[Federal Register: June 2, 2010 (Volume 75, Number 105)]
[Notices]
[Page 30876-30887]
[DOCID:fr02jn10-140]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62183, File No. SR-MSRB-2009-10]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 2 and Order Granting
Accelerated Approval of Proposed Rule Change, as Modified by Amendment
Nos. 1 and 2 Thereto, Relating to Additional Voluntary Submissions by
Issuers to the MSRB's Electronic Municipal Market Access System
(EMMA[supreg])

May 26, 2010.

I. Introduction

    On July 14, 2009, the Municipal Securities Rulemaking Board
(``MSRB''), filed with the Securities and Exchange Commission
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change relating to additional voluntary
submissions by issuers to the MSRB's Electronic Municipal Market Access
System (``EMMA''). The proposed rule change was published for comment
in the Federal Register on July 22, 2009.\3\ The Commission received 27
comment

letters about the proposed rule change.\4\ On December 18, 2009, the
MSRB filed with the Commission, pursuant to Section 19(b)(1) of the
Exchange Act \5\ and Rule 19b-4 thereunder,\6\ Amendment No. 1 to the
proposed rule change. Amendment No. 1 to the proposed rule change was
published for comment in the Federal Register on January 5, 2010.\7\
The Commission received three comment letters concerning Amendment No.
1.\8\ On May 21, 2010, the MSRB filed with the Commission, pursuant to
Section 19(b)(1) of the Exchange Act \9\ and Rule 19b-4 thereunder,\10\
Amendment No. 2 to the proposed rule change, which clarified an aspect
of the proposed rule change relating to an issuer's undertaking and
requested an additional three months to develop, test, and implement
the proposal. The text of Amendment No. 2 is available on the MSRB's
Web site (http://www.msrb.org), at the MSRB's principal office, and for
Web site viewing and printing in the Commission's Public Reference
Room. This order provides notice of Amendment No. 2 and approves the
proposed rule change as modified by Amendment Nos. 1 and 2 on an
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60315 (July 15,
2009), 74 FR 36294 (``Original Notice'') (the ``original proposed
rule change'').
    \4\ Copies of the comment letters received by the Commission are
available on the Commission's Internet Web site, located at http://
www.sec.gov/comments/sr-msrb-2009-10/msrb200910.shtml and for Web
site viewing and printing in the Commission's Public Reference Room
at its Washington, DC headquarters.
    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 61237 (December 23,
2009), 75 FR 485 (January 5, 2010) (``Amendment No. 1 Notice'').
    \8\ Exhibit A contains the citation key for all comment letters
received on the proposed rule change and on Amendment No. 1.
    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment
Nos. 1 and 2 to the Proposed Rule Change

Preliminary Official Statements and Other Primary Market Documents

    The proposed rule change would amend the EMMA primary market
disclosure service to permit issuers and their designated agents to
make voluntary submissions to the primary market disclosure service of
official statements, preliminary official statements and related pre-
sale documents, and advance refunding documents (collectively,
``primary market documents'').\11\ Pre-sale documents other than a
preliminary official statement (including but not limited to notices of
sale or supplemental disclosures) would be accepted only if accompanied
or preceded by the preliminary official statement.\12\ An issuer
seeking to make submissions of primary market documents to the EMMA
primary market disclosure service would use the same accounts
established with respect to submissions of continuing disclosure
documents to the EMMA continuing disclosure service, subject to
additional verification procedures to affirmatively establish the
account holder's authority to act on behalf of the issuer in connection
with such primary market disclosure submissions.
---------------------------------------------------------------------------

    \11\ Obligated persons would be permitted to submit primary
market documents through the EMMA primary market disclosure service
only if designated as an agent by the issuer.
    \12\ The MSRB believes that posting of such pre-sale documents
without the related disclosure information provided in a preliminary
official statement would be inconsistent with the core disclosure
purposes of EMMA.
---------------------------------------------------------------------------

    Submissions of primary market documents by issuers and their
designated agents would be accepted on a voluntary basis if, at the
time of submission, they are accompanied by information necessary to
accurately identify: (i) The category of document being submitted; (ii)
the issues or specific securities to which such document is related;
and (iii) in the case of an advance refunding document, the specific
securities being refunded pursuant thereto. The primary market
documents and related indexing information would be displayed on the
EMMA Web portal and also would be included in EMMA's primary market
disclosure subscription service.

Additional Continuing Disclosure Submissions and Undertakings

    The proposed rule change also would amend the EMMA continuing
disclosure service to permit issuers, obligated persons and their
agents to make voluntary submissions to the continuing disclosure
service of additional categories of disclosures, as well as information
about their continuing disclosure undertakings. Such additional
continuing disclosures and related indexing information would be
displayed on the EMMA Web portal and also would be included in EMMA's
continuing disclosure subscription service. Such additional items \13\
are:
---------------------------------------------------------------------------

    \13\ In Amendment No. 1, the MSRB proposes to modify the
original proposed rule change by eliminating one item of additional
voluntary submissions relating to the award of the Certificate of
Achievement for Excellence in Financial Reporting awarded by the
Government Finance Officers Association (``GFOA'') in connection
with the preparation of a Comprehensive Annual Financial Report
(``CAFR'') of an issuer. The MSRB notes that CAFRs are already
frequently submitted to EMMA by issuers, and in most cases the
issuers include the GFOA certificate in the submitted CAFR.
According to the MSRB, EMMA already effectively serves as a venue
through which CAFRs and GFOA certificates are made available to
investors.
---------------------------------------------------------------------------

     An issuer's or obligated person's undertaking to prepare
audited financial statements pursuant to generally accepted accounting
principles (``GAAP'') as established by the Governmental Accounting
Standards Board (``GASB''), or pursuant to GAAP as established by the
Financial Accounting Standards Board (``FASB''), as applicable to such
issuer or obligated person and as further described below (the
``voluntary GAAP undertaking''); \14\
---------------------------------------------------------------------------

    \14\ In response to the comments received on the original
proposed rule change, the MSRB in Amendment No. 1 proposes to modify
the original proposed rule change by permitting issuers and
obligated persons to elect either the GASB standard or the FASB
standard for GAAP, as appropriate. The original proposed rule change
contemplated the use of the GASB standard only.
---------------------------------------------------------------------------

     An issuer's or obligated persons' undertaking to submit
annual financial information to EMMA within 120 calendar days after the
end of the fiscal year or, as a transitional alternative that may be
elected through December 31, 2013, within 150 calendar days after the
end of the applicable fiscal year, as further described below (the
``voluntary annual filing undertaking''); \15\ and
---------------------------------------------------------------------------

    \15\ In response to the comments received on the original
proposed rule change, the MSRB in Amendment No. 1 proposes to modify
the original proposed rule change by permitting issuers and
obligated persons to elect to undertake to submit annual financial
information either within 120 days or 150 days after the end of the
fiscal year. The original proposed rule change contemplated a 120-
day timeframe only.
---------------------------------------------------------------------------

     Uniform resource locator (URL) of the issuer's or
obligated person's Internet-based investor relations or other
repository of financial/operating information.
    Voluntary GAAP Undertaking. The voluntary GAAP undertaking would
consist of a voluntary undertaking by an issuer or obligated person,
either at the time of a primary offering or at any time thereafter,
that the issuer or obligated person will prepare its audited financial
statements in accordance with GAAP. The MSRB contemplates that State or
local governments or any other entities to which GASB standards are
applicable would apply GAAP as established by GASB and that any other
entities to which FASB standards are applicable would apply GAAP as
established by FASB.
    The voluntary GAAP undertaking would assist investors and other
market participants in understanding how audited financial statements
were prepared. The fact that an issuer or obligated person has entered
into a voluntary GAAP undertaking, and the

standard under which audited financial statements are to be prepared,
would be prominently disclosed on the EMMA Web portal as a distinctive
characteristic of the securities to which such undertaking applies.
    In Amendment No. 2, the MSRB proposes to clarify that the EMMA
indicator with regard to the voluntary GAAP undertaking would be
indicative of an issuer's or obligated person's voluntary undertaking,
entered into as a contractual obligation, for the benefit of
bondholders, under a continuing disclosure agreement or another
contract, that it will prepare its audited financial statements in
accordance with GAAP, either based on GASB or FASB standards as
appropriate. If the issuer or obligated person later rescinds such
undertaking through an amendment to its continuing disclosure agreement
or other contractual arrangement, the issuer or obligated person would
be expected to remove the indicator of its voluntary GAAP undertaking
on EMMA. Amendment No. 2 clarifies that the voluntary EMMA GAAP
indicator solely could be used in situations where the issuer has
entered into an undertaking via a contractual obligation. While this is
consistent with a number of statements in Amendment No. 1, there was a
statement by the MSRB in Amendment No. 1 to the effect that the making
of a voluntary GAAP undertaking through EMMA by an issuer or obligated
person would reflect the bona fide intent of the issuer or obligated
person to perform as undertaken but would not, by itself, necessarily
create a contractual obligation of such issuer or obligated person.
This statement may have caused some confusion with regard to the
issuer's need to undertake, in a continuing disclosure agreement or
separate contract, that it will prepare its audited financial
statements in accordance with GAAP, either based on GASB or FASB
standards as appropriate in order to use the voluntary EMMA GAAP
indicator.
    The MSRB would not review whether an entity has selected the
appropriate accounting standard, would not review or confirm the
conformity of submitted audited financial statements to GAAP, and would
not review whether the information submitted by such entity to the EMMA
continuing disclosure service regarding the voluntary GAAP undertaking
accurately reflects the provisions of, or is included within, the
continuing disclosure agreement or other contractual arrangement of
such entity.
    Voluntary Annual Filing Undertaking. The voluntary annual filing
undertaking would consist of a voluntary undertaking by an issuer or
obligated person, either at the time of a primary offering or at any
time thereafter, that the issuer or obligated person, as appropriate,
would submit to EMMA its annual financial information as contemplated
by Rule 15c2-12 under the Act by no later than 120 calendar days after
the end of such issuer's or obligated person's fiscal year (the ``120-
day undertaking'').\16\ Alternatively, to and including December 31,
2013, the EMMA continuing disclosure service would provide the option
for an issuer or obligated person to indicate its undertaking to submit
to EMMA its annual financial information by no later than 150 calendar
days after the end of such issuer's or obligated person's fiscal year
(the ``transitional 150-day undertaking'').\17\ An issuer or obligated
person that has made a transitional 150-day undertaking could convert
such election to a 120-day undertaking at any time. On and after
January 1, 2014, the transitional 150-day undertaking option would no
longer be available for selection.
---------------------------------------------------------------------------

    \16\ According to the MSRB, under the Exchange Act, smaller
public reporting companies, as non-accelerated filers, generally are
required to file their annual reports on Form 10-K with the
Commission within 90 days after the end of their fiscal year. The
MSRB States that the longer 120-day period included in the voluntary
annual filing undertaking of the proposed rule change is designed to
accommodate additional steps that State and local governments often
must take--under state law, pursuant to their own requirements, or
otherwise--in completing the work necessary to prepare their annual
financial information as contemplated under Exchange Act Rule 15c2-
12.
    \17\ The MSRB states that the option to elect, through December
31, 2013, a transitional 150-day undertaking acknowledges that the
120-day undertaking may not be immediately achievable by most
issuers and obligated persons, and is designed to provide a means by
which to recognize issuers and obligated persons that are taking
steps toward ultimately making their annual financial information
available within 120 days of fiscal year end in the future.
---------------------------------------------------------------------------

    The voluntary annual filing undertaking would assist investors and
other market participants in understanding when the annual financial
information is expected to be available in the future. The fact that an
issuer or obligated person has entered into a voluntary annual filing
undertaking would be prominently disclosed on the EMMA Web portal as a
distinctive characteristic of the securities to which such undertaking
applies. A transitional 150-day undertaking would continue to be
displayed on the EMMA Web portal through June 30, 2014, and would
automatically cease to be displayed on the EMMA Web portal after such
date, unless the issuer or obligated person has previously changed or
rescinded such undertaking.
    Amendment No. 2 clarifies that the EMMA indicator with regard to
the voluntary annual filing undertaking would be indicative of an
issuer's or obligated person's voluntary undertaking, entered into as a
contractual obligation, for the benefit of bondholders, under a
continuing disclosure agreement or another contract, that it will
submit to EMMA its annual financial information as contemplated under
Rule 15c2-12 by no later than 120 calendar days (or 150 calendar days,
in the case of the transitional 150-day undertaking option) after the
end of such issuer's or obligated person's fiscal year. If the issuer
or obligated person later modifies the timeframe for submitting the
annual financial information in its continuing disclosure agreement or
other contractual arrangement to a period longer than contemplated by
the voluntary annual filing undertaking, the issuer or obligated person
would be expected to remove the indicator of its voluntary annual
filing undertaking on EMMA. While Amendment No. 1 in several places
clearly stated the MSRB's view that such an undertaking would be
contained in a continuing disclosure agreement or a separate
contract,\18\ one statement in Amendment No. 1 may have caused some
confusion.\19\ Amendment No. 2 thus clarifies that the voluntary EMMA
indicator could be used solely in situations where an issuer had made
such an undertaking as a contractual obligation (whether in a
continuing disclosure agreement or in a separate contract).
---------------------------------------------------------------------------

    \18\ See, e.g., Amendment No. 1 Notice at 486.
    \19\ ``The MSRB contemplates that the making of a voluntary GAAP
undertaking through EMMA by an issuer or obligated person would
reflect the bona fide intent of the issuer or obligated person to
perform as undertaken but would not, by itself, necessarily create a
contractual obligation of such issuer or obligated person.'' See
Amendment No. 1 Notice at 486.
---------------------------------------------------------------------------

    The MSRB would not review or confirm the compliance of an issuer or
obligated person with its voluntary annual filing undertaking and would
not review whether the information submitted by such entity to the EMMA
continuing disclosure service regarding the voluntary annual filing
undertaking accurately reflects the provisions of, or is included
within, the continuing disclosure agreement or other contractual
arrangement of such entity.
    Investor Relation URL Posting. The proposed rule change would
permit issuers or obligated persons to post the URLs for their
Internet-based investor relations or other repository of

financial/operating information, which would provide investors with an
additional avenue for obtaining further financial, operating or other
investment-related information about such issuer or obligated person.
    Manner of Submission. Issuers and obligated persons would indicate
the existence of a voluntary GAAP undertaking or voluntary annual
filing undertaking through a data input election on EMMA. Changes to or
rescissions of such voluntary contractual undertakings could also be
indicated through the same EMMA interface process.\20\
---------------------------------------------------------------------------

    \20\ The Commission notes that continuing disclosure
undertakings pursuant to Rule 15c2-12 under the Exchange Act cannot
be unilaterally rescinded or amended by either the issuer, an
obligated person, or by any other party. See Securities Exchange Act
Release No. 34961 (November 10, 1994), 59 FR 59560 (November 17,
1994); Letter from Robert L.D. Colby, Deputy Director, Division of
Trading and Markets, Commission, to Securities Law and Disclosure
Committee, National Association of Bond Lawyers, dated June 23, 1995
(Question 2).
---------------------------------------------------------------------------

Effective Date of Proposed Rule Change

    The MSRB originally requested an effective date for the proposed
rule change 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 Commission approval of the proposed rule change and shall be
announced no later than sixty (60) days prior to the effective
date.\21\ In Amendment No. 2, the MSRB requested that the Commission
approve a revised effective date for the proposed rule change 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 one year after Commission approval of
the proposed rule change and shall be announced no later than sixty
(60) days prior to the effective date.
---------------------------------------------------------------------------

    \21\ See Original Notice.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change,
the comment letters received, and the MSRB's responses to the comment
letters and finds that the proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to the MSRB \22\ and, in particular, the
requirements of Section 15B(b)(2)(C) of the Exchange Act \23\ and the
rules and regulations thereunder. Section 15B(b)(2)(C) of the Exchange
Act requires, among other things, that the MSRB's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in municipal securities, to remove impediments to and perfect the
mechanism of a free and open market in municipal securities, and, in
general, to protect investors and the public interest.\24\ In
particular, the Commission finds that the proposed rule change is
consistent with the Exchange Act in that it serves to remove
impediments to and help perfect the mechanisms of a free and open
market in municipal securities and would serve to promote the statutory
mandate of the MSRB to protect investors and the public interest.
Voluntary dissemination of preliminary official statements through
EMMA, particularly if made available prior to the sale of a primary
offering to the underwriters, would provide timely access by investors
and other market participants to key information useful in making an
investment decision in a manner that is consistent with the Exchange
Act. The voluntary GAAP undertaking would assist investors'
understanding of how such information was prepared and may provide them
with the knowledge that the financial statements were prepared
according to generally accepted accounting principles. The voluntary
annual filing undertaking would assist investors' understanding
regarding when such information is expected to be available in the
future and may encourage greater timeliness in the preparation and
dissemination of municipal financial information. A URL provided by an
issuer or obligated person would provide investors with an additional
avenue for obtaining further financial, operating or other investment-
related information about the issuer or obligated person.
---------------------------------------------------------------------------

    \22\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78o-4(b)(2)(C).
    \24\ Id.
---------------------------------------------------------------------------

General Summary of Comment Letters

    The Commission received 27 comment letters responding to the
Original Notice and three comment letters responding to the Amendment
No. 1 Notice. Two comment letters concerned procedural issues with the
filing.\25\ Most of the remaining 25 comment letters responding to the
Original Notice generally supported the proposed rule change, except
that most commenters believed that the 120-day voluntary annual filing
undertaking would be too burdensome or not feasible.\26\ Several
commenters, including a commenter representative of buyers of municipal
securities, strongly supported the voluntary annual filing
undertaking.\27\ Most commenters supported the proposals to submit
voluntary information to EMMA, the voluntary GAAP undertaking and the
issuer's ability to post links to other sources of disclosure
information,\28\ although some commenters raised concerns about various
aspects of the proposals, suggested alternatives, or requested
clarifications.\29\ As noted above, Amendment No. 1 proposed to add a
transitional alternative of a 150-day voluntary filing deadline through
December 31, 2013, to provide a means by which to recognize issuers and
obligated persons for taking steps toward voluntarily making their
annual financial information available within 120 days of their fiscal
year end. The three commenters who responded to the Amendment No. 1
Notice believed that the voluntary 150-day transitional alternative
also was too burdensome and not achievable.\30\ On May 21, 2010, the
MSRB submitted Amendment No. 2 to the proposed rule change. The comment
letters received regarding the Original Notice and the Amendment No. 1
Notice, as set forth in Amendment Nos. 1 and 2, as well as the MSRB's
response to the comment letters, as set forth in Amendment Nos. 1 and
2, are more fully discussed below.
---------------------------------------------------------------------------

    \25\ The MSRB Letter indicated that it was filing an extension
of time for the Commission to act. One commenter requested an
extension of the comment period (Virginia GFOA Letter I).
    \26\ See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA
Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter,
Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield
Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower
Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter.
    \27\ See ICI Letter, SIFMA Letter, Hinsdale Letter.
    \28\ See, e.g. VGFOA Letter II, Inland Letter, Brookfield
Letter, OMFOA Letter, Rock Hill Letter.
    \29\ See, e.g. SIFMA Letter, NABL Letter, GFOA Letter II,
Consortium Letter, NAST Letter.
    \30\ See GFOA Letter III, Connecticut Letter II, NAIPFA Letter.
---------------------------------------------------------------------------

Preliminary Official Statements and Other Primary Market Documents

    The proposal would amend the EMMA primary market disclosure service
to permit issuers and their designated agents to make voluntary
submissions to the primary market disclosure service of official
statements, preliminary official statements and related pre-sale
documents, and advance refunding documents. Pre-sale documents other
than a preliminary

official statement (including but not limited to notices of sale or
supplemental disclosures) would be accepted only if accompanied or
preceded by the preliminary official statement.
    Most commenters who addressed the matter specifically supported the
amendment of the EMMA primary market disclosure service to allow
voluntary submissions.\31\ One commenter welcomed the expansion of the
EMMA system to allow the voluntary submission of primary market
documents because the expansion would allow issuers that offer their
bonds through a competitive bidding process to be able to utilize the
same distribution channels as issuers with offerings made on a
negotiated basis.\32\ This commenter also suggested that the usefulness
of the EMMA system would be enhanced by the ability to make and
retrieve submissions identified in a manner other than by CUSIP
numbers, such as by issuer.\33\
---------------------------------------------------------------------------

    \31\ See Virginia GFOA Letter II, Connecticut Letter I, ICI
Letter, Brookfield Letter, OMFOA Letter, Rock Hill Letter, NAST
Letter, NAIPFA Letter.
    \32\ See Connecticut Letter I.
    \33\ Id.
---------------------------------------------------------------------------

    Only one commenter raised concerns about this aspect of the
proposal.\34\ This commenter recommended that the submitters of primary
disclosure documents continue to be restricted to underwriters and
their agents except for submission of pre-sale documents prepared in
connection with competitively sold municipal securities, in order to
avoid the submission of duplicate or contradictory filings by
underwriters and issuers or obligated persons.\35\
---------------------------------------------------------------------------

    \34\ See NABL Letter.
    \35\ Id.
---------------------------------------------------------------------------

    The MSRB addressed these comments in Amendment No. 1. The MSRB
stated that it believes that there is considerable value in providing a
means for centralized access to preliminary official statements at or
prior to the time of the trade and in sufficient time for an investor
to make use of the information in coming to an investment decision.\36\
The MSRB indicated that it expects to provide search capabilities
tailored to the types of indexing information that would be available
for preliminary official statements, including issuer name, issue
description, State, and appropriate date ranges, among other
things.\37\ Submissions made by issuers would be noted as such on the
EMMA Web portal.\38\ The MSRB believed that postings of preliminary
official statements by issuers should be available for any new issue,
not just those sold on a competitive basis, and the EMMA primary market
submission process would be designed to discourage duplicative
submissions by issuers and underwriters.\39\ The Commission agrees that
it is appropriate that postings of preliminary official statements by
issuers be available for offerings sold on a negotiated as well as
competitive basis, and believes that the MSRB has adequately addressed
the commenters' concerns and suggestions about duplicative filings and
indexing.
---------------------------------------------------------------------------

    \36\ See Amendment No. 1.
    \37\ Id.
    \38\ Id.
    \39\ Id.
---------------------------------------------------------------------------

Additional Continuing Disclosure Submissions and Undertakings

    One commenter believed that all four of the proposed additional
categories to the EMMA continuing disclosure service (the GASB-GAAP
undertaking, the annual filing undertaking, the originally proposed
GFOA-CAFR Certificate undertaking and the URL of the issuer's or
obligated person's Internet-based investor relations or other
repository of financial/operating information) were unnecessary because
this feature of EMMA already contains a catch-all category that is
broad enough to include any of the proposed categories.\40\ Several
commenters expressed concern that the undertakings created by the
proposal could lead to mistaken impressions by investors regarding the
soundness or quality of the disclosures that either are or are not
highlighted by these categories \41\ and one commenter expressed
concern that by prominently highlighting certain voluntary
undertakings, the MSRB could be construed to have recommended the
creditworthiness of the municipal securities.\42\ The MSRB indicated in
Amendment No. 1 and in Amendment No. 2 that it will include
explanations of the nature of both the voluntary annual filing
undertaking and the voluntary GAAP undertaking on the EMMA Web portal.
The Commission believes that users of the EMMA system will benefit from
the additional disclosures provided by these undertakings and that
concerns that the additional disclosures provided on EMMA could lead to
erroneous impressions can be monitored by the Commission through its
oversight of the MSRB.
---------------------------------------------------------------------------

    \40\ See NABL Letter.
    \41\ See NABL Letter, NAHEFFA Letter, Connecticut Letter I.
    \42\ See NABL Letter.
---------------------------------------------------------------------------

Voluntary Annual Filing Undertaking

    The original proposed rule change would amend the EMMA continuing
disclosure service to permit issuers and obligated persons to
undertake, on a voluntary basis, to submit annual financial information
to EMMA within 120 calendar days after the end of the fiscal year. This
provision would consist of a voluntary undertaking by an issuer or
obligated person, either at the time of a primary offering or at any
time thereafter, that the issuer or obligated person, as appropriate,
would submit to EMMA its annual financial information as contemplated
under Rule 15c2-12 (including audited financials, when and if
available) by no later than 120 calendar days after the end of such
issuer's or obligated person's fiscal year.
    Most commenters, the majority of whom were representative of
issuers or obligated persons, believed that the 120-day deadline for
voluntary annual financial filings was too burdensome, arbitrary,
unnecessary, harmful or not feasible,\43\ and many believed a majority
of issuers could not meet this deadline.\44\ One commenter stated that
often governments now struggle to meet the 180-day filing deadline to
meet the requirements of the GFOA's Certificate of Achievement Program,
which promotes the preparation of comprehensive annual financial
reports (CAFRs) that go beyond the requirements of GAAP.\45\ This
commenter believed that promoting a 120-day deadline might reasonably
be expected to persuade any number of issuers to abandon a CAFR
altogether in favor of a plain set of basic financial statements,
which, in its view, would likely be harmful to the quality of financial
reporting.\46\
---------------------------------------------------------------------------

    \43\ See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA
Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter,
Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield
Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower
Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter.
    \44\ See Tennessee Letter, GFOA Letter I, GFOA Letter II, Inland
Letter, Rutherford Letter, Portland Letter, OMFOA Letter, Consortium
Letter.
    \45\ See GFOA Letter II.
    \46\ Id.
---------------------------------------------------------------------------

    Many commenters noted that external factors can inhibit the ability
of issuers to complete annual financial reporting within 120 days, such
as the need to obtain financial data from multiple component units, the
need for outside governmental or governing body reviews of financial
statements, required investment valuations by third parties, receipts
and adjusting entries occurring after the close of the fiscal year,
conflicts with State law and a limited

number of auditing firms well qualified to complete governmental
audits.\47\
---------------------------------------------------------------------------

    \47\ See NAHEFFA Letter, Virginia GFOA Letter II, GFOA Letter
II, Inland Letter, Utah GFOA Letter, Portland Letter, OMFOA Letter,
Consortium Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter,
GFOA Letter III, Connecticut Letter II.
---------------------------------------------------------------------------

    Commenters also noted that many issuers have limited resources to
prepare financial statements.\48\ Many commenters believed that the
voluntary timeframe would increase costs and impose significant
financial and personnel burdens while providing questionable
benefits.\49\ Several commenters observed that small issuers may not be
able to meet this timeframe and that small issuers often are given low
priority by their auditors as compared to larger clients.\50\ Other
commenters also noted the variances among issuers,\51\ including one
commenter who stated that there could be unintended adverse
consequences with respect to a ``one-size-fits-all'' 120-day
deadline.\52\
---------------------------------------------------------------------------

    \48\ See Inland Letter, Greendale Letter, Utah GFOA Letter.
    \49\ See Virginia GFOA Letter II, GFOA Letter II, Portland
Letter, OMFOA Letter.
    \50\ See Brookfield Letter, Greendale Letter, Inland Letter,
OMFOA Letter, Portland Letter, Rock Hill Letter, and Consortium
Letter.
    \51\ See GFOA Letter II, NAHEFFA Letter.
    \52\ See GFOA Letter II.
---------------------------------------------------------------------------

    Several commenters expressed concern that pressure to meet the
voluntary deadline could cause professional staff and their auditors to
produce less accurate information that would reduce the quality of
financial reporting and auditing standards \53\ and would lead to
greater reliance on estimated financial data.\54\ Other commenters
expressed concern that the 120-day deadline would encourage governments
to engage the services of auditing firms that are not well qualified in
governmental accounting and auditing standards.\55\
---------------------------------------------------------------------------

    \53\ See Inland Letter, Lower Merion Letter, Consortium Letter.
    \54\ See GFOA Letter II, OMFOA Letter, Consortium Letter.
    \55\ See GFOA Letter I, Consortium Letter.
---------------------------------------------------------------------------

    Several commenters distinguished the municipal market from the
corporate market; indicated that State and local governments surpass
their private sector counterparts in financial reporting transparency;
or stated that financial reporting goals applicable to the corporate
market should not apply to the municipal market.\56\ One commenter
stated that governments should not be under the same pressure to
provide instantaneous and quarterly financial information because
governments do not exist to make profits.\57\ This commenter also
believed that there is no demand for quicker completion of governmental
audits in the marketplace.\58\
---------------------------------------------------------------------------

    \56\ See Rock Hill Letter, Consortium Letter, Inland Letter,
GFOA Letter II.
    \57\ See Rock Hill Letter.
    \58\ Id.
---------------------------------------------------------------------------

    A number of commenters addressed whether 120 days would be an
appropriate number of days for the voluntary timeframe.\59\ Some
commenters suggested that the 120-day timeframe be deleted
altogether.\60\ Others noted that the 120-day standard would conflict
with the 180-day standard used by GFOA in connection with its CAFR
program,\61\ and some commenters stated that the 180-day standard is a
more appropriate timeframe.\62\ Others suggested that additional
studies be performed before a timeframe is selected.\63\ One commenter
cited difficulties in simultaneously meeting GFOA's CAFR timeframe and
State law requirements.\64\ Two commenters recommended that issuers
certify that they are making filings in compliance with their
continuing disclosure agreements, without a specific deadline.\65\
---------------------------------------------------------------------------

    \59\ See Utah GFOA Letter, Portland Letter, OMFOA Letter,
Tennessee Letter, Virginia GFOA Letter II, Inland Letter, OMFOA
Letter, Consortium Letter, NAST Letter, Michigan Letter, Inland
Letter, Rutherford Letter.
    \60\ See Utah GFOA Letter, Portland Letter, OMFOA Letter.
    \61\ See Tennessee Letter, Virginia GFOA Letter II, Inland
Letter, OMFOA Letter, Consortium Letter, NAST Letter.
    \62\ See Michigan Letter, Inland Letter, Rutherford Letter, Utah
GFOA Letter, Portland Letter.
    \63\ See Tennessee Letter, Virginia GFOA Letter II.
    \64\ See Virginia GFOA Letter II.
    \65\ See GFOA Letter II, NAHEFFA Letter.
---------------------------------------------------------------------------

    Another commenter was concerned that issuers might engage in
deceptive practices by highlighting an undertaking, but then failing to
comply with it.\66\ This commenter noted that there appears to be
nothing to preclude the issuer from effectively advertising the
undertaking on EMMA irrespective of actual compliance.\67\ Others were
concerned that a decision not to make an undertaking would create
prejudicial and unjustified marketplace distinctions or ``a figurative
black eye in the mind of investors.'' \68\
---------------------------------------------------------------------------

    \66\ See NAHEFFA Letter.
    \67\ Id.
    \68\ See NAHEFFA Letter, Inland Letter.
---------------------------------------------------------------------------

    A number of commenters expressed concern that the voluntary annual
filing undertaking likely would become a de facto standard that issuers
would feel compelled to meet, or that the voluntary standard would set
the stage for mandating over time the proposed 120-day schedule.\69\
---------------------------------------------------------------------------

    \69\ See Brookfield Letter, Connecticut Letter I, Inland Letter,
Consortium Letter, NAHEFFA Letter, NAST Letter, Connecticut Letter
II, NAIPFA Letter.
---------------------------------------------------------------------------

    A few commenters supported the 120-day deadline or enhanced
disclosure about the timeliness of issuer financial reporting.\70\ One
commenter, the only commenter primarily representative of buyers of
municipal securities, was particularly supportive of the proposed
disclosure regarding an issuer's decision to undertake submitting
annual financial information to EMMA within 120 calendar days after the
end of the fiscal year, and also recommended the establishment of a
meaningful, mandatory timeframe for filing financial reports.\71\ This
commenter noted that disclosure of annual financial information
currently can take anywhere from three months to twelve months, or even
longer, and that the financial status of an issuer can change
materially during the course of a year--a fact that it observed has
been highlighted by the recent credit crisis.\72\ This commenter
recognized that establishing a specific timeframe for filing financial
reports after the end of the fiscal year would necessitate a
significant shift in current practices employed by municipal issuers,
but believed that such a change is not only warranted but also long
overdue.
---------------------------------------------------------------------------

    \70\ See ICI Letter, SIFMA Letter, Hinsdale Letter.
    \71\ See ICI Letter.
    \72\ Id.
---------------------------------------------------------------------------

    Another commenter stated that ``the proposed 120 day period for
submitting annual financial information is a good start toward meeting
the objective of making financial statements of governments timely and
useful in the public securities market.'' \73\ A third commenter that
supported this part of the proposal remarked that municipal securities
issuers should have the same mandatory reporting requirement for timely
financials as public corporations.\74\
---------------------------------------------------------------------------

    \73\ See Hinsdale Letter.
    \74\ See E-Certus Letter.
---------------------------------------------------------------------------

    In light of the commenters' widespread concerns regarding the
attainability of the 120-day timeframe, the MSRB in Amendment No. 1
provided a transitional option for issuers and obligated persons to
elect a 150-day undertaking as an alternative to the 120-day
undertaking. This alternative election is intended to provide issuers
and obligated persons seeking to make the voluntary annual filing
undertaking, but that are not currently able to meet a 120-day
timeframe, with a reasonable opportunity to overcome existing

barriers to more rapid dissemination of financial information in an
orderly and cost-effective manner.
    The MSRB accordingly modified the original proposed rule change to
allow the election, through December 31, 2013, of a transitional 150-
day alternative, which election would be displayed on the EMMA Web
portal through June 30, 2014, unless the issuer or obligated person
changed or rescinded such undertaking. On and after January 1, 2014,
the transitional 150-day undertaking option no longer would be
available. An issuer or obligated person that made a transitional 150-
day undertaking could convert such election to a 120-day undertaking at
any time. An issuer or obligated person that believed that it is able
to meet the 120-day timeframe could make the 120-day undertaking
immediately upon the effectiveness of the proposed rule change. The
fact that an issuer or obligated person entered into such an
undertaking, including the timeframe elected, would be prominently
disclosed on the EMMA Web portal as a distinctive characteristic of the
securities to which such undertaking applies. The EMMA Web portal would
not include information regarding the availability or existence of the
voluntary annual filing undertaking in those cases where an issuer or
obligated person did not make a voluntary annual filing undertaking.
    The MSRB reiterated in Amendment No. 1 that the voluntary annual
filing undertaking would in fact be voluntary. The MSRB would include
an explanation of the nature of the voluntary annual filing undertaking
on the EMMA Web portal. In particular, the MSRB would disclose that the
voluntary annual filing undertaking is voluntary; is solely indicative
of the timing by which the annual financial information is intended to
be made available; and is not indicative of the accuracy or
completeness of the annual financial information or of the financial
health of the issuer or obligated person. Further, the MSRB would
disclose that a decision by an issuer or obligated person not to make
such an undertaking would not raise a negative inference with regard to
the accuracy or completeness of the issuer's or obligated person's
annual financial information or of the financial health of the issuer
or obligated person.
    As previously noted, the Commission received three comment letters
in response to the Amendment No. 1 Notice.\75\ The three commenters
responding to the Amendment No. 1 Notice believed that the voluntary
150-day transitional alternative also was too burdensome and not
achievable.\76\ Two of the commenters reiterated and expanded upon
comments they had made previously with respect to the original proposed
rule change.\77\ The third commenter stated that the established GASB
and FASB requirements for preparing the audited statements are a
significant impediment to developing statements in less than 180
days.\78\
---------------------------------------------------------------------------

    \75\ See Exhibit A.
    \76\ See GFOA Letter III, Connecticut Letter II, NAIPFA Letter.
    \77\ See GFOA Letter III, Connecticut Letter II.
    \78\ See NAIPFA Letter.
---------------------------------------------------------------------------

    The MSRB addressed the issues raised by the comment letters on the
original proposed rule change in Amendment No. 1, and addressed the
comments on the original proposed rule change as well as the comments
on the Amendment No. 1 Notice in Amendment No. 2.
    In Amendment No. 2, the MSRB stated that the determination to
establish 120 days as the timeframe in the original proposed rule
change was not arbitrary.\79\ The MSRB indicated that, under the
Federal securities laws, smaller public reporting companies, as non-
accelerated filers, generally are required to file their annual reports
on Form 10-K with the Commission within 90 days after the end of their
fiscal year.\80\
---------------------------------------------------------------------------

    \79\ See Amendment No. 2.
    \80\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, after consulting with Commission staff, it
believed that providing issuers and obligated persons with 120 days to
voluntarily submit annual financial information for purposes of the
undertaking would provide an ample timeframe to accommodate the
additional steps that State and local governments often must take--
under State law, pursuant to their own requirements, or otherwise--in
completing the work necessary to prepare their annual financial
information as contemplated under Rule 15c2-12.\81\ The MSRB noted that
the alternative 150-day timeframe was added in Amendment No. 1 to
provide additional time for undertaking such steps during a
transitional period in response to concerns that, as State and local
governments currently prepare their financial information, the
additional 30 days beyond the Form 10-K timeframe for non-accelerated
filers would not be sufficient for many municipal issuers.\82\ The MSRB
stated that the timeframe provided for under the proposed rule change,
as amended, is appropriate and was arrived at on a rational basis.\83\
---------------------------------------------------------------------------

    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    According to the MSRB, issuers that seek to make their financial
information available under the voluntary annual filing undertaking
also would be bringing the timing of their disclosures into closer
conformity with the timeframes that investors in the registered
securities market have come to rely upon.\84\ The MSRB noted that
recent experiences of issuers who have begun to issue Build America
Bonds that are marketed at least in part to investors who typically did
not purchase municipal securities suggest that important benefits both
to investors and issuers may be realized from moving toward a more
universal disclosure timeframe.\85\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id.
---------------------------------------------------------------------------

    The MSRB in Amendment No. 2 also recognized the voluntary nature of
the annual filing undertaking in responding to concerns that the
undertaking would be impracticable or impossible and does not take into
account variances in the size and complexities of issuers. The MSRB
stated that it is aware that the nature of municipal issuers varies
widely and that these significant differences may in fact make it more
difficult for some types of issuers, or issuers in certain States, or
issuers facing certain sets of facts and circumstances, to make and
comply with the voluntary undertaking. In this regard, the MSRB noted
that some issuers may be separate and distinct units in governmental
structures that require information from third parties to complete
their audited financial statements, and such third parties may operate
under timeframes that differ from the issuers' own fiscal year cycles,
thereby creating additional barriers to meeting the timeframe of the
voluntary undertaking.
    Given this complex variety of issuer types, the MSRB believed that
a single consistent voluntary submission timeframe available to all
issuers provides an appropriately uniform initial target under the
voluntary annual filing undertaking. The MSRB did not attempt to parse
the essential structure of the marketplace to develop numerous separate
timeframes based on very limited information. After a period of
experience with the uniform timeframe of the undertaking, the MSRB
advised that it could revisit the question of whether multiple
timeframes for different types of issuers would be appropriate.

    In Amendment No. 2, the MSRB also addressed concerns of some
commenters that the existence of the annual filing undertaking could
create negative perceptions of issuers that do not make the voluntary
undertaking and thereby create a two-tiered market.\86\ The MSRB stated
that, in its view, the decision by an issuer not to submit annual
financial information under the voluntary annual filing undertaking
would not, by itself, cause an inappropriate negative perception of
such issuer.\87\ According to the MSRB, the EMMA portal would provide
clear disclosure of the purpose of the voluntary undertaking and that
the undertaking should not be viewed as indicative of the accuracy or
completeness of financial information or of the financial health of the
issuer.\88\ Thus, the MSRB noted, the voluntary undertaking as
disclosed on the EMMA portal would be an accurate representation of an
issuer's affirmative undertaking as to the timing of its disclosure,
and nothing more.\89\ The MSRB stated that no indicator would be
provided for issuers that choose not to make the voluntary
undertaking.\90\
---------------------------------------------------------------------------

    \86\ See Amendment No. 2.
    \87\ Id.
    \88\ Id.
    \89\ Id.
    \90\ Id.
---------------------------------------------------------------------------

    The MSRB did not believe that there is any significant risk of a
tiered market perception developing in the near future based solely on
the voluntary undertaking.\91\ The MSRB indicated that it would make
the appropriate EMMA portal disclosures regarding the limited nature of
the undertaking to help minimize the possibility that market
participants would place undue emphasis on a single factor when making
an investment decision.\92\ The MSRB opined that the marketplace would
correctly view the voluntary undertaking as an initial step in a
process toward more rapid dissemination of disclosure information to
the public.\93\
---------------------------------------------------------------------------

    \91\ Id.
    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB did not believe that the voluntary annual filing
undertaking would create an excessive burden on issuers or that issuers
would reduce the quality of disclosures in order to meet the
timeframe.\94\ The MSRB remarked that the existence of this optional
undertaking is not intended to create an inference that issuers should
sacrifice the quality of the information provided in their annual
filings in order to meet a specific timeframe, and it did not believe
that the undertaking would have such a negative effect.\95\
---------------------------------------------------------------------------

    \94\ Id.
    \95\ Id.
---------------------------------------------------------------------------

    In discussing financial disclosure standards for municipal
securities, the MSRB noted that in the past, any de facto standards
have been the result of slow evolution in the market through natural
economic forces or the result of collaboration among the various
interested parties, such as with the evolving de facto standard for
quarterly information provided by many hospital borrowers arising from
the collaborative work of issuers, obligated persons and investors in
recent years.\96\ The MSRB believed that the single consistent
voluntary submission timeframe under the voluntary annual filing
undertaking, available to all issuers with the full knowledge that only
some issuers would be able to make the voluntary undertaking at the
current time, would serve to provide an appropriately uniform initial
target for those market participants seeking to work toward more timely
availability of financial information in the marketplace.\97\
---------------------------------------------------------------------------

    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

    In response to some commenters' recommendation that EMMA should
allow issuers to specify a specific date by which annual financial
information is expected to be submitted and should indicate whether the
issuer was in compliance with such deadline, the MSRB noted that it has
filed a separate proposed rule change with the Commission that
addresses these concerns.\98\ The MSRB remarked that that filing would
require underwriters, in connection with new issues that they
underwrite, to provide to EMMA information regarding the deadline for
submitting annual financial information by issuers to EMMA pursuant to
their continuing disclosure agreements.\99\ The MSRB noted that this
deadline would be displayed on the EMMA portal in close proximity to
information showing the timing of actual submissions made by issuers of
their annual financial information, thus achieving the objectives set
out by the commenters.\100\ According to the MSRB, information
regarding the voluntary undertaking also would be displayed in close
proximity to information showing the timing of actual submissions made
by issuers, thus providing a method for investors to check on the
issuer's performance in connection with the undertaking.\101\ The
Commission notes that it has approved the MSRB's filing to allow these
displays on EMMA at the same time it is approving the instant proposed
rule change, and believes that the enhancements to EMMA relating to
underwriters' requirements will address the commenters' recommendations
concerning issuers' compliance with existing undertakings regarding
submission of financial information.\102\
---------------------------------------------------------------------------

    \98\ Id. See Securities Exchange Act Release Nos. 60314 (July
15, 2009), 74 FR 36300 (July 22, 2009) and 61238 (December 23,
2009), 75 FR 492 (January 5, 2010) (File No. SR-MSRB-2009-09).
    \99\ See Amendment No. 2.
    \100\ Id.
    \101\ Id.
    \102\ See Securities Exchange Act Release No. 62182 (May 26,
2010) (SR-MSRB-2009-09).
---------------------------------------------------------------------------

    In response to some commenters' suggestion that the timeframe be
180 days, the MSRB noted that the timeframe set forth in the voluntary
undertaking should be shorter than other timeframes currently in use,
such as the GFOA CAFR certificate program's 180-day timeframe, and that
the transitional 150-day timeframe included in Amendment No. 1 would
provide a mid-point between the original 120-day timeframe of the
voluntary undertaking and the GFOA's 180-day timeframe.\103\
---------------------------------------------------------------------------

    \103\ See Amendment No. 2.
---------------------------------------------------------------------------

    The Commission believes that the MSRB has adequately addressed the
concerns of commenters with respect to the voluntary annual filing
undertaking. Importantly, the Commission notes that this undertaking is
voluntary and will provide investors, as well as broker-dealers,
analysts and other market professionals, with financial information
about municipal securities within a timeframe voluntarily agreed to by
the issuer. The Commission is sensitive to the great variety of
municipal issuers and obligated persons and the many fiscal and other
pressures that they face, but is also sensitive to the concerns of
investors and other participants in our capital markets, who need
timely information to make informed decisions. The Commission believes
that investors, broker-dealers, analysts and other users of the EMMA
system will greatly benefit from the ability to easily identify those
issuers and obligated persons that have committed to providing
financial information by a specific deadline. The 120- and 150-day
timeframes are voluntary and will assist investors in making investment
decisions and in monitoring their securities portfolios; will reward
those issuers and obligated persons that are able to achieve greater
timeliness in financial reporting; and may encourage greater timeliness
by other issuers and obligated persons over time as they work to
surmount the obstacles that currently prevent them from preparing and
disseminating financial information within the

proposed timeframes and without sacrificing the quality of their
reporting.

Voluntary GAAP Undertaking

    The original proposed rule change would amend the EMMA continuing
disclosure service to permit issuers and obligated persons to
undertake, on a voluntary basis, to prepare audited financial
statements pursuant to GAAP as established by GASB. This would consist
of a voluntary undertaking by an issuer or obligated person (in the
case of an obligated person that is a State or local governmental
entity), either at the time of a primary offering or at any time
thereafter, that the issuer or obligated person would prepare its
audited financial statements in accordance with GAAP as established by
GASB.
    Commenters generally supported the voluntary ``GAAP as established
by GASB'' undertaking, although several commenters noted that certain
issuers do not use GASB accounting standards and suggested alternative
recommendations.\104\ Two commenters recommended that the proposal not
include the accounting standard setting body (indicating only
compliance with GAAP),\105\ and one commenter recommended the inclusion
of the accounting standard setting body, GASB or any other standard
setting body, in order for the reader of the financial statements to
distinguish which standards are being followed.\106\ Another commenter
expressed concern that an issuer that does not elect a voluntary GAAP
undertaking would be stigmatized as less creditworthy even where it
follows other standards, including statutory standards, and noted that
financial statements are accompanied by a statement of the accounting
principles applied.\107\ In Amendment No. 1, the MSRB agreed with
commenters that many obligated persons may be subject to FASB standards
rather than GASB standards.\108\ The MSRB therefore modified the
voluntary GAAP undertaking to permit the submitter to select either the
GASB or FASB standards for GAAP.
---------------------------------------------------------------------------

    \104\ See NAHEFFA Letter, GFOA Letter II, Connecticut Letter I.
    \105\ See GFOA Letter II, Consortium Letter.
    \106\ See NAST Letter.
    \107\ See NABL Letter.
    \108\ See Amendment No. 1.
---------------------------------------------------------------------------

    As noted above, the Commission received three comment letters in
response to the Amendment No. 1 Notice. One of these commenters
suggested the allowance of modified GAAP.\109\ This commenter
questioned the usefulness of the GASB GAAP undertaking and stated that
use of GASB GAAP may not always be clear; because it prepares its
information on a modified GAAP basis, it would probably not be able to
make this undertaking.\110\ The second commenter did not support the
amended proposal to have a field that references ``a particular
standard-setting body'' and noted that ``it is redundant for the MSRB
to also include the body in which GAAP standards are established.''
\111\ The third commenter agreed with the provision to have issuers and
obligated persons designate whether their audited financials are
prepared pursuant to GAAP but not the use of GASB standards because
some issuers may be required to use other GAAP standards.\112\
---------------------------------------------------------------------------

    \109\ See Connecticut Letter II.
    \110\ See Connecticut Letter I, Connecticut Letter II.
    \111\ See GFOA Letter III.
    \112\ See NAIPFA Letter.
---------------------------------------------------------------------------

    The MSRB stated that permitting investors to understand the
standards applied to the preparation of an issuer's or obligated
person's financial statements would be valuable.\113\ The MSRB
indicated that the fact that an issuer or obligated person has entered
into a voluntary GAAP undertaking, including whether the financial
statements are to be prepared pursuant to GASB or FASB standards, would
be prominently disclosed on the EMMA Web portal as a distinctive
characteristic of the securities to which such undertaking
applies.\114\ The MSRB noted that it would include an explanation of
the nature of the voluntary GAAP undertaking on the EMMA Web
portal.\115\ In particular, the MSRB would disclose that the voluntary
GAAP undertaking is voluntary; is solely indicative of the accounting
standards that the issuer or obligated person intends to use in
preparing its financial statements; and is not indicative of the
accuracy or completeness of the financial statements or of the
financial health of the issuer or obligated person.\116\ Further, the
MSRB advised that it would disclose that a decision by an issuer or
obligated person not to make such an undertaking does not raise a
negative inference in regard to the accuracy or completeness of its
financial statements or of the financial health of the issuer or
obligated person.\117\ According to the MSRB, each of the undertakings
pursuant to the proposal, including the voluntary GAAP undertaking,
would permit a free text input field permitting issuers and obligated
persons to include additional information relating to each such item
that they may deem appropriate with respect thereto for public
dissemination.\118\ The MSRB believed that this feature should provide
such issuers and obligated persons with adequate opportunity to
disclose appropriate information to investors.\119\
---------------------------------------------------------------------------

    \113\ See Amendment No. 2.
    \114\ Id.
    \115\ See Amendment No. 1.
    \116\ Id.
    \117\ Id.
    \118\ See Amendment No. 2.
    \119\ Id.
---------------------------------------------------------------------------

    The Commission believes that the proposed voluntary GAAP
undertaking will assist investors and other users of the EMMA system in
determining how financial statements are prepared. The uniformity
provided by audited financial statements that are prepared by issuers
and obligated persons pursuant to GAAP in accordance with GASB or FASB
standards will reduce the need by investors to reconcile the use of
disparate accounting principles. The features of the EMMA continuing
disclosure service permitting issuers and obligated persons to include
additional information should address commenters' concerns about
special situations that require clarification.

Investor Relation URL Posting

    The proposal would amend the EMMA continuing disclosure service to
permit issuers and obligated persons to post the URLs for their
Internet-based investor relations or other repository of financial/
operating information. The URL of an issuer's or obligated person's
investor relations or other repository of financial/operating
information would be entered through a text/data input field on EMMA
and no document would be required to be submitted to EMMA.
    Commenters generally supported the proposal to permit issuers and
obligated persons to provide a hyperlink to their investor relations or
similar Web page.\120\ One commenter thought that this field would
provide investors with valuable information and would likely be the
most useful voluntary field proposed by the MSRB.\121\ Another
commenter noted that this hyperlink may be more useful to the general
public than CUSIP-based EMMA filings for general financial information
that is not issue-specific.\122\
---------------------------------------------------------------------------

    \120\ See, e.g., Connecticut Letter I, GFOA Letter III.
    \121\ See GFOA Letter III.
    \122\ See Connecticut Letter I.
---------------------------------------------------------------------------

    One commenter requested that issuers be given an ability to correct
or withdraw URLs to ensure that links are accurate, recommended the
allowance of multiple links, and requested guidance on the
responsibilities of issuers with regard to the posting of

hyperlinks on EMMA.\123\ Another commenter asked about the role and
obligations of dealers if the proposal is adopted; expressed liability
concerns regarding the use of a URL in municipal securities offering
documents and EMMA submissions during the underwriting period of a
primary offering; and suggested a limit on the use of the URL during
the underwriting period of a primary offering.\124\
---------------------------------------------------------------------------

    \123\ See GFOA Letter II, GFOA Letter III.
    \124\ See SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB noted that issuers and obligated persons would be able to
make appropriate changes to the URLs posted through EMMA.\125\ The
hyperlinks would be posted in a manner designed to segregate access to
the URL from postings of official statements for new issues.\126\ The
MSRB intends to provide flexibility to issuers and obligated persons
regarding the posting of appropriate links, including multiple links,
and would provide the ability to correct or withdraw URLs to ensure
that links are accurate.\127\
---------------------------------------------------------------------------

    \125\ See Amendment No. 1.
    \126\ Id.
    \127\ See Amendment No. 2.
---------------------------------------------------------------------------

    The Commission believes that a URL provided by an issuer or
obligated person would provide investors, broker-dealers, analysts and
others with an important additional means to obtain further financial
operating or other investment-related information about such issuer or
obligated person.

Elimination of Proposed GFOA-CAFR Certificate

    The original proposed rule change would have amended the EMMA
continuing disclosure service to permit issuers to submit the
Certificate of Achievement for Excellence in Financial Reporting
awarded by GFOA in connection with the preparation of its CAFR.
    In Amendment No. 1, the MSRB stated that it determined not to
proceed with this element of the proposal. The MSRB noted that CAFRs
already are frequently submitted to EMMA by issuers as the audited
financial statements element of their annual financial information
filings, and in most cases the issuers include the GFOA certificate in
the submitted CAFR.\128\ The MSRB stated that as part of its routine
EMMA update and maintenance process, it expected to modify the input
process for all continuing disclosure submissions to permit issuers and
obligated persons to input specific document titles and/or
subcategories, which would permit submitters of CAFRs to indicate that
their submitted audited financial statements are CAFRs.\129\ According
to the MSRB, this document title/subcategory would be displayed on the
EMMA Web portal.\130\
---------------------------------------------------------------------------

    \128\ See Amendment No. 1.
    \129\ Id.
    \130\ Id.
---------------------------------------------------------------------------

    GFOA, in commenting on the Amendment No. 1 Notice, recommended that
this voluntary field be included within EMMA, noting that such a field
is useful to investors as it tells them which governments have
exceptional reporting standards.\131\ In Amendment No. 2, the MSRB
stated that the current channels for disseminating CAFRs and the
related GFOA certificate are adequate but that it may consider further
action in this area in the future.\132\ The Commission believes that
the MSRB's decision to eliminate the GFOA certificate field is
reasonable given that GFOA certificates are typically submitted to EMMA
with CAFRs.
---------------------------------------------------------------------------

    \131\ See GFOA Letter III.
    \132\ See Amendment No. 2.
---------------------------------------------------------------------------

Other General Comments

    One commenter recommended that the Commission defer action on the
MSRB's proposal to add additional voluntary submissions by issuers
until after the proposed Rule 15c2-12 amendments are considered and
adopted in order to accommodate an orderly integration of revised Rule
15c2-12 submissions and EMMA voluntary submissions.\133\ The Commission
notes that the amendments to Rule 15c2-12 are being adopted at the same
time that it approves the instant proposed rule change.\134\
---------------------------------------------------------------------------

    \133\ See NABL Letter.
    \134\ See Press Release 2010-85 (May 26, 2010).
---------------------------------------------------------------------------

    One commenter on the Amendment No. 1 Notice provided a series of
comments and suggestions relating to various elements of the
proposal.\135\ These included a suggested edit in the facility language
for the EMMA primary market disclosure service regarding issuers being
able to designate an agent for purposes of making primary market
submissions; support for voluntary submission of information on swaps,
swaptions and variable rate debt; and encouragement for the MSRB to
pursue submission of ratings from rating agencies. In Amendment No. 2,
the MSRB indicated that, with regard to the suggestion regarding
facility language, the proposed EMMA revisions contained in Amendment
No. 1 appropriately ensure that an issuer can designate an agent and
remarked that the filing indicates that the term ``designating
underwriter'' has been changed to ``designating party'' specifically to
permit an issuer to make such designation.\136\ In addition, in
Amendment No. 2 the MSRB noted that it currently is in the early stages
of developing a process to receive electronic feeds of municipal
securities credit rating information from Nationally Recognized
Statistical Rating Organizations for purposes of displaying on the EMMA
portal.\137\
---------------------------------------------------------------------------

    \135\ See NAIPFA Letter.
    \136\ See Amendment No. 2.
    \137\ Id. The Commission notes that, on May 20, 2010, the MSRB
filed a proposed rule change relating to the posting of credit
rating information on its EMMA system.
---------------------------------------------------------------------------

    Another commenter recommended that the Commission maintain close
oversight of EMMA and revisit this matter in two to three years to
determine whether the MSRB system is meeting expectations and whether
the needs of all market participants are being addressed.\138\ The
Commission notes that, because the MSRB is a self-regulatory
organization (``SRO''), the Commission has, and exercises, oversight
authority over the MSRB. The MSRB must file proposed rule changes with
the Commission under Section 19(b) of the Exchange Act, including any
changes to the EMMA system and any fees relating to the EMMA system. In
addition, the MSRB is subject to the recordkeeping requirements of
17(a) of the Exchange Act \139\ and is subject to the Commission's
examination authority under Section 17(b) of the Exchange Act.\140\
Through the Commission's recordkeeping requirements and examination and
rule filing processes, the Commission oversees the MSRB and will be
able to ascertain whether the MSRB is implementing EMMA appropriately
and meeting EMMA's stated objectives, as well as whether it is
complying with its legal obligations under the Exchange Act.
---------------------------------------------------------------------------

    \138\ See Connecticut Letter I.
    \139\ 15 U.S.C. 78q(a).
    \140\ 15 U.S.C. 78q(b).
---------------------------------------------------------------------------

    With regard to all other issues raised by the commenters, the
Commission believes that the MSRB has adequately addressed the
commenters' concerns.

IV. Order Granting Accelerated Approval of Proposed Rule Change

    Pursuant to Section 19(b)(2) of the Act,\141\ the Commission may
not approve any proposed rule change, or amendment thereto, prior to
the 30th day after the date of publication of notice of the filing
thereof, unless the Commission finds good cause for so doing and
publishes its reasons for so

finding. The Commission hereby finds good cause for approving the
proposed rule change, as modified by Amendment Nos. 1 and 2, before the
30th day after the date of publication of notice of filing thereof in
the Federal Register. The Commission notes that the original proposed
rule change and Amendment No. 1 were published in the Federal Register
on July 15, 2009 \142\ and January 5, 2010,\143\ respectively. The
Commission does not believe that Amendment No. 2 significantly alters
the proposal. In Amendment No. 2, the MSRB requested an additional
three months to develop, test, and implement the proposal and clarified
that, consistent with statements in Amendment No. 1, the voluntary
undertakings to be submitted to the MSRB's EMMA continuing disclosure
service must be entered into as contractual undertakings for the
benefit of bondholders. The Commission believes that these revisions
are consistent with the proposal's purpose and raise no new significant
issues. Accordingly, pursuant to Section 19(b)(2) of the Act,\144\ the
Commission finds good cause to approve the proposed rule change, as
amended, on an accelerated basis.
---------------------------------------------------------------------------

    \141\ 15 U.S.C. 78s(b)(2).
    \142\ See Release No. 34-60315, supra note 3.
    \143\ See Release No. 34-61237, supra note 7.
    \144\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Exchange Act. Comments may
be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number SR-MSRB-2009-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2009-10. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2009-10 and should be
submitted on or before June 23, 2010.

VII. Conclusion

    For the foregoing reasons, the Commission finds that the proposed
rule change, as amended, is consistent with the Exchange Act and the
rules and regulations thereunder applicable to the MSRB \145\ and, in
particular, the requirements of Section 15B(b)(2)(C) of the Exchange
Act \146\ and the rules and regulations thereunder. The proposal will
become effective on a date to be announced by the MSRB in a notice
published on the MSRB Web site, which date shall be no later than one
year after Commission approval of the proposed rule change and shall be
announced no later than sixty (60) days prior to the effective date.
---------------------------------------------------------------------------

    \145\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \146\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\147\ that the proposed rule change (SR-MSRB-2009-10), as
amended, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \147\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\148\
---------------------------------------------------------------------------

    \148\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.

Exhibit A

Key to Comment Letters Cited in Approval Order Relating to
Additional Voluntary Submissions by Issuers to the MSRB's
Electronic Municipal Market Access System (EMMA[supreg])

File No. SR-MSRB-2009-10

Comments Relating to Original Proposed Rule Change

    1. Ernesto A. Lanza, General Counsel, MSRB, dated August 6, 2009
(``MSRB Letter'').
    2. Robert J. Kleine, Michigan State Treasurer, dated August 10,
2009 (``Michigan Letter'').
    3. Memorandum from the Office of the Chairman regarding a
meeting with representatives of Division of Investment Management,
Division of Trading and Markets, and the Government Finance Officers
Association, dated August 11, 2009 (``August 11th Memorandum'').
    4. Robert Donovan, Executive Director, Rhode Island Health and
Educational Building Corporation, Chair, National Association of
Health and Educational Facilities Finance Authorities (``NAHEFFA'')
Advocacy Committee, dated August 12, 2009 (``NAHEFFA Letter'').
    5. Jan I. Sylvis, Chief of Accounts, State of Tennessee, dated
August 12, 2009 (``Tennessee Letter'').
    6. Leon J. Bijou, Managing Director and Associate General
Counsel, Securities Industry and Financial Markets Association
(``SIFMA''), dated August 12, 2009 (``SIFMA Letter'').
    7. Susan Gaffney, Director, Federal Liaison Center, Government
Finance Officers Association (``GFOA''), dated August 12, 2009
(``GFOA Letter I'').
    8. John Wallingford, Executive Board Member, Virginia Government
Finance Officers Association (``Virginia GFOA''), dated August 12,
2009 (``Virginia GFOA Letter I'').
    9. William A. Holby, President, The National Association of Bond
Lawyers (``NABL''), dated August 13, 2009 (``NABL Letter'').
    10. Marycarol C. White, CPA, CPFO, President, Virginia
Government Finance Officers' Association (``Virginia GFOA''), dated
August 14, 2009 (``Virginia GFOA Letter II'').
    11. Jeffrey L. Esser, Executive Director and CEO, The Government
Finance Officers Association (``GFOA''), dated August 17, 2009
(``GFOA Letter II'').
    12. Dean Martin, Chief Financial Officer, Inland Empire
Utilities Agency, dated August 18, 2009 (``Inland Letter'').
    13. Lisa Nolen, CPA, CGFM, Rutherford County Finance Director,
Murfreesboro, Tennessee, dated August 19, 2009 (``Rutherford
Letter'').

    14. Kathryn Kasza, CMTW, Clerk-Treasurer, Village of Greendale,
Greendale, Wisconsin, dated August 19, 2009 (``Greendale Letter'').
    15. Denise L. Nappier, Connecticut State Treasurer, dated August
20, 2009 (``Connecticut Letter I'').
    16. Heather Traeger, Associate Counsel, Investment Company
Institute (``ICI''), dated August 21, 2009 (``ICI Letter'').
    17. David Muir, President, Utah Government Finance Officers
Association (``Utah GFOA''), Finance Director, Cottonwood Heights
City, dated August 25, 2009 (``Utah GFOA Letter'').
    18. Robert Scott, CPA, CPFO, Director of Finance, City of
Brookfield, Wisconsin, dated August 30, 2009 (``Brookfield
Letter'').
    19. Kenneth L. Rust, Chief Administrative Officer, and Eric H.
Johansen, Debt Manager, City of Portland, Oregon, dated September 1,
2009 (``Portland Letter'').
    20. Bernice Bagnall, President, Oregon Municipal Finance
Officers Association (``OMFOA''), Tualatin Valley Water District,
dated September 2, 2009 (``OMFOA Letter'').
    21. Gerry Fink, Village of Hinsdale, Illinois, dated September
3, 2009 (``Hinsdale Letter'').
    22. Beth Kellar, International City/County Management
Association; Steve Traylor, National Association of Counties;
Cornelia Chebinou, National Association of State Auditors,
Comptrollers and Treasurers; Lars Etzkorn, National League of
Cities; Larry Jones, U.S. Conference of Mayors; Amy Hille, American
Public Power Association; and Rick Farrell, Council on
Infrastructure Financing Authorities; dated September 3, 2009
(``Consortium Letter'').
    23. Richard C. Kristof, Director of Financial Services, City of
Rio Rancho, Rio Rancho, New Mexico, dated September 3, 2009 (``Rio
Rancho Letter'').
    24. Eileen Bradley, Assistant Director of Finance, Township of
Lower Merion, dated September 4, 2009 (``Lower Merion Letter'').
    25. R.T. McNamar, President, E-Certus, Inc., dated September 8,
2009 (``E-Certus Letter'').
    26. David B. Vehaun, Assistant City Manager, City of Rock Hill,
South Carolina, dated September 23, 2009 (``Rock Hill Letter'').
    27. Jeb Spaulding, President, National Association of State
Treasurers (``NAST''), Treasurer, State of Vermont, dated September
25, 2009 (``NAST Letter'').

Comments Relating to Amendment No. 1

    1. Jeffrey L. Esser, Executive Director and CEO, Government
Finance Officers Association, dated January 25, 2010 (``GFOA Letter
III'').
    2. Denise L. Nappier, Connecticut State Treasurer, dated January
27, 2010 (``Connecticut Letter II'').
    3. Steven Apfelbacher, President, National Association of
Independent Public Finance Advisors (``NAIPFA''), dated February 5,
2010 (``NAIPFA Letter'').

[FR Doc. 2010-13155 Filed 6-1-10; 8:45 am]
BILLING CODE 8010-01-P