SEC Approves New Municipal Securities Disclosure Rules

May 26, 2010

The SEC’s newly revised Rule 15c2-12 is designed to improve the quality and timeliness of municipal securities disclosure.  The SEC's statutory authority over municipal securities is limited because these securities are exempt from the disclosure requirements of the federal securities laws.

Rule 15c2-12, adopted under the Securities Exchange Act of 1934, prohibits brokers, dealers, and municipal securities dealers from purchasing or selling municipal securities unless they reasonably believe that the state or local government issuing the securities has agreed to disclose such things as annual financial statements and notices of certain events, such as payment defaults, rating changes and prepayments. The amended rule, Rule 15c2-12, will cover additional municipal securities including variable rate demand obligations or VRDOs. VRDOs bear interest at a rate that is reset periodically and investors are able to sell them back to the issuer at certain times for their full value. The amended rule will specifically include disclosure of events that may adversely affect a bond's tax exemption, including issuance by the IRS of proposed and final decisions about whether the bond can be taxed. The compliance date of the new rules is December 1, 2010.

The amended rule will eliminate the need for a materiality determination for the following events:

  • failure to pay principal and interest;
  • unscheduled payments out of debt service reserves reflecting financial difficulties;
  • unscheduled payments by parties backing the bonds, reflecting financial difficulties, or a change in the identity of parties backing the bonds or their failure to perform;
  • defeasances, including situations where the issuer has provided for future payment of all obligations under a bond; and
  • rating changes. A materiality determination would be retained for some events, including, for example, bond calls.

The amended rule will also increase the number of disclosable material events to include:

  • tender offers;
  • bankruptcy, insolvency, receivership or similar proceeding;
  • mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated person or their termination, if material; and
  • appointment of a successor or additional trustee or the change of the name of a trustee, if material.

Click here to access the releasing adopting the rule.


Investment Advisers, Regulatory