GFOA files comments on proposed amendments to SEC Rule 15c2-12: proposed amendments to SEC Rule 15c2-12 would add to the list of event notices to be included in continuing municipal bond disclosure undertakings.

• Author: Brock, Emily S.
• Position: Federal Focus - Government Finance Officers Association

On March 1, 2017, the Securities and Exchange Commission (SEC) proposed amending Exchange Act Rule 15c2-12 to include additional event notices under continuing disclosure undertakings. Rule 15c2-12 requires bond dealers to review issuers' official statements before underwriting municipal bonds and to reasonably determine that the issuer has contracted to disclose annual financial and operating information, as well as material event notices, on the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (EMMA) website. The proposed amendments would add to the list of event notices to be included in continuing disclosure undertakings.

The amendment requires information be provided about: 1) the incurrence and terms of bank loans; direct purchases of securities by banks and other non-publicly offered debt; leases; guarantees; derivative instruments; and monetary obligations resulting from judicial, administrative, and arbitration proceedings; and 2) the occurrence of defaults, acceleration, and termination events; and modifications of terms or other similar events with respect to such debt.

After several meetings with the SEC Commissioners and staff, GFOA's Federal Liaison Center concluded that the SEC could benefit from understanding the initial impacts and potential unintended consequences of the proposed amendment. A member survey gathered a broad picture of the proposed amendment's practical application and provided a dire picture of the costly and time-intensive impact on state and local governments to comply.

On May 15, 2017, GFOA, along with over 80 other market participants, localities, utilities, bond counsel, and underwriters, filed comments in response to the U.S. Securities and Exchange Commission's proposed amendments to Rule 15c2-12. The letter, reprinted below, reiterates that while GFOA promotes transparency in the market and actively supports best practices to ensure that investors have appropriate information about municipal securities, our underlying concern is that this proposal as drafted will not practically accomplish the goal of putting more relevant information into the hands of investors.

NEXT STEPS

The SEC has received the muni industiy's comments and is in the process of analyzing the feedback. The SEC can proceed with the rule, and implementation may be as soon as 90 days from the closure of comments. This quick turnaround is unlikely, however, because of the volume of letters the agency received in response to the proposed amendments. A second alternative is for the SEC to revise the amendment, and, if the change to the previously proposed amendment is substantial, the SEC will again solicit public comment. A third alternative is for the SEC to withdraw the amendment. GFOA's Federal Liaison center will continue to monitor the proposed amendment's development and update members accordingly.

GFOA'S COMMENT LETTER

Below is the text of the comments GFOA filed with the SEC Committee of Proposed Amendments to SEC Rule 15c2-12.

Dear Mr. Secretary:

The Government Finance Officers Association ("GFOA ") appreciates the opportunity to comment on the Securities and Exchange Commission's ("SEC") proposal to amend Rule I5c2-12. The GFOA represents over 19,000 members across the United States, many of whom issue municipal securities. On behalf of our members, the GFOA is very interested in rulemaking that is done in this sector. Members of GFOA's Committee on Governmental Debt Management, a geographically and organizationally diverse group of 25 municipal securities issuers, were consulted in preparing this comment letter.

The GFOA has a long history of encouraging transparency in the municipal marketplace and urging our members to disclose material events to investors...