy or 
completeness of financial information or of the financial health of the 
issuer.\88\ Thus, the MSRB noted, the voluntary undertaking as 
disclosed on the EMMA portal would be an accurate representation of an 
issuer's affirmative undertaking as to the timing of its disclosure, 
and nothing more.\89\ The MSRB stated that no indicator would be 
provided for issuers that choose not to make the voluntary 
undertaking.\90\
---------------------------------------------------------------------------

    \86\ See Amendment No. 2.
    \87\ Id.
    \88\ Id.
    \89\ Id.
    \90\ Id.
---------------------------------------------------------------------------

    The MSRB did not believe that there is any significant risk of a 
tiered market perception developing in the near future based solely on 
the voluntary undertaking.\91\ The MSRB indicated that it would make 
the appropriate EMMA portal disclosures regarding the limited nature of 
the undertaking to help minimize the possibility that market 
participants would place undue emphasis on a single factor when making 
an investment decision.\92\ The MSRB opined that the marketplace would 
correctly view the voluntary undertaking as an initial step in a 
process toward more rapid dissemination of disclosure information to 
the public.\93\
---------------------------------------------------------------------------

    \91\ Id.
    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB did not believe that the voluntary annual filing 
undertaking would create an excessive burden on issuers or that issuers 
would reduce the quality of disclosures in order to meet the 
timeframe.\94\ The MSRB remarked that the existence of this optional 
undertaking is not intended to create an inference that issuers should 
sacrifice the quality of the information provided in their annual 
filings in order to meet a specific timeframe, and it did not believe 
that the undertaking would have such a negative effect.\95\
---------------------------------------------------------------------------

    \94\ Id.
    \95\ Id.
---------------------------------------------------------------------------

    In discussing financial disclosure standards for municipal 
securities, the MSRB noted that in the past, any de facto standards 
have been the result of slow evolution in the market through natural 
economic forces or the result of collaboration among the various 
interested parties, such as with the evolving de facto standard for 
quarterly information provided by many hospital borrowers arising from 
the collaborative work of issuers, obligated persons and investors in 
recent years.\96\ The MSRB believed that the single consistent 
voluntary submission timeframe under the voluntary annual filing 
undertaking, available to all issuers with the full knowledge that only 
some issuers would be able to make the voluntary undertaking at the 
current time, would serve to provide an appropriately uniform initial 
target for those market participants seeking to work toward more timely 
availability of financial information in the marketplace.\97\
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    \96\ Id.
    \97\ Id.
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    In response to some commenters' recommendation that EMMA should 
allow issuers to specify a specific date by which annual financial 
information is expected to be submitted and should indicate whether the 
issuer was in compliance with such deadline, the MSRB noted that it has 
filed a separate proposed rule change with the Commission that 
addresses these concerns.\98\ The MSRB remarked that that filing would 
require underwriters, in connection with new issues that they 
underwrite, to provide to EMMA information regarding the deadline for 
submitting annual financial information by issuers to EMMA pursuant to 
their continuing disclosure agreements.\99\ The MSRB noted that this 
deadline would be displayed on the EMMA portal in close proximity to 
information showing the timing of actual submissions made by issuers of 
their annual financial information, thus achieving the objectives set 
out by the commenters.\100\ According to the MSRB, information 
regarding the voluntary undertaking also would be displayed in close 
proximity to information showing the timing of actual submissions made 
by issuers, thus providing a method for investors to check on the 
issuer's performance in connection with the undertaking.\101\ The 
Commission notes that it has approved the MSRB's filing to allow these 
displays on EMMA at the same time it is approving the instant proposed 
rule change, and believes that the enhancements to EMMA relating to 
underwriters' requirements will address the commenters' recommendations 
concerning issuers' compliance with existing undertakings regarding 
submission of financial information.\102\
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    \98\ Id. See Securities Exchange Act Release Nos. 60314 (July 
15, 2009), 74 FR 36300 (July 22, 2009) and 61238 (December 23, 
2009), 75 FR 492 (January 5, 2010) (File No. SR-MSRB-2009-09).
    \99\ See Amendment No. 2.
    \100\ Id.
    \101\ Id.
    \102\ See Securities Exchange Act Release No. 62182 (May 26, 
2010) (SR-MSRB-2009-09).
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    In response to some commenters' suggestion that the timeframe be 
180 days, the MSRB noted that the timeframe set forth in the voluntary 
undertaking should be shorter than other timeframes currently in use, 
such as the GFOA CAFR certificate program's 180-day timeframe, and that 
the transitional 150-day timeframe included in Amendment No. 1 would 
provide a mid-point between the original 120-day timeframe of the 
voluntary undertaking and the GFOA's 180-day timeframe.\103\
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    \103\ See Amendment No. 2.
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    The Commission believes that the MSRB has adequately addressed the 
concerns of commenters with respect to the voluntary annual filing 
undertaking. Importantly, the Commission notes that this undertaking is 
voluntary and will provide investors, as well as broker-dealers, 
analysts and other market professionals, with financial information 
about municipal securities within a timeframe voluntarily agreed to by 
the issuer. The Commission is sensitive to the great variety of 
municipal issuers and obligated persons and the many fiscal and other 
pressures that they face, but is also sensitive to the concerns of 
investors and other participants in our capital markets, who need 
timely information to make informed decisions. The Commission believes 
that investors, broker-dealers, analysts and other users of the EMMA 
system will greatly benefit from the ability to easily identify those 
issuers and obligated persons that have committed to providing 
financial information by a specific deadline. The 120- and 150-day 
timeframes are voluntary and will assist investors in making investment 
decisions and in monitoring their securities portfolios; will reward 
those issuers and obligated persons that are able to achieve greater 
timeliness in financial reporting; and may encourage greater timeliness 
by other issuers and obligated persons over time as they work to 
surmount the obstacles that currently prevent them from preparing and 
disseminating financial information within the

[[Page 30884]]

proposed timeframes and without sacrificing the quality of their 
reporting.

Voluntary GAAP Undertaking

    The original proposed rule change would amend the EMMA continuing 
disclosure service to permit issuers and obligated persons to 
undertake, on a voluntary basis, to prepare audited financial 
statements pursuant to GAAP as established by GASB. This would consist 
of a voluntary undertaking by an issuer or obligated person (in the 
case of an obligated person that is a State or local governmental 
entity), either at the time of a primary offering or at any time 
thereafter, that the issuer or obligated person would prepare its 
audited financial statements in accordance with GAAP as established by 
GASB.
    Commenters generally supported the voluntary ``GAAP as established 
by GASB'' undertaking, although several commenters noted that certain 
issuers do not use GASB accounting standards and suggested alternative 
recommendations.\104\ Two commenters recommended that the proposal not 
include the accounting standard setting body (indicating only 
compliance with GAAP),\105\ and one commenter recommended the inclusion 
of the accounting standard setting body, GASB or any other standard 
setting body, in order for the reader of the financial statements to 
distinguish which standards are being followed.\106\ Another commenter 
expressed concern that an issuer that does not elect a voluntary GAAP 
undertaking would be stigmatized as less creditworthy even where it 
follows other standards, including statutory standards, and noted that 
financial statements are accompanied by a statement of the accounting 
principles applied.\107\ In Amendment No. 1, the MSRB agreed with 
commenters that many obligated persons may be subject to FASB standards 
rather than GASB standards.\108\ The MSRB therefore modified the 
voluntary GAAP undertaking to permit the submitter to select either the 
GASB or FASB standards for GAAP.
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    \104\ See NAHEFFA Letter, GFOA Letter II, Connecticut Letter I.
    \105\ See GFOA Letter II, Consortium Letter.
    \106\ See NAST Letter.
    \107\ See NABL Letter.
    \108\ See Amendment No. 1.
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    As noted above, the Commission received three comment letters in 
response to the Amendment No. 1 Notice. One of these commenters 
suggested the allowance of modified GAAP.\109\ This commenter 
questioned the usefulness of the GASB GAAP undertaking and stated that 
use of GASB GAAP may not always be clear; because it prepares its 
information on a modified GAAP basis, it would probably not be able to 
make this undertaking.\110\ The second commenter did not support the 
amended proposal to have a field that references ``a particular 
standard-setting body'' and noted that ``it is redundant for the MSRB 
to also include the body in which GAAP standards are established.'' 
\111\ The third commenter agreed with the provision to have issuers and 
obligated persons designate whether their audited financials are 
prepared pursuant to GAAP but not the use of GASB standards because 
some issuers may be required to use other GAAP standards.\112\
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    \109\ See Connecticut Letter II.
    \110\ See Connecticut Letter I, Connecticut Letter II.
    \111\ See GFOA Letter III.
    \112\ See NAIPFA Letter.
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    The MSRB stated that permitting investors to understand the 
standards applied to the preparation of an issuer's or obligated 
person's financial statements would be valuable.\113\ The MSRB 
indicated that the fact that an issuer or obligated person has entered 
into a voluntary GAAP undertaking, including whether the financial 
statements are to be prepared pursuant to GASB or FASB standards, would 
be prominently disclosed on the EMMA Web portal as a distinctive 
characteristic of the securities to which such undertaking 
applies.\114\ The MSRB noted that it would include an explanation of 
the nature of the voluntary GAAP undertaking on the EMMA Web 
portal.\115\ In particular, the MSRB would disclose that the voluntary 
GAAP undertaking is voluntary; is solely indicative of the accounting 
standards that the issuer or obligated person intends

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