Continued advocacy and descriptive guidance for continuing disclosure of financial information as a contract of publicly issued debt are hallmarks of several GFOA best practices, including Understanding Your Continuing Disclosure Responsibilities and Using the Comprehensive Annual Financial Report to Meet SEC Requirements for Periodic Disclosure (available at gfoa.org). The best practices were established to inform GFOA members of their continuing disclosure responsibilities as a byproduct of Securities and Exchange Commission (SEC) Rule 15c2-12.
On March 1, 2017, the SEC proposed amending Exchange Act Rule 15c2-12 to include additional event notices under continuing disclosure undertakings. Throughout the notice and comment period of the amendment process, GFOA (along with many other market participants (1)) expressed serious concerns about the broad scope and potential unintended consequences of the proposed amendments. In August 2018, the SEC approved a narrower version of the amendments than what was originally proposed. This article will explain the dramatic change to the rule and provide critical considerations for an issuer to consider before the February 27, 2019, deadline for implementation.
WHAT IS I5C2-I2?
SEC Rule 15c2-l 2 prohibits an underwriter from purchasing or selling municipal securities unless an issuer has committed to annually providing financial information and operating data specified in a written continuing disclosure agreement (CDA). The rule also requires underwriters to obtain and review a final official statement that discloses whenever the issuer has failed to file information required by the CDA during the previous five years.
While SEC Rule 15c2-12 does not directly require issuers of municipal securities to adhere to certain disclosure requirements, it does require underwriters to reasonably determine that the issuer has agreed to disclose annual financial and operating information, as well as material event notices. Issuers must make these disclosures within 10 business days of the event's occurrence on the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (EMMA) website. Reasonable determinations are made through the CDA, which is signed by the issuer.
Importantly, SEC Rule 15c2-12 only applies to underwriters because the SEC is prohibited from directly regulating issuers under the 1975 Tower Amendment to the Securities Exchange Act of 1934 (the Exchange Act). However, through...