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In a comment letter filed with the Securities and Exchange Commission on proposed amendments to Rule 15c2-12 relating to municipal securities disclosure, the Securities Industry and Financial Markets Association (SIFMA) expressed its support for continuing disclosure to investors and its general agreement with the SEC that the proposed amendments will achieve that goal.
“The SEC proposals will be an effective way to get more information to investors in municipal securities when material events impacting their investments,” said Leon Bijou, managing director and associate general counsel at SIFMA. “SIFMA is very supportive of efforts to improve disclosure in this important market.”
The proposed amendments would require variable rate demand securities to comply with the continuing disclosure obligations, which SIFMA views as a positive development because important information will be disseminated to investors over the life of the bond issue. The proposals, however, would not require that underwriters review a deemed final official statement, which suggests that that same continuing disclosure information may not be material for investors at the initial issuance of the demand securities. SIFMA urges the SEC to provide clarification about the materiality of disclosure in the municipal securities market and the relationship of original disclosure to continuing disclosure.
SIFMA supports the proposal to remove the materiality standard for six events that are included in the current version of Rule 15c2-12, as it believes notice of all of these events should always be provided to investors because their occurrence is always important to investors and other market participants. The events include principal and interest payment delinquencies with respect to the securities being offered; unscheduled draws on debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; defeasances; and rating changes.
SIFMA also supports the proposed amendment that would expand the list of adverse tax events that must be reported to the Municipal Securities Rulemaking Board under a continuing disclosure agreement to include material notices issued by the Internal Revenue Service with respect to the tax exempt status of the securities. Investors have a strong interest in being informed of actions taken by the IRS that present a material risk to the tax exempt status of their holdings. At the same time, however, SIFMA urges the SEC to clarify that the materiality standard applies to all of the tax events for which notice must be given apart from a final determination of taxability, which, by its nature, is material.
Finally, SIFMA supports the proposed amendment that would expand the list of events that an underwriter must reasonably determine that the issuer or other obligated person has agreed to provide notice of to the MSRB under a continuing disclosure agreement. The additional events include tender offers; bankruptcy, insolvency, receivership or similar proceeding of the issuer or other obligated person; the consummation or entry into or termination of a definitive agreement involving a merger, consolidation, acquisition, or the sale of all or substantially all of the assets of the obligated person; and the appointment of a successor or additional trustee or the change of name of a trustee.
The full letter is available at the following link: http://www.sifma.org/assets/0/232/234/124802/32d75513-1f60-48a9-ae0a-fbffb45ee81c.pdf
