MSRB Amends Pending Proposal on Underwriter Submission of Information about Continuing Disclosure Undertakings to the MSRB's Electronic Municipal Market Access System (EMMA)

On December 18, 2009, the Municipal Securities Rulemaking Board (the “MSRB”) filed with the Securities and Exchange Commission (the “SEC”) an amendment (the “Amendment”) to its pending filing (the “Original Proposal”) relating to submission of information about continuing disclosure undertakings to the MSRB’s Electronic Municipal Market Access system (“EMMA”) by brokers, dealers and municipal securities dealers (“dealers”) acting as underwriters, placement agents or remarketing agents for primary offerings of municipal securities (“underwriters”).[1]  The Original Proposal, as modified by the Amendment (as modified, the “Revised Proposal”), requires underwriters to provide to EMMA information about whether the issuer or other obligated person has undertaken to provide continuing disclosures, the identity of any obligated persons other than the issuer, and the timing by which such issuers or obligated persons have agreed to provide annual financial and operating data, as described below.

The MSRB has requested an effective date for the Revised Proposal 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 SEC approval of the Revised Proposal and shall be announced no later than sixty (60) days prior to the effective date.

AMENDMENTS TO THE ORIGINAL PROPOSAL

The MSRB filed the Original Proposal with the SEC on July 14, 2009 and the SEC received comments from six commentators.[2]  Based on consideration of the comments, the MSRB determined to file the Amendment to:  (i) more precisely define the obligated person to be identified by underwriters; (ii) providing alternative methods of reporting the timing for submissions of annual financial and operating data; and (iii) eliminate the proposed requirement to provide contact information for representatives of the issuer or obligated person.[3]

DESCRIPTION OF REVISED PROPOSAL

The Revised Proposal, consisting of the Original Proposal as modified by the Amendment, would amend Rule G-32, on disclosures in connection with primary offerings, and Form G-32 to require underwriters of primary offerings of municipal securities to submit to the MSRB’s EMMA system, as part of their primary offering submission obligation under Rule G-32(b), certain key items of information relating to continuing disclosure undertakings made by issuers and other obligated persons in connection with such primary offerings.  These items of information would be made available to the public through the EMMA web portal and are intended to inform investors in advance whether continuing disclosures will be made available with respect to a particular municipal security, from and about whom such continuing disclosures are expected to be made, and the timing by which such disclosures should be made available.

The items of information regarding continuing disclosure undertakings to be provided by underwriters through Form G-32 would include:

• whether the issuer or other obligated persons have agreed to undertake to provide continuing disclosure information as contemplated by Exchange Act Rule 15c2-12
• the name of any obligated person, other than the issuer of the municipal securities, that has or will undertake, or is otherwise expected to provide, continuing disclosure as identified in the continuing disclosure undertaking[4]
• the timing set forth in the continuing disclosure undertaking, pursuant to Rule 15c2-12(b)(5)(ii)(C) or otherwise, for the submission of annual financial information each year by the issuer and/or any obligated persons to the EMMA system, either as a specific date or as the number of days or months after a specified end date of the issuer’s or obligated person’s fiscal year[5]

The Amendment modifies the Original Proposal by eliminating the proposed requirement to submit contact information for a representative of the issuer and/or any obligated persons for purposes of establishing continuing disclosure submission accounts for such issuer and/or obligated persons in connection with their submissions to the EMMA system.  Underwriters currently are able to provide contact information for issuer or obligated person representatives with respect to current and past primary offerings through EMMA on a voluntary basis and the MSRB believes that this process has been effective.

The name or names of obligated persons to be provided would be of the entity acting as an obligated person identified in the continuing disclosure undertaking, not an individual at such entity, unless the obligated person is in fact an individual.  The timing for submission of annual financial information could be provided either as a specific date each year (i.e., month and day, such as June 30) or the number of days or months after the end of the fiscal year (i.e., 120 days after the end of the fiscal year).  The underwriter could use the day/month count alternative only if the underwriter also submits the day on which the issuer’s or obligated person’s fiscal year ends (i.e., month and day, such as June 30).  If annual financial information is expected to be submitted by more than one entity and such information is expected to be submitted by different deadlines, each such deadline would be provided matched to the appropriate issuer and/or obligated person.

The underwriter would be required to provide information regarding whether the issuer or other obligated persons have agreed to undertake to provide continuing disclosure information as contemplated by Rule 15c2-12 by no later than the date of first execution of transactions in municipal securities sold in the primary offering.  The remaining items of information would be required to be provided by the closing date of the primary offering.  Until closing, the underwriter would be required to update promptly any information it has previously provided on Form G-32 which may have changed or to correct promptly any inaccuracies in such information, and would be responsible for ensuring that such information provided by it is accurate as of the closing date.  So long as the underwriter has provided such information accurately as of the closing date, it would not be obligated to update the information provided if there are any subsequent changes to such information, such as additions, deletions or modifications to the identities of obligated persons or changes in the timing for providing annual financial information.  Issuers and obligated persons will be able to make changes to such information through their submission accounts established in connection with EMMA’s continuing disclosure service.

Information regarding whether an offering is subject to a continuing disclosure undertaking, the names of obligated persons and the deadlines for providing annual financial information would be displayed on the EMMA web portal and also would be included in EMMA’s primary market disclosure subscription service.  These items are intended to provide investors and others with information on the expected availability of disclosures following the initial issuance of the securities.  In particular, users of the EMMA web portal would be able to determine which obligated persons are expected to submit annual financial information, audited financial statements and material event notices on an on-going basis, as well as the date each year by which they should expect to have access to the annual financial information.

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Questions on the proposals may be directed to Leslie Carey, Associate General Counsel, or Justin Pica, Director, Uniform Practice Policy, at (703) 797-6600.  Written comments on the proposals should be submitted to the SEC.

December 21, 2009

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TEXT OF AMENDMENT TO ORIGINAL PROPOSAL [6]

Rule G-32.  Disclosures In Connection With Primary Offerings

(a)-(c)  No change.

(d) Definitions. For purposes of this rule, the following terms have the following meanings:

(i)-(xii) No change.

(xiii) The term “obligated person” shall mean an obligated person defined in Securities Exchange Act Rule 15c2-12(f)(10) with respect to all or a portion of the municipal securities in a primary offering.

(e) No change.

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FORM G-32

I-VIII.     No change.

IX.      Continuing Disclosure Information

A.        Continuing disclosure undertaking indicator

B.         Obligated persons, if any, identified in continuing disclosure undertaking, other than issuer, if any (for issue subject to SEC Rule 15c2-12)

C.        Date annual financial information expected to be submitted (for issue subject to SEC Rule 15c2-12) (not required if items IX.D and IX.E are both provided)

D.        Issuer/obligated person fiscal year end date (for issue subject to SEC Rule 15c2-12) (required if item IX.C not provide) Issuer account set-up contact information (if issuer account not yet established and if issue subject to SEC Rule 15c2-12)

E.          Number of days/months after fiscal year end by which annual financial information expected to be submitted (for issue subject to SEC Rule 15c2-12) (required if item IX.C not provide)