The Central Post Office: making your life easier and the market more efficient.

• Author: Born, Patrick P.

Providing financial information to bondholders after the original issuance remains a confusing exercise for many state and local governments. However, a new initiative greatly facilitates the disclosure process for the issuers that must file this information and the many investors, analysts, and broker/dealers who use this information. The Central Post Office, as the initiative is known, allows issuers to file their disclosure documents using a free Web-based system that forwards the filings to each of the securities information repositories and helps ensure compliance with the requirements of SEC Rule 15c2-12. This article summarizes the evolution of disclosure requirements, reviews GFOA guidance on disclosure practices, and discusses how the Central Post Office is facilitating the disclosure process for all municipal market participants.

DISCLOSURE THROUGH THE YEARS

While the SEC does not directly regulate the issuers of municipal bonds, for the last 30 years the agency has sought greater influence over the municipal market through regulation of the broker/dealer community. Municipal market participants have always been subject to the broad anti-fraud provisions of the Securities Acts of 1933 and 1934--legislation spawned by the stock market crash of 1929 and the Great Depression. But the sea change in disclosure practices in the municipal market did not occur until 1989, when the SEC promulgated Rule 15c2-12. This rule requires municipal securities dealers to (1) obtain and review an official statement prior to any offering or purchase of municipal securities and (2) contract with the issuer to supply to the purchasing dealer an adequate number of final official statements within seven business days of the sale. While the rule regulates broker/dealers rather than issuers, it has the practical effect of preventing issuers from selling bonds without an official statement, since no underwriter could buy such bonds.

Throughout the 1990s calls for improving the adequacy and completeness of continuing disclosure documents dominated the public discourse in the tax-exempt bond market. While frequent issuers provided annual financial information to the market through the official statements required for each offering, infrequent issuers often did not provide updated financial information until the next time they went to market. As such, many years could pass before new information became available for some governments. Although some investors insisted that issuers provide annual financial information, there was no legal obligation for issuers to do so until Rule 15c2-12 was revised in 1994. Except for certain exemptions, the revised rule prevents underwriters from purchasing municipal bonds unless the issuer and/or other appropriate parties enter into a contractual undertaking to provide: (1) annual financial information by a certain date, (2) timely notice of certain material events whenever they occur, and (3) notice when the required annual disclosure materials are not provided by the required date.

The contractual undertaking calls for issuers to file their annual continuing disclosure documents with "each nationally recognized municipal securities information repository (NRMSIR) and appropriate state information depository (SID)." (1) NRMSIRs are private information services approved by the SEC that may charge users for receiving the information, but may not charge issuers for the right to submit information. There are four SEC-approved NRMSIRs.

There are exceptions to the rule for governments that do not issue more than $10...