and computing applicable interest rates. In some cases, a trustee may
be responsible for taking certain actions at the direction of a
designated percentage of bondholders.\124\ A trustee may also be
responsible for providing information requested by investors; often the
trustee serves as the issuer's dissemination agent for continuing
disclosures. Although the identity of the trustee may have little or no
influence on a decision whether to buy or sell a security under normal
circumstances, bondholders would need to know the identity of a trustee
to be able to contact the trustee for various reasons, particularly
when

an issuer or other obligated person may be experiencing financial
difficulty. These factors support the need for investors to know the
identity of the trustee. Yet, the Commission is unaware of any method
by which investors, particularly individual investors, presently have a
consistent means of obtaining up-to-date information about changes to
the identity of the trustee. The proposed amendment therefore would
require that the Participating Underwriter reasonably determine that
the continuing disclosure agreement provide that a notice concerning a
change in the identity of the trustee be submitted to the MSRB.
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    \121\ See supra note 11 and accompanying text.
    \122\ The materiality of the name change of a trustee must be
determined through a review of the particular facts and
circumstances of such event. For instance, it is possible for a name
change by a trustee to be so minor that an event notice would not be
required. For example, a name change such as ``ABC National Bank and
Trust Company of XYZ,'' to ``ABC National Bank and Trust Company''
may not be material in the absence of other factors, such as a
change of the location at which the trustee can be reached.
    \123\ See NABL Form Indenture, supra note 114.
    \124\ Id.
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    The Commission requests comment regarding all aspects of the
proposed addition of subparagraph (b)(5)(i)(C)(14) concerning the
appointment of a successor or additional trustee or the change of name
of a trustee. In particular, the Commission requests comment relating
to the frequency of such an event and the importance of such
information to investors. Commenters should advise whether the
continuing disclosure agreement should set forth other information
regarding the trustee that should be disclosed and whether a
determination of materiality for such events is an appropriate
condition to add to this proposed provision. Commenters are requested
to provide their views on the benefits and drawbacks of this aspect of
the proposal.

F. Effective Date and Transition

    The proposed amendments to Rule 15c2-12 would impact only
continuing disclosure agreements that are entered into in connection
with primary offerings occurring on or after the effective date of
these proposed amendments, if they were adopted by the Commission. The
Commission understands that existing undertakings by issuers and
obligated persons that were entered into prior to the effective date of
any final amendments would not require a broker, dealer, or municipal
securities dealer to reasonably determine that the issuer or other
obligated person had agreed to provide notice of specified events in a
timely manner not in excess of ten business days of the event's
occurrence or include the additional items discussed above that are
proposed to be added to paragraph (b)(5)(i)(C) of the Rule. In
addition, such existing undertakings would provide for the submission
of the events specified in paragraph (b)(5)(i)(C) of the Rule, ``if
material.''
    Further, the Commission is aware that, prior to the effective date
of any final amendments, a broker, dealer, or municipal securities
dealer in primary offerings of demand securities in authorized
denominations of $100,000 would not be required reasonably to determine
that the issuer or other obligated person had entered into a continuing
disclosure agreement, as prescribed by the Rule. The Commission
requests comment regarding the potential effects and implications of
existing continuing disclosure agreements having different terms (e.g.,
lacking the proposed additional events for which notices would be sent
to the MSRB and the specified ten business day deadline for doing as
discussed above) than continuing disclosure agreements entered into on
or after any effective date of the proposed amendments, should the
proposed amendments be adopted by the Commission.
    The Commission preliminarily believes that, if the proposed
amendments to Rule 15c2-12 were adopted, it would be preferable to
implement them expeditiously. If the Commission were to approve the
proposed amendments, the Commission is preliminarily considering an
effective date that would be no earlier than three months after any
final adoption of the proposed amendments in order to permit sufficient
time for the MSRB to make necessary modifications to the EMMA system
and for Participating Underwriters to comply with the new Rule. The
Commission requests comment on such an effective date and whether
another effective date might be preferable, if the Commission were to
adopt the proposed rule amendments. In particular, comment is requested
regarding any transition issues with respect to the proposed
amendments, such as whether there would be any conflicts with respect
to terms in existing continuing disclosure agreements.
    The Commission notes that under paragraph (c) of the Rule, a
broker, dealer, or municipal securities dealer cannot recommend the
purchase or sale of a municipal security unless such broker, dealer, or
municipal securities dealer has procedures in place that provide
reasonable assurance that it will receive prompt notice of any event
disclosed pursuant to paragraphs (b)(5)(i)(C) and (D) and paragraph
(d)(2)(ii)(B) of the Rule with respect to the security. The Commission
recognizes that continuing disclosure agreements entered into prior to
the effective date of any final amendments that the Commission may
adopt would not reflect changes made to the Rule by such amendments,
including with respect to event notices. As a result, event items
covered by a continuing disclosure agreement entered into prior to the
effective date of any amendments that the Commission may adopt may be
different from those event items covered by a continuing disclosure
agreement entered into on or after the effective date of any final
amendments that the Commission may adopt. Thus, in the case of
municipal securities subject to a continuing disclosure agreement
entered into prior to the effective date of any final amendments that
the Commission may adopt, the recommending broker, dealer or municipal
securities dealer would receive notice solely of those events covered
by that continuing disclosure agreement, namely, the eleven events
specified in the current Rule. Because, in that case, the continuing
disclosure agreement would not cover any of the items proposed to be
added to the Rule, it would not be necessary for the recommending
broker, dealer, or municipal securities dealer to have procedures in
place that provide reasonable assurance that it received prompt notice
of events proposed to be added to the Rule. The Commission requests
comment on the impact of the proposed amendments with respect to
brokers, dealers, and municipal securities dealers that recommend the
purchase or sale of municipal securities. The Commission also requests
comment on what changes, if any, brokers, dealers and municipal
securities dealers would have to make to their procedures as a result
of any final amendments that the Commission may adopt relating to the
receipt of event notices. The Commission also requests comment on
whether it should amend the Rule or otherwise provide further guidance
to take into account differences in event notices included in
continuing disclosure agreements entered into prior to the effective
date of any final amendments that the Commission may adopt and those
event notices included in continuing disclosure agreements entered into
on or after the effective date of any final amendments that the
Commission may adopt.
    The Commission seeks comment on any other transition issues in
connection with the proposed amendments to Rule 15c2-12. For example,
in connection with the 2008 Amendments, one commenter suggested that
continuing disclosure agreements executed following the effective date
of the 2008 Amendments should amend all prior continuing disclosure
agreements of the same issuer to incorporate the changes to the Rule
made in the 2008 Amendments. In the event that the proposed amendments
were to be

adopted, would transitional issues be minimized by the fact that over
time fewer bonds would be subject to continuing disclosure agreements
entered into prior to the effective date? Would an effective date that
is no earlier than three months after any final approval of the
proposed amendments, should the Commission determine to adopt the
proposed amendments, provide adequate time for issuers and underwriters
to become informed about the proposed amendments and adapt to them?

III. Interpretive Guidance With Respect to Obligations of Participating
Underwriters

    As noted above in Section I.B., the Commission is aware that
municipal securities industry participants have expressed concern that
some municipal issuers and other obligated persons may not consistently
submit continuing disclosure documents, particularly event notices and
failure to file notices, in accordance with their undertakings in
continuing disclosure agreements.\125\
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    \125\ See the comments of participants at the 2001 SEC Municipal
Market Roundtable--Secondary Market Disclosure for the 21st Century,
(available at http://www.sec.gov/info/municipal/roundtables/
thirdmuniround.htm). See also E-mail from Peter J. Schmitt, CEO, DPC
Data Inc., to SEC, Rule-Comments, dated September 19, 2008,
regarding the 2008 Proposed Amendments.
---------------------------------------------------------------------------

    Municipal security holders' access to meaningful information
promotes informed investment decision-making about whether to buy, sell
or hold municipal securities \126\ and thereby better protection
against misrepresentations and fraudulent activities. Availability of
that information also will aid brokers, dealers, and municipal
securities dealers to satisfy their obligations under the federal
securities laws to have a reasonable basis for recommending municipal
securities. In the Commission's view, the flow of municipal securities
disclosure to investors and other market participants depends on
issuers and obligated persons abiding by their undertakings in
continuing disclosure agreements.\127\ Accordingly, the Commission
emphasizes that it is important for an underwriter in a municipal
offering to evaluate carefully the likelihood that the issuer or
obligated person will comply on a timely basis with the undertakings it
has made.
---------------------------------------------------------------------------

    \126\ See e.g., 2008 Amendments Adopting Release, supra note 11,
73 FR at 76129.
    \127\ See 1994 Amendments Adopting Release, supra note 5, 59 FR
at 59594-5.
---------------------------------------------------------------------------

    In prior releases, the Commission set forth its interpretations of
the obligations of municipal underwriters under the antifraud
provisions of the federal securities laws.\128\ The Commission
discussed the duty of underwriters to the investing public to have a
reasonable basis for recommending any municipal securities and, in
fulfilling that obligation, it is their responsibility to review the
issuer's or obligated person's disclosure documents in a professional
manner with respect to the accuracy and completeness of statements made
in connection with the offering.\129\ The Commission today reaffirms
its previous interpretations and provides additional guidance with
respect to underwriters' responsibilities under the antifraud
provisions of the federal securities laws.\130\
---------------------------------------------------------------------------

    \128\ See Securities Exchange Act Release No. 26100 (September
22, 1988), 53 FR at 37787-91 (September 28, 1988) (``1988 Proposing
Release''); the 1989 Adopting Release, supra note 3, 54 FR at 28811-
12; and the 1994 Interpretive Release, supra note 5, 59 FR at 12757-
58 (reaffirming the Commission's interpretation of the obligations
of municipal underwriters under the antifraud provisions of the
federal securities laws).
    \129\ See 1989 Adopting Release, supra note 3, 54 FR at 28811.
See also 1988 Proposing Release, supra note 128, 53 FR at 37787.
    \130\ In light of the underwriter's obligation, as discussed in
the 1988 Proposing Release, supra note 128, 53 FR at 37787-91, the
1989 Adopting Release, supra note 3, 54 FR 28811-12, and the 1994
Interpretive Release, supra note 5, 59 FR 12757-58, to review the
official statement and to have a reasonable basis for its belief in
the accuracy and completeness of the official statement's key
representations, the Commission noted that disclaimers by
underwriters of responsibility for the information provided by the
issuer or other parties without further clarification regarding the
underwriter's belief as to accuracy, and the basis therefore, are
misleading and should not be included in official statements. See
1994 Interpretive Release, supra note 5, 59 FR 12758 n.103.
---------------------------------------------------------------------------

    The provisions of paragraph (b) of Rule 15c2-12 are intended to
assist a municipal underwriter in meeting its ``reasonable basis''
obligations, including the requirement that an underwriter receive and
review a nearly complete final official statement prior to bidding for
or purchasing securities in connection with the offering.\131\ Under
paragraph (b)(5)(i)(C) of the Rule, the underwriter is obligated to
reasonably determine that the issuer or obligated person has
undertaken, in a written agreement or contract for the benefit of the
bondholders, to provide continuing disclosure documents to the
MSRB.\132\ Further, the Rule's definition of ``final official
statement'' provides for the disclosure of any instances in the
previous five years in which any person identified in the continuing
disclosure agreement has failed to comply, in all material respects,
with any previous informational undertakings in the continuing
disclosure agreement.\133\ When the Commission in 1994 adopted these
provisions of the Rule, it stated its belief that the failure of the
issuer or other obligated person to comply in all material respects
with prior informational undertakings is information that is important
to the market, and should, therefore, be disclosed in the final
official statement.\134\ As the Commission noted at that time, the
provision in the Rule regarding disclosure of a prior history of
material non-compliance by issuers or other obligated persons with
their undertakings was specifically intended to serve as an incentive
for them to comply with their undertakings to provide secondary market
disclosure.\135\ Moreover, such disclosure would assist underwriters
and others in assessing the reliability of issuers' or obligated
persons' disclosure representations.\136\ The Commission continues to
believe in the importance of these Rule provisions and would like to
remind underwriters of their obligations under Rule 15c2-12.
---------------------------------------------------------------------------

    \131\ See 1988 Proposing Release, supra note 128, 53 FR at
37790.
    \132\ Under the 2008 Amendments, the MSRB is the sole
information repository.
    \133\ Rule 15c2-12(f)(3), 17 CFR 15c2-12(f)(3).
    \134\ See 1994 Amendments Adopting Release, supra note 5, 59 FR
at 59594-5.
    \135\ Id. at 59595.
    \136\ Id..
---------------------------------------------------------------------------

    The Commission previously has stated that, in its view, the
reasonableness of a belief in the accuracy and completeness of the key
representations in the final official statement, and the extent of a
review of the issuer's or other obligated person's situation necessary
to arrive at that belief, will depend upon all the circumstances.\137\
In both negotiated and competitively bid municipal offerings, the
Commission expects, at a minimum, that underwriters will review the
issuer's disclosure documents in a professional manner for possible
inaccuracies and omissions.\138\ The Commission previously has provided
a non-exclusive list of factors that it believes generally would be
relevant in determining the reasonableness of an underwriter's basis
for assessing the truthfulness of key representations in final official
statements.\139\ These factors include: (1) The extent to which the
underwriter relied upon municipal officials, employees, experts, and
other persons whose duties have given them knowledge of particular
facts; (2) the role of the underwriter (manager, syndicate member, or
selected dealer);

(3) the type of bonds being offered (general obligation, revenue, or
private activity); (4) the past familiarity of the underwriter with the
issuer; (5) the length of time to maturity of the bonds; and (6)
whether the bonds are competitively bid or are distributed in a
negotiated offering.\140\ Sole reliance on the representations of the
issuer will not suffice.\141\
---------------------------------------------------------------------------

    \137\ See 1988 Proposing Release, supra note 128, 53 FR at 37789
and 1989 Adopting Release, supra note 3, 54 FR 28811-12.
    \138\ Id.
    \139\ Id.
    \140\ Id.
    \141\ See 1988 Proposing Release, supra note 128, 53 FR at
37789.
---------------------------------------------------------------------------

    The Commission has determined further to expound upon its prior
interpretations regarding municipal underwriter's responsibilities. As
articulated in a prior interpretation, the Commission believes that it
is doubtful that an underwriter could form a reasonable basis for
relying on the accuracy or completeness of the issuer's or obligated
person's ongoing disclosure representations, if such issuer or
obligated person has a history of persistent and material breaches or
if it has not remedied such past failures by the time the offering
commences.\142\ The Commission believes that, if the underwriter finds
that the issuer or obligated person has on multiple occasions during
the previous five years,\143\ failed to provide on a timely basis
continuing disclosure documents, including event notices and failure to
file notices, as required in continuing disclosure agreements for prior
offerings, it would be very difficult for the underwriter to make a
reasonable determination that the issuer or obligated person would
provide such information under a continuing disclosure agreement in
connection with a subsequent offering. In the Commission's view, it is
doubtful that an underwriter could meet the reasonable belief standard
without the underwriter affirmatively inquiring as to that filing
history.\144\ The underwriter's reasonable belief would be based on its
independent judgment, not solely on representations of the issuer or
obligated person as to the materiality of any failure to comply with
any prior undertaking. If the underwriter finds that the issuer or
obligated person has failed to provide such information, the
underwriter should take that failure into account in forming its
reasonable belief in the accuracy and completeness of representations
made by the issuer or obligated person.
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    \142\ See 1994 Amendments Adopting Release, supra note 5, 59 FR
at 59595.
    \143\ 17 CFR 240.15c2-12(f)(3).
    \144\ The Commission notes that, in light of the adoption of the
2008 Amendments and their effective date of July 1, 2009, for
disclosures made on or after July 1, 2009, an underwriter could
verify that the information has been submitted electronically to the
MSRB.
---------------------------------------------------------------------------

    Comment is solicited regarding whether there are alternative or
additional ways in which an underwriter could satisfy its obligations,
including obligations to ascertain whether issuers or obligated persons
are abiding by their municipal disclosure commitments. Commenters
should address the current practices used by underwriters to satisfy
their ``reasonable basis'' obligation and any aspects of such practices
that could be addressed through further Commission interpretation or
rulemaking.

IV. Request for Comments

    The Commission seeks comment on all aspects of the proposed
amendments to the Rule. In addition to the comments requested
throughout this release, comment is requested on whether the proposed
amendments would further the Commission's goal of enhancing the
availability to investors important information regarding municipal
securities and their issuers in a prompt manner, and whether the
proposed amendments would improve investors' ability to obtain such
information. Further, the Commission seeks comment regarding the impact
of the proposed amendments on Participating Underwriters, issuers and
obligated persons, institutional and individual investors, the MSRB,
information vendors, and others that may be affected by the proposed
amendments.
    In addition, the Commission requests comment on whether there are
additional events for which notices should be provided, and alternative
approaches or modifications to the Commission's proposed approach to
improving the public's ability to obtain important information about
municipal securities that the Commission should consider. Commenters
are requested to indicate their views and to provide any other
suggestions that they may have.

V. Paperwork Reduction Act

    Certain provisions of the proposed amendments to the Rule contain
``collection of information requirements'' within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\145\ In accordance with 44
U.S.C. 3507 and 5 CFR 1320.11, the Commission has submitted revisions
to the currently approved collection of information titled ``Municipal
Securities Disclosure'' (17 CFR 240.15c2-12) (OMB Control No. 3235-
0372) to OMB. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid control number.
---------------------------------------------------------------------------

    \145\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

A. Summary of Collection of Information

    Under paragraph (b) of Rule 15c2-12, a Participating Underwriter
currently is required: (1) To obtain and review an official statement
``deemed final'' by an issuer of the securities, except for the
omission of specified information, prior to making a bid, purchase,
offer, or sale of municipal securities; (2) in non-competitively bid
offerings, to send, upon request, a copy of the most recent preliminary
official statement (if one exists) to potential customers; (3) to send,
upon request, a copy of the final official statement to potential
customers for a specified period of time; (4) to contract with the
issuer to receive, within a specified time, sufficient copies of the
final official statement to comply with the Rule's delivery
requirement, and the requirements of the rules of the MSRB; and (5)
before purchasing or selling municipal securities in connection with an
offering, to reasonably determine that the issuer or obligated person
has undertaken, in a written agreement or contract, for the benefit of
holders of such municipal securities, to provide annual filings, event
notices, and failure to file notices (i.e., continuing disclosure
documents) to the MSRB in an electronic format as prescribed by the
MSRB.\146\ Under paragraph (c) of the Rule, a broker-dealer that
recommends the purchase or sale of a municipal security must have
procedures in place that provide reasonable assurance that it will
receive prompt notice of any event specified in paragraph (b)(5)(i)(C)
of the Rule and any failure to file annual financial information
regarding the security.\147\
---------------------------------------------------------------------------

    \146\ As noted above, the Commission recently approved
amendments to Rule 15c2-12 that, among other things, established the
MSRB as the sole repository for continuing disclosure documents and
provided that those documents are to be submitted to the MSRB in an
electronic format. See 2008 Amendments Adopting Release, supra note
11. Previously, continuing disclosure documents were to be submitted
to the NRMSIRs and the appropriate SID, if any. The 2008 Amendments
became effective on July 1, 2009. The Commission proposes that the
effective date of the proposed amendments discussed herein would be
no earlier than three months after the final approval of the
proposed amendments, should the Commission adopt them.
    \147\ 17 CFR 240.15c2-12(c).
---------------------------------------------------------------------------

    Under paragraph (d)(1)(iii) of the Rule, a primary offering of
municipal securities in authorized denominations of $100,000 or more is
exempt from the Rule, if the securities, at the option of the holder
thereof, may be tendered to

an issuer of such securities or its designated agent for redemption or
purchase at par value or more at least as frequently as every nine
months until maturity, earlier redemption, or purchase by an issuer or
its designated agent.\148\ These securities are referred to as demand
securities or variable rate demand obligations (``VRDOs''). The
Commission proposes to modify the exemption for demand securities by
adding proposed paragraph (d)(5) to the Rule, which would apply current
paragraphs (b)(5) and (c) of the Rule to a primary offering of demand
securities in authorized denominations of $100,000 or more.
---------------------------------------------------------------------------

    \148\ 17 CFR 240.15c2-12(d)(1)(iii).
---------------------------------------------------------------------------

    Under the current Rule, a Participating Underwriter must reasonably
determine that the issuer or obligated person has undertaken in a
continuing disclosure agreement to provide an event notice to the MSRB
when any of the following events with respect to the securities being
offered in an offering occurs, if material: (1) Principal and interest
payment delinquencies; (2) non-payment related defaults; (3)
unscheduled draws on debt service reserves reflecting financial
difficulties; (4) unscheduled draws on credit enhancements reflecting
financial difficulties; (5) substitution of credit or liquidity
providers, or their failure to perform; (6) adverse opinions or events
affecting the tax-exempt status of the security; (7) modifications to
rights of security holders; (8) bond calls; (9) defeasances; (10)
release, substitution, or sale of property securing repayment of
securities; and (11) rating changes.\149\
---------------------------------------------------------------------------

    \149\ 17 CFR 240.15c2-12(b)(5)(i)(C).
---------------------------------------------------------------------------

    Under the proposed amendments, Participating Underwriters would be
required to reasonably determine that the issuer or obligated person
has undertaken in a continuing disclosure agreement to provide event
notices to the MSRB, in an electronic format as prescribed by the MSRB,
in a timely manner not in excess of ten business days, rather than only
in ``a timely manner.'' In addition, the Commission proposes to add the
following event items to paragraph (b)(5)(i)(C) of the Rule: (1) the
issuance by the IRS of proposed or final determinations of taxability,
Notices of Proposed Issue (IRS form 5701-TEB) or other material notices
or determinations with respect to the tax-exempt status of the
securities; (2) tender offers; (3) bankruptcy, insolvency, receivership
or similar event of the issuer or obligated person; (4) the
consummation of a merger, consolidation, or acquisition involving an
obligated person or the sale of all or substantially all of the assets
of the obligated person, other than in the ordinary course of business,
the entry into a definitive agreement to undertake such an action or
the termination of a definitive agreement relating to any such actions,
other than pursuant to its terms, if material; and (5) appointment of a
successor or additional trustee, or the change of name of a trustee, if
material. Further, the Commission proposes to delete the generally
applicable ``if material'' condition from paragraph (b)(5)(i)(C) of the
Rule and instead indicate in specific event items listed in that
paragraph whether notice of such event must be made only to the extent
that such event is material. In this regard, Participating Underwriters
would need to reasonably determine that notice of the following events
would be made in all circumstances: (1) Principal and interest payment
delinquencies with respect to the securities being offered; (2)
unscheduled draws on debt service reserves reflecting financial
difficulties; (3) unscheduled draws on credit enhancements reflecting
financial difficulties; (4) substitution of credit or liquidity
providers, or their failure to perform; (5) defeasances; and (6) rating
changes.

B. Proposed Use of Information

    By specifying the time period for submission of event notices,
expanding the Rule's current categories of events, and modifying an
exemption in the current Rule used for demand securities, the proposed
amendments are intended to promptly make available to broker-dealers,
institutional and retail investors, and others important information
about significant events relating to municipal securities and their
issuers. The proposed amendments would help enable investors and other
municipal securities market participants to be better informed about
important events that occur with respect to municipal securities and
their issuers, including with respect to demand securities, and thus
would allow investors to better protect themselves against fraud. In
addition, the proposed amendments would provide brokers, dealers, and
municipal securities dealers with access to important information about
municipal securities that they can use to carry out their obligations
under the securities laws. This information could be used by individual
and institutional investors; underwriters of municipal securities;
other market participants, including broker-dealers and municipal
securities dealers; analysts; municipal securities issuers; the MSRB;
vendors of information regarding municipal securities; Commission's
staff; and the public generally.

C. Respondents

    In December 2008, OMB approved a revision to the collection of
information associated with the Rule in accordance with 2008 Amendments
to the Rule. The current paperwork collection associated with Rule
15c2-12 applies to broker-dealers, issuers of municipal securities, and
the MSRB. The paperwork collection associated with today's proposed
amendments applies to the same respondents.
    The proposal would require that a Participating Underwriter in a
primary offering of municipal securities reasonably determine that the
issuer or an obligated person has undertaken in a continuing disclosure
agreement to submit event notices in a timely manner not in excess of
ten business days of their occurrence to the MSRB, as well as to submit
such notices for proposed additional disclosure items. The proposal
also would revise the Rule with respect to whether or not a materiality
condition would apply to each of the Rule's specified events prompting
submission of notices to the MSRB. In addition, the proposed amendments
would revise the Rule with respect to its treatment of demand
securities. The Commission gathered updated information regarding the
paperwork burden associated with Rule 15c2-12 in connection with the
Commission's adoption of the 2008 Amendments and is using these
estimates in preparing the paperwork collection associated with its
current proposal. In the 2008 Amendments Adopting Release, the
Commission estimated that the number of respondents impacted by the
paperwork collection associated with the Rule consists of 250 broker-
dealers and 10,000 issuers.\150\ The Commission's staff expects that
the proposed amendments would not change the number of broker-dealer
respondents described in the 2008 Amendments Adopting Release. The
Commission's staff expects that the proposed amendments would increase
the number of issuer respondents in comparison to the Rule's paperwork
current collection, as set forth in the 2008 Amendments Adopting
Release. This is because the proposed amendments would expand the types
of securities covered under subparagraphs (b)(5) and (c) of the Rule,
thus increasing the number of issuers having a paperwork burden.
Specifically, the

Commission's staff estimates that the proposed revision of the Rule's
exemption for demand securities would increase the number of issuers
with a paperwork burden by 2,000 issuers, for a total of 12,000 issuer
respondents.\151\ The Commission's 2008 Amendments Adopting Release
included a paperwork collection burden for the MSRB and, for purposes
of the proposed amendments, the Commission's staff expects that the
MSRB also would be a respondent.
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    \150\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \151\ In 2008, there were approximately 2,000 offerings of
demand securities. See Two Decades of Bond Finance: 1989-2008, The
Bond Buyer/Thomson Reuters 2009 Yearbook 7 (Matthew Kreps ed.,
SourceMedia, Inc.) (2009). To provide estimates that would not be
under-inclusive, the Commission's staff has elected to assume that
all 2,000 offerings of demand securities were issued by separate
issuers and that each of those issuers currently is not a party to a
continuing disclosure agreement that provides for the submission of
continuing disclosure documents to the MSRB. Thus, the Commission's
staff estimates that approximately 2,000 additional issuers would be
affected by the proposed amendments to the Rule. These 2,000
additional issuers represent a 20% increase in the total number of
issuers affected by the Rule. 10,000 (number of issuers under
current Rule)/2,000 (number of additional issuers under proposed
amendments to the Rule) x 100 = 20%.
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D. Total Annual Reporting and Recordkeeping Burden

    In the 2008 Amendments Adopting Release, the Commission included
estimates for the hourly burdens that the Rule imposes upon broker-
dealers, issuers of municipal securities, and the MSRB. The
Commission's staff has relied on these estimates to prepare the
analysis discussed below for each of the aforementioned entities.
    The Commission's staff estimates the aggregate information
collection burden for the amended Rule would consist of the following:
1. Broker-Dealers
    The Commission's staff estimates that approximately 250 broker-
dealers potentially could serve as Participating Underwriters in an
offering of municipal securities.\152\ Therefore, the Commission's
staff estimates that, under the proposed amendments, the maximum number
of broker-dealer respondents would be 250.
---------------------------------------------------------------------------

    \152\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
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a. Proposed Amendment To Modify the Exemption for Demand Securities
    Under the current Rule, the Commission has estimated that the total
annual burden on all 250 broker-dealers is 250 hours (1 hour annually
per broker-dealer).\153\ The Commission believes that the proposed
amendment to modify the exemption from the Rule for a primary offering
of demand securities in authorized denominations of $100,000 or more,
would increase the number of issuers with municipal securities
offerings that are subject to the Rule annually by 20%, based on the
Commission's staff estimate of the ratio of demand securities
outstanding in relation to the municipal security market
generally.\154\ The Commission's staff estimates that this 20% increase
in the number of issuers with offerings subject to the Rule also would
increase the estimated average annual burden for each broker-dealer by
20%, or .20 hours (12 minutes = 60 minutes x .20 (20%)) and the total
estimated annual paperwork burden for all broker-dealers by 20%, or 50
hours.\155\ This increased burden represents the estimated additional
time broker-dealers would need annually to review the continuing
disclosure agreements associated with the additional municipal
securities offerings that would be subject to the amended Rule. As
discussed in more detail below,\156\ the Commission notes that the
continuing disclosure agreements that are reviewed by broker-dealers as
part of their obligation under the Rule are form agreements. The
proposed changes to the Rule would result in minor changes to certain
provisions of these continuing disclosure agreements. However, because
these continuing disclosure agreements are form agreements, the
Commission does not believe that there would be a substantial increase
in the annual hourly burden for broker-dealers under the proposed
amendments to the Rule. Accordingly, the Commission's staff estimates
that 250 broker-dealers would incur an estimated average burden of 300
hours per year to comply with the Rule, as proposed to be amended.\157\
---------------------------------------------------------------------------

    \153\ Id.
    \154\ See supra note 151.
    \155\ 250 hours (total annual burden for all broker-dealers
under the current Rule) x .20 (20% increase in total hourly burden)
= 50 hours. This estimated increase in the annual burden for broker-
dealers also accounts for their review of continuing disclosure
agreements in connection with remarketings of VRDOs that are primary
offerings.
    \156\ See Section V.D.2., infra.
    \157\ (250 hours (total estimated annual hourly burden for all
broker-dealers under the current Rule) + 50 hours (total estimated
additional annual hourly burden for all broker-dealers under the
proposed amendments to the Rule) = 300 hours.
---------------------------------------------------------------------------

b. Proposed Amendments to Events To Be Disclosed Under a Continuing
Disclosure Agreement
    The proposed amendments to paragraphs (b)(5)(i)(C) and
(d)(2)(ii)(B) of the Rule would not alter a broker-dealer's obligation
to reasonably determine that the issuer or obligated person has
undertaken, in a written agreement or contract, for the benefit of
holders of such municipal securities, to provide annual filings, event
notices, and failure to file notices to the MSRB. As described above,
the proposed amendments to paragraph (b)(5)(i)(C) of the Rule would add
four new event disclosure items to the Rule, as well as amend an
existing event disclosure item currently contained in the Rule, and
would modify the events that are subject to a materiality determination
before triggering a notice to the MSRB. In addition, the proposed
amendments to paragraphs (b)(5)(i)(C) and (d)(2)(ii)(B) of the Rule
would change the timing for filing event notices from ``in a timely
manner'' to ``in a timely manner not to exceed ten business days.'' The
Commission believes that these amendments would not change the
obligation of broker-dealers under the Rule to reasonably determine
that the issuer or obligated person has undertaken, in a written
agreement or contract, for the benefit of holders of such municipal
securities, to provide annual filings, event notices, and failure to
file notices to the MSRB.\158\ Accordingly, the Commission does not
believe that the proposed amendments relating to the timing and scope
of event notices would affect the annual paperwork burden for broker-
dealers.
---------------------------------------------------------------------------

    \158\ The Commission notes that while the proposed amendments to
the Rule do not change this obligation, broker-dealers would need to
reasonably determine that the written agreement or contract entered
into by an issuer or obligated person contains the proposed change
to the timing for filing event notices.
---------------------------------------------------------------------------

c. One-Time Paperwork Burden
    The Commission's staff estimates that a broker-dealer would incur a
one-time paperwork burden to have its internal compliance attorney
prepare and issue a notice advising its employees about the proposed
revisions to Rule 15c2-12, if they are adopted by the Commission. In
the 2008 Amendments Adopting Release, the Commission estimated that it
would take a broker-dealer's internal compliance attorney approximately
30 minutes to prepare and issue a notice describing the broker-dealer's
obligations in light of the 2008 Amendments to the Rule.\159\ The
Commission's staff believes that this 30 minute estimate to prepare a
notice would also apply to a broker-dealer's internal compliance
attorney to prepare such a notice for these current amendments to the
Rule. The Commission's staff believes that the task of preparing and
issuing a notice

advising the broker-dealer's employees about the proposed amendments,
if they are adopted, is consistent with the type of compliance work
that a broker-dealer typically handles internally. Accordingly, the
Commission's staff estimates that 250 broker-dealers would each incur a
one-time, first-year burden of 30 minutes to prepare and issue a notice
to its employees regarding the broker dealer's obligations under the
proposed amendments.
---------------------------------------------------------------------------

    \159\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
---------------------------------------------------------------------------

d. Total Annual Burden for Broker-Dealers
    Under the proposed amendments, the total burden on broker-dealers
would be 425 hours for the first year \160\ and 300 hours for each
subsequent year.\161\
---------------------------------------------------------------------------

    \160\ (250 (broker-dealers impacted by the proposed amendments
to the Rule) x 1.20 hours) + (250 (broker-dealers impacted by the
proposed amendments to the Rule) x .5 hour (estimate for one-time
burden to issue notice regarding broker-dealer's obligations under
the proposed amendments to the Rule)) = 425 hours.
    \161\ 250 (broker-dealers impacted by the proposed amendments to
the Rule) x 1.20 hours = 300 hours.
---------------------------------------------------------------------------

2. Issuers
    Issuers' undertakings regarding the submission of annual filings,
event notices, and failure to file notices that are set forth in
continuing disclosure agreements contemplated by the existing Rule, as
well as the proposed amendments to the Rule, impose a paperwork burden
on issuers of municipal securities.
a. Proposed Amendment To Modify the Exemption for Demand Securities
    The Commission's staff believes that the proposed amendment to
delete paragraph (d)(1)(iii) from the Rule, which contains an exemption
from the Rule for a primary offering of demand securities in authorized
denominations of $100,000 or more, and add new paragraph (d)(5) to the
Rule to apply paragraphs (b)(5) and (c) of the Rule to a primary
offering of demand securities in authorized denominations of $100,000
or more, would increase the number of issuers with a paperwork burden
under the Rule. In the 2008 Amendments Adopting Release, the Commission
estimated that the Rule affected approximately 10,000 issuers.\162\
Using the estimate of 10,000 issuers from the 2008 Amendments Adopting
Release, the Commission's staff estimates that, under the proposed
amendments, the number of issuers with a paperwork burden would
increase by approximately 20% \163\ to 12,000 issuers.\164\ These
additional issuers would increase the aggregate number of annual
filings, event notices and failure to file notices submitted each year.
In the 2008 Amendments Adopting Release, the Commission estimated the
hourly burdens for an issuer to prepare and submit an annual filing (45
minutes), an event notice (45 minutes) and a failure to file notice (30
minutes).\165\ The proposed modification to the Rule's exemption for
demand securities would not alter these hourly burdens. Thus, the
Commission's staff estimates that the aggregate number of annual
filings, event notices and failure to file notices submitted by issuers
also would increase by 20% from the estimates contained in the 2008
Amendments Adopting Release.\166\
---------------------------------------------------------------------------

    \162\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \163\ See supra note 151.
    \164\ 10,000 (number of issuers under current Rule) 1.20 (20%
increase) = 12,000. To provide estimates that would not be under-
inclusive, the Commission's staff has elected to use an estimate
that assumes that all issuers of demand securities currently are not
a party to a continuing disclosure agreement that provides for the
submission of continuing disclosure documents to the MSRB.
    \165\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \166\ The Commission's staff believes that this estimated 20%
increase in the number of each type of continuing disclosure
document filed by issuers is appropriate since it maintains the same
ratio between the number of issuers and the number of each type of
document submitted by these issuers as set forth in the 2008
Amendments Adopting Release.
---------------------------------------------------------------------------

(i) Annual Filings
    In the 2008 Amendments Adopting Release, the Commission estimated
that Rule 15c2-12 imposed a total paperwork burden of 11,250 hours on
10,000 issuers to prepare and submit annual filings in any given
year.\167\ In determining the paperwork burden for issuers under the
2008 Amendments Adopting Release, the Commission estimated that issuers
would prepare and submit a total of approximately 15,000 annual filings
yearly.\168\ Under the proposed amendment to modify the current
exemption for demand securities contained in the Rule, the Commission's
staff estimates that 12,000 municipal issuers with continuing
disclosure agreements would prepare and submit approximately 18,000
annual filings yearly.\169\
---------------------------------------------------------------------------

    \167\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \168\ Id.
    \169\ 15,000 (annual filings under 2008 Amendments Adopting
Release) x 1.20 (20% increase in filings under proposed amendments)
= 18,000 annual filings.
---------------------------------------------------------------------------

    In the 2008 Amendments Adopting Release, the Commission estimated
that the process for an issuer to prepare and submit annual filings to
the MSRB in an electronic format would require approximately 45
minutes.\170\ The proposed amendments to the Rule would not change the
way annual filings are prepared and submitted. The Commission's staff
estimates that, under the proposed amendments, an issuer would still
require approximately 45 minutes to prepare and submit annual filings
to the MSRB in an electronic format. Therefore, under the proposed
amendments, the total burden on issuers of municipal securities to
prepare and submit 18,000 annual filings to the MSRB in an electronic
format is estimated to be 13,500 hours.\171\
---------------------------------------------------------------------------

    \170\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \171\ 18,000 (estimated number of annual filings under proposed
amendments) x .75 hours (45 minutes) (estimated time to prepare and
submit annual filings under the 2008 Amendments Adopting Release) =
13,500 hours. To provide an estimate for the paperwork burden that
would not be under-inclusive, the Commission's staff elected to use
the higher end of the estimate for the total number of annual
filings estimated to be submitted each year.
---------------------------------------------------------------------------

(ii) Event Notices
    In determining the paperwork burden for issuers under the 2008
Amendments Adopting Release, the Commission estimated that issuers
would prepare and submit a total of approximately 60,000 event notices
yearly.\172\ Under the proposed amendments to modify the exemption for
demand securities contained in the Rule, the Commission's staff
estimates that the 12,000 municipal issuers with continuing disclosure
agreements would prepare and submit approximately 72,000 event notices
yearly.\173\
---------------------------------------------------------------------------

    \172\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \173\ 60,000 (number of event notices under 2008 Amendments
Adopting Release) x 1.20 (20% increase in filings under proposed
amendments) = 72,000 event notices. The Commission's staff's
estimates of the additional event notices associated with the
proposed amendments relating to the materiality condition and
additional event disclosure items contained in paragraph
(b)(5)(1)(C) of the Rule are discussed in Sections V.D.2.a.iii.
through vii. infra. As discussed below, the total number of event
notices estimated to be submitted to the MSRB in connection with the
proposed amendments is 78,757 notices.
---------------------------------------------------------------------------

    In the 2008 Amendments Adopting Release, the Commission estimated
that the process for an issuer to prepare and submit event notices to
the MSRB in an electronic format would require approximately 45
minutes.\174\ Since the proposed amendments to the Rule would not
change the way event notices are prepared and submitted, the
Commission's staff estimates that, under today's proposed amendments,
an issuer still would require approximately 45 minutes to prepare and
submit an event

notice. Therefore, under today's proposed amendments relating to demand
securities, the total burden on issuers of municipal securities to
prepare and submit 72,000 event notices to the MSRB is estimated to be
54,000 hours.\175\
---------------------------------------------------------------------------

    \174\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \175\ 72,000 (estimated number of material event notices under
proposed amendments) x .75 hours (45 minutes) (estimated time to
prepare and submit material event notices under the 2008 Amendments
Adopting Release) = 54,000 hours.
---------------------------------------------------------------------------

(iii) Failure To File Notices
    In the 2008 Amendments Adopting Release, the Commission estimated
that Rule 15c2-12 currently imposes a total paperwork burden of 1,000
hours on 10,000 issuers to submit failure to file notices in any given
year.\176\ In determining the paperwork burden for issuers under the
2008 Amendments Adopting Release, the Commission estimated that 10,000
issuers would prepare and submit a total of approximately 2,000 failure
to file notices yearly.\177\ Under the proposed amendment to modify the
exemption for demand securities contained in the Rule, the Commission's
staff estimates that the 12,000 municipal issuers with continuing
disclosure agreements would prepare and submit approximately 2,400
failure to file notices yearly.\178\
---------------------------------------------------------------------------

    \176\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \177\ Id.
    \178\ 2,000 (failure to file notices) x 1.20 (20% increase in
filings) = 2,400 failure to file notices.
---------------------------------------------------------------------------

    In the 2008 Amendments Adopting Release, the Commission estimated
that the process for an issuer to submit failure to file notices would
require approximately 30 minutes.\179\ Since the proposed amendments to
the Rule would not change the way failure to file notices are prepared
and submitted, the Commission's staff estimates that, under today's
proposed amendments, an issuer would require approximately 30 minutes
to prepare and submit a failure to file notice. Therefore, under the
proposed amendments, the total burden on issuers of municipal
securities to prepare and submit 2,400 failure to file notices to the
MSRB is estimated to be 1,200 hours.\180\
---------------------------------------------------------------------------

    \179\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \180\ 2,400 (estimated number of failure to file notices under
proposed amendments) x .5 hours (30 minutes) (estimated time to
prepare and submit failure to file notices under the 2008 Amendments
Adopting Release) = 1,200 hours.
---------------------------------------------------------------------------

b. Proposed Amendments to Event Notice Provisions of the Rule
    The Commission proposes to modify paragraph (b)(5)(i)(C) of the
Rule, which presently requires Participating Underwriters to reasonably
determine that an issuer or obligated person has entered into a
continuing disclosure agreement that, among other things, contemplates
the submission of an event notice to the MSRB in an electronic format
upon the occurrence of any events set forth in the Rule, if such event
is material. The current Rule contains eleven such events. The proposed
amendments to this paragraph of the Rule would add four new event
disclosure items and revise an existing event disclosure item. In
addition, the proposed amendments to paragraphs (b)(5)(i)(C) and
(d)(2)(ii)(B) would revise the Rule to state that event notices should
be submitted in a timely manner ``not to exceed ten business days after
the occurrence of the event,'' rather than simply in a timely manner,
as set forth in the current Rule, and would apply to some (but not all)
events the materiality condition that applies to the current eleven
events. In the 2008 Amendments Adopting Release, the Commission
estimated that 60,000 event notices would be prepared and submitted
annually. As described above, the Commission's staff estimates that the
proposed amendments to modify the Rule's exemption for demand
securities would increase the number of event notices to be prepared
and submitted to 72,000 annually.\181\ The Commission's staff believes
that these proposed amendments to paragraphs (b)(5)(i)(C) and
(d)(2)(ii)(B) of the Rule would further increase the current annual
paperwork burden for issuers because they would result in an increase
in the number of event notices to be prepared and submitted.\182\
---------------------------------------------------------------------------

    \181\ See supra note 173.
    \182\ Id.
---------------------------------------------------------------------------

(i) Time Frame for Submitting Event Notices Under a Continuing
Disclosure Agreement
    Currently, paragraphs (b)(5)(i)(C) and (d)(2)(ii)(B) of the Rule
state that notice of an event should be provided in ``a timely
manner.'' The proposed amendment would revise these provisions to state
that such notice should be provided ``in a timely manner not in excess
of ten business days after the occurrence of the event.'' As noted
above, the Commission's staff estimates that an issuer can prepare and
submit an event notice in 45 minutes, which is the hourly burden noted
in the 2008 Amendments Adopting Release.\183\ The proposed revision to
the Rule regarding the time period for submission of event notices
would not change this estimated burden of 45 minutes, which is the
amount of time under the Rule's current paperwork collection to prepare
and submit event notices. Rather, the change in burden hours results
from the fact that more event notices are expected to be filed under
the proposed amendments. The Commission's staff believes that the
proposed change to ``not in excess of ten business days after the
occurrence of the event'' to submit a event notice would not affect the
length of time it takes an issuer to prepare and submit the notice and
thus would not have any impact on the current paperwork burden with
respect to the length of time it would take an issuer to prepare and
submit an event notice.
---------------------------------------------------------------------------

    \183\ See supra note 174 and accompanying text.
---------------------------------------------------------------------------

(ii) Modification With Regard to Those Events for Which a Materiality
Determination Is Necessary
    As discussed earlier, the Commission believes that it is
appropriate to delete the condition in paragraph (b)(5)(i)(C) of the
Rule that presently provides that notice of all of the listed events
need be made only ``if material.'' In connection with the proposed
deletion of the materiality condition, the Commission has reviewed each
of the Rule's current specified events to determine whether a
materiality determination should be retained for that particular event
and preliminarily believes such a determination is still appropriate
for certain listed events.\184\ As a result of this proposed change,
for those events listed in paragraph (b)(5)(i)(C) that are not proposed
to contain the ``if material'' condition, the Participating Underwriter
must reasonably determine that the issuer or other obligated person has
agreed to submit event notices to the MSRB whenever such an event
occurs. These events include: (1) Principal and interest payment
delinquencies with respect to the securities being offered; (2)
unscheduled draws on debt service reserves reflecting financial
difficulties; (3) unscheduled draws on credit enhancements reflecting
financial difficulties; (4) substitution of credit or liquidity
providers, or their failure to perform; (5) defeasances; and (6) rating
changes.\185\ The Commission, however, believes that for other events
currently listed in paragraph (b)(5)(i) a materiality determination
should be retained.
---------------------------------------------------------------------------

    \184\ The discussion in this section pertains to materiality
determinations for events currently specified in paragraph
(b)(5)(i)(C) of the Rule. For events proposed to be added to the
Rule, whether a materiality determination is specified is included
in the discussion below for each such proposed event.
    \185\ See supra Section II.C. for a discussion of the
Commission's rationale regarding why the Commission proposes not to
retain a materiality condition for these events.

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

    In a telephone conversation between the Commission's staff and MSRB
staff on June 12, 2009, Commission staff was advised that the increase
in the number of event notices in connection with the proposal to
modify the materiality condition would result in an increase of no more
than 1,000 event notices, taking into account the increase in event
notices that would result from the proposed amendment relating to
demand securities.\186\ Therefore, the Commission's staff estimates
that this proposed change to the materiality condition would increase
the total number of event notices to be submitted annually by issuers
by 1,000 notices.
---------------------------------------------------------------------------

    \186\ Telephone conversation between Ernesto A. Lanza, General
Counsel, MSRB, and Martha M. Haines, Assistant Director and Chief,
Office of Municipal Securities, Division, Commission, June 12, 2009.
The MSRB staff believes that the potential increase could be much
smaller; however, the Commission's staff is using the estimate of
1,000 event notices to provide a conservative estimate.
---------------------------------------------------------------------------

(iii) Amendment to the Submission of Event Notices Regarding Adverse
Tax Events Under a Continuing Disclosure Agreement
    Subparagraph (b)(5)(i)(C)(6) of the Rule refers to an event notice
in the case of adverse tax events. Under the proposed amendments,
subparagraph (b)(5)(i)(C)(6) of the Rule would be amended to include
``the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS form 5701-
TEB) or other material notices or determinations with respect to the
tax-exempt status of the securities.'' This proposed amendment would
address the circumstances in which issuers would submit an event notice
to the MSRB with respect to IRS determinations of taxability or other
material notices or determinations with respect to the tax status of a
municipal security. As discussed above,\187\ the Commission believes
that the proposed amendment to subparagraph (b)(5)(i)(C)(6) of the Rule
would clarify that IRS determinations of taxability or other material
notices or determinations with respect to the tax status of a municipal
security are events that currently should be disclosed under a
continuing disclosure agreement. The Commission's staff estimates that
the proposed amendments to paragraph (b)(5)(i)(C)(6) of the Rule would
increase the total number of event notices to be submitted by issuers
annually by approximately 130 notices.\188\
---------------------------------------------------------------------------

    \187\ See supra Section II.C.
    \188\ During conversations with the Commission's staff in
December 2008, the staff of the IRS indicated that during a 12-month
period it issues approximately 130 notices of determinations of
taxability. To provide an estimate that is not under-inclusive, the
Commission's staff has estimated that event notices are not
currently submitted for any of these IRS notices. Accordingly, the
Commission's staff estimates that approximately 130 additional event
notices would be submitted under the proposed amendments to
subparagraph (b)(5)(i)(C)(6) of the Rule.
---------------------------------------------------------------------------

(iv) Tender Offers
    Subparagraph (b)(5)(i)(C)(8) of the Rule refers to notice of an
event in the case of bond calls. Under the proposed amendments,
subparagraph (b)(5)(i)(C)(8) of the Rule would be amended to include
tender offers. The inclusion of tender offers in this subparagraph of
the Rule would expand the circumstances in which issuers would submit
an event notice to the MSRB. The Commission's staff estimates that
proposed amendments to subparagraph (b)(5)(i)(C)(8) of the Rule would
increase the total number of event notices to be submitted by issuers
annually by approximately 100 notices.\189\
---------------------------------------------------------------------------

    \189\ Based on industry sources that included lawyers, trade
associations and vendors of municipal disclosure information, the
Commission's staff has estimated that there are typically no more
than 100 tender offers annually in the municipal securities market.
The Commission's staff believes that the actual number of tender
offers annually is significantly less than 100. However, to provide
an estimate for the paperwork burden that would not be under-
inclusive, the Commission's staff has elected to use the higher end
of the estimate with respect to the number of municipal tender
offers that occur each year.
---------------------------------------------------------------------------

(v) The Occurrence of Bankruptcy, Insolvency, Receivership or Similar
Event Regarding an Issuer or an Obligated Person
    Under the proposed amendments, subparagraph (b)(5)(i)(C)(12) would
be added to the Rule and would contain a new disclosure event in the
case of bankruptcy, insolvency, receivership or similar event of the
issuer or obligated person. The proposed addition to the Rule of
bankruptcy, insolvency, receivership or similar event of the issuer or
obligated person would expand the circumstances in which issuers would
submit an event notice. Based on a review of industry sources by the
Commission's staff, the Commission's staff estimates that the proposed
amendment to add the new bankruptcy, insolvency, receivership or
similar event of the issuer or obligated person in subparagraph
(b)(5)(i)(C)(8) of the Rule would increase the total number of event
notices submitted by issuers annually by approximately 24 notices.\190\
---------------------------------------------------------------------------

    \190\ The Commission's staff based this estimate on the
following: (i) 917 (number of issuances of municipal securities that
defaulted during the 1990's based on statistics contained in
Standard and Poor's ``A Complete Look at Monetary Defaults in the
1990s'' (June, 2000))/10 (number of years in a decade) = 91.7
(estimated number of issuances defaulting per year) (rounded to 92);
(ii) 92 (estimated number of issuances defaulting per year)/50,000
(estimated total number of municipal issuers) = .002 (.2%)
(estimated percentage of all issuers that default annually); and
(iii) 12,000 (estimated number of issuers under proposed amendments
to the Rule) x (.002) (.2%) (estimated percentage of all issuers
that default annually) x 1 (estimated number of material event
notices that an issuer would file) = 24 notices. The Commission's
staff notes that not all issuers that default eventually enter
bankruptcy. However, to provide an estimate for the paperwork burden
that would not be under-inclusive, the Commission staff has elected
to use the number of defaults as a basis for this estimate.
---------------------------------------------------------------------------

(vi) Merger, Consolidation, Acquisition, and Sale of All or
Substantially All Assets
    Under the proposed amendments, subparagraph (b)(5)(i)(C)(13) would
be added to the Rule and would contain a new disclosure event in the
case of a merger, consolidation, acquisition involving an obligated
person or sale of all or substantially all of the assets of the
obligated person, other than in the ordinary course of business, the
entry into a definitive agreement to undertake such an action or the
termination of a definitive agreement relating to any such actions,
other than pursuant to its terms, if material. The proposed addition to
the Rule of the merger, consolidation, acquisition, or sale of all or
substantially all of the assets to the Rule would expand the
circumstances in which issuers would submit an event notice. The
Commission's staff believes that the proposed amendment to add the new
event of merger, consolidation, acquisition, or sale of all or
substantially all of the assets in subparagraph (b)(5)(i)(C)(13) of the
Rule would increase the total number of event notices submitted by
issuers annually. Based on a review of industry sources, the
Commission's staff estimates that the proposed amendment to add the new
bankruptcy, insolvency, receivership or similar event of the issuer or
obligated person in subparagraph (b)(5)(i)(C)(8) of the Rule would
increase the total number of event notices submitted by issuers
annually by approximately 1,783 notices.\191\
---------------------------------------------------------------------------

    \191\ The Commission's staff based this estimate on the
following: (i) 2,201 (total number of merger transactions reported
under the Hart-Scott-Rodino Act in 2007 contained in the Hart-Scott-
Rodino Annual Report Fiscal Year 2007 (November 2008) available at
http://www.ftc.gov/os/2008/11/hsrreportfy2007.pdf (``HSR Report'') x
81% (percentage of mergers in industries in which municipal
securities may exist) = 1782.81 notices (rounded to 1783). The
Commission staff estimated the percentage of mergers in the
municipal industry based on data contained in the HSR Report. The
HSR Report contained data regarding the percentage of merger
transactions reported from nine industry segments. Of these nine
segments, the only segment that does not issue municipal securities
is the banking and insurance industry segment which accounted for
19% of reported merger transactions. The Commission notes that each
of the mergers reported under the other industry segments may not
involve entities that have issued municipal securities. However, to
provide an estimate that is not under-inclusive, the Commission's
staff has estimated that all of the reported mergers in the
remaining industry segments would involve entities that have issued
municipal securities.

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

(vii) Successor or Additional Trustee, or Change in Trustee Name
    Under the proposed amendments, paragraph (b)(5)(i)(C)(14) would be
added to the Rule and would contain a new disclosure event related to
the appointment of a successor or additional trustee or the change of
name of a trustee, if material. The proposed addition to the Rule of
the event relating to trustee changes would expand the circumstances in
which issuers would submit an event notice to the MSRB. The
Commission's staff believes that a change affecting the largest trustee
of municipal securities would provide a reasonable estimate of the
number of additional event notices that would be submitted annually
under this proposed amendment to the Rule. The largest trustee covered
approximately 31% of the municipal issuances in 2008.\192\ The
Commission's staff believes that this percentage represents a
reasonable estimate of the percentage of issuers covered by the largest
trustee. Thus, the Commission's staff estimates that a change to the
largest trustee would cover approximately 31% of issuers, or 3,720
issuers, which would serve as a conservative proxy for the number of
event notices to be submitted regarding a change in trustee.\193\
Therefore the Commission's staff estimates that the proposed amendment
to add the new disclosure event contained in paragraph (b)(5)(i)(C)(14)
of the Rule would increase the total number of event notices submitted
by issuers annually by approximately 3,720 notices.\194\
---------------------------------------------------------------------------

    \192\ See Two Decades of Bond Finance: 1989-2008, The Bond
Buyer/Thomson Reuters 2009 Yearbook 7 (Matthew Kreps ed.,
SourceMedia, Inc.) (2009) and Top 50 Trustee Banks: 2008, The Bond
Buyer/Thomson Reuters 2009 Yearbook 89 (Matthew Kreps ed.,
SourceMedia, Inc.) (2009).
    \193\ The Commission's staff based this estimate on the
following: 12,000 (estimated number of issuers under proposed
amendments) x .31 (31%) (estimated percentage of issuers that would
be impacted by a change to the largest trustee of municipal
securities) = 3,720 issuers.
    \194\ The Commission's staff based this estimate on the
following: 3,720 (estimated number of issuers that would be impacted
by a change to the largest trustee of municipal securities) x 1
(estimated number of event notices that an issuer would file) =
3,720 notices. The Commission staff believes that the actual number
of changes involving the trustee that occur annually is
significantly less than 3,720. However, to provide an estimate for
the paperwork burden that would not be under-inclusive, the
Commission's staff has elected to use an estimate that takes into
account a change involving the largest trustee.
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c. Total Burden on Issuers for Proposed Amendments to Event Notices
    In the 2008 Amendments Adopting Release, the Commission estimated
that the process for an issuer to prepare and submit event notices to
the MSRB in an electronic format would require approximately 45
minutes.\195\ As discussed above, under the proposed amendment to
modify the Rule's exemption for demand securities, the total number of
issuers affected by the Rule would increase to 12,000, the total number
of event notices submitted by issuers would increase to 72,000, and the
annual paper work burden for issuers to submit event notices would
increase to 54,000 hours. Under the proposed amendments to paragraph
(b)(5)(i)(C) of the Rule, the Commission's staff estimates that the
12,000 municipal issuers with continuing disclosure agreements would
prepare an additional 6,757 event notices annually,\196\ raising the
total number of event notices prepared by issuers annually to
approximately 78,757.\197\ This increase in the number of event notices
would result in an increase of 5,068 hours in the annual paperwork
burden for issuers to submit event notices.\198\ This increase would
result in an annual paperwork burden for issuers to submit event
notices of approximately 59,068 hours (54,000 hours + 5,068 hours).
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    \195\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \196\ 1000 (estimated number of additional notices submitted
under change to events materiality condition) + 130 (estimated
number of adverse tax event notices under proposed amendments) + 100
(estimated number of tender offers event notices under proposed
amendments) + 24 (estimated number of bankruptcy/insolvency event
notices under proposed amendments) + 1,783 (estimated number of
merger or acquisition event notices under proposed amendments) +
3,720 (estimated number of appointment/change of trustee event
notices under proposed amendments) = 6,757 (total number of
additional event notices that would be prepared under the proposed
amendments to the event notice provisions of the Rule).
    \197\ 72,000 (number of event notices under proposed amendments
modifying the exemption for demand securities exemption) + 6,757
(total number of additional event notices that would be prepared
under the proposed amendments to the event notice provisions of the
Rule) = 78,757 event notices.
    \198\ 6,757 (total number of additional event notices that would
be prepared under the proposed amendments to the event notice
provisions of the Rule) x .75 hours (45 minutes) (estimated time to
prepare an event notice under 2008 Amendments Adopting Release) =
5,067.75 hours (rounded to 5,068 hours).
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d. Total Burden for Issuers
    Accordingly, under the proposed amendments, the total burden on
issuers to submit annual filings, event notices and failure to file
notices would be 73,768 hours.\199\
---------------------------------------------------------------------------

    \199\ 13,500 hours (estimated burden for issuers to submit
annual filings) + 59,068 hours (estimated burden for issuers to
submit event notices) + 1,200 hours (estimated burden for issuers to
submit failure to file notices) = 73,768 hours.
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3. MSRB
    In the 2008 Amendments Adopting Release, the Commission estimated
that the MSRB incurred an annual burden of approximately 7,000 hours to
collect, index, store, retrieve, and make available the pertinent
documents under the Rule.\200\ As discussed above, the Commission's
staff anticipates that the proposed amendments to modify the Rule's
exemption for demand securities would increase filings submitted by
approximately 20% annually.\201\ In addition, the Commission's staff
estimates that the proposed amendments to the event notice provisions
of the Rule would increase filings submitted by approximately an
additional 9% annually. \202\ Accordingly, the Commission's staff
estimates that the total burden on the MSRB of collecting, indexing,
storing, retrieving and disseminating information requested by the
public also would increase by approximately 29% or 2,030 hours (7,000
hours x .29). Thus, the Commission's staff estimates that the total
burden on the MSRB to collect, store, retrieve, and make available the
disclosure documents covered by the proposed amendments to the Rule
would be 9,030 hours annually.\203\
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    \200\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \201\ See supra note 151.
    \202\ 6,757 (estimated additional event notices under the
proposed event notice amendments)/77,000 (estimated number of
continuing disclosure documents submitted under current Rule (60,000
(event notices) + 15,000 (annual filings) + 2,000 (failure to file
notices) = 77,000)) = .087 x 100 = approximately 9%.
    \203\ Annual burden for MSRB: 7000 hours (annual burden under
2008 Amendments Adopting Release) + 2,030 hours (additional hourly
burden under proposed amendments) = 9,030 hours.
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4. Annual Aggregate Burden for Proposed Amendments
    The Commission's staff estimates that the ongoing annual aggregate
information collection burden for the proposed amendments to the Rule
would be 83,098 hours.\204\
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    \204\ 300 hours (total estimated burden for broker-dealers) +
73,768 hours (total estimated burden for issuers) + 9,030 hours
(total estimated burden for MSRB) = 83,098 hours. The initial first-
year burden would be 83,223 hours: 425 hours (total estimated burden
for broker-dealers in the first year) + 73,768 hours (total
estimated burden for issuers) + 9,030 hours (total estimated burden
for MSRB) = 83,223 hours.

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E. Total Annual Cost Burden

1. Broker-Dealers and the MSRB
    The Commission does not expect broker-dealers to incur any
additional external costs associated with the proposed amendments to
the Rule since the proposed amendments do not change the obligation of
broker-dealers under the Rule to reasonably determine that the issuer
or obligated person has undertaken, in a written agreement or contract,
for the benefit of holders of such municipal securities, to provide
annual filings, event notices, and failure to file notices to the MSRB.
    The Commission believes that the MSRB may incur costs to modify the
indexing system in its EMMA system to accommodate the proposed changes
to the Rule that would add additional material disclosure events. Based
on information provided to the Commission's staff by MSRB staff in a
telephone conversation on November 7, 2008, the MSRB staff estimated
that the MSRB's costs to update its EMMA system to accommodate the
proposed changes to the material disclosure events of the Rule would be
no more than approximately $10,000.\205\
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    \205\ Telephone conversation between Harold Johnson, Deputy
General Counsel, MSRB, and Martha M. Haines, Assistant Director and
Chief, Office of Municipal Securities, Division, Commission,
November 7, 2008.
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2. Issuers
(a) Current Issuers
    The Commission expects that some issuers that currently submit
continuing disclosure documents to the MSRB in an electronic format
(referred to herein as ``current issuers'') could be subject to some
additional costs associated with the proposed amendments to the Rule.
For current issuers that convert their annual filings, event notices
and/or failure to file notices into the MSRB's prescribed electronic
format through a third party there would be costs associated with any
additional submissions of event notices and failure to file notices.
    The cost for an issuer to have a third-party vendor convert paper
continuing disclosure documents into the MSRB's prescribed electronic
format could vary depending on what resources are required to transfer
the documents into the appropriate electronic format. One example of
such a transfer would be the scanning of paper-based continuing
disclosure documents into an electronic format. In the 2008 Amendments
Adopting Release, the Commission estimated that the cost for an issuer
to have a third-party vendor scan documents would be $6 for the first
page and $2 for each page thereafter.\206\ In the 2008 Amendments
Adopting Release, the Commission also estimated that event notices and
failure to file notices consist of one to two pages.\207\ Accordingly,
the approximate cost for an issuer to use a third party vendor to scan
an event notice or failure to file notice would be $8 per notice. The
Commission believes these estimates are still accurate. In the 2008
Amendments Adopting Release, the Commission estimated that the high end
of the estimate for the number of event notices submitted by an issuer
annually is three.\208\ Under the proposed amendments to the Rule, some
current issuers would need to prepare additional event notices for
submission to the MSRB. Some current issuers could need to submit these
additional event notices to a third party to convert into an electronic
format for submission to the MSRB. Under the proposed amendments to the
Rule, the Commission's staff estimates that a conservative estimate of
the number of additional event notices that an issuer would need to
submit annually under the proposed amendments would be one, increasing
the total estimate to four.\209\ Each of these issuers would incur an
annual cost of $8 to convert the additional event notice into an
electronic format for submission to the MSRB.\210\ The Commission
believes that current issuers that already have the technology
resources to convert continuing disclosure documents into an electronic
format for submission to the MSRB would not incur any additional
external costs associated with the proposed amendments to the Rule.
---------------------------------------------------------------------------

    \206\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \207\ Id.
    \208\ Id.
    \209\ 6,757 (estimated additional event notices submitted under
proposed amendments to event notices)/12,000 (estimated number of
issuers under proposed amendments) = .563 notices per issuer
(rounded up to 1) (estimated number of additional event notices
submitted annually per issuer). To provide an estimate that would
not be under-inclusive, the Commission's staff has elected to use an
estimate that expects each issuer would submit one additional event
notice as a result of the proposed amendments.
    \210\ $8 (cost to have third party convert an event notice or
failure to file notice into an electronic format) x 1 (maximum
estimated number of additional event or failure to file notices
filed per year per issuer)] = $8.
---------------------------------------------------------------------------

    There may be some costs incurred by issuers to revise their current
template for continuing disclosure agreements to reflect the proposed
amendments to the Rule, if they are adopted. The Commission understands
that models currently exist for continuing disclosure agreements that
are relied upon by legal counsel to issuers and, accordingly, these
documents are likely to be updated by outside attorneys to reflect the
proposed amendments, if the Commission should adopt them. Based on a
review of industry sources, the Commission believes that continuing
disclosure agreements are form agreements. Based on a review of
industry sources, the Commission's staff estimates that it would take
an outside attorney approximately 15 minutes to revise the template for
continuing disclosure agreements for a current issuer, if the proposed
amendments are adopted. Thus, the Commission's staff estimates that the
approximate cost of revising a continuing disclosure agreement to
reflect the proposed amendments for each current issuer would be
approximately $100,\211\ for a one-time total cost of $1,000,000 \212\
for all current issuers, if an outside counsel were used to revise the
continuing disclosure agreement.
---------------------------------------------------------------------------

    \211\ 1 (continuing disclosure agreement) x $400 (hourly wage
for an outside attorney) x .25 hours (estimated time for outside
attorney to revise a continuing disclosure document in accordance
with the proposed amendments to the Rule) = $100. The $400 per hour
estimate for an outside attorney's work is based on the Commission's
staff review of industry sources.
    \212\ $100 (estimated cost to revise a continuing disclosure
agreement I accordance with the proposed amendments to the Rule) x
10,000 (number of current issuers) = $1,000,000.
---------------------------------------------------------------------------

(b) VRDO Issuers
    As discussed above, the Commission's staff estimates that the
proposal relating to demand securities would increase the number of
issuers affected by the Rule by approximately 20% or 2,000 issuers
(referred to herein as ``VRDO issuers''). VRDO issuers may have some
external costs associated with the preparation and submission of annual
filings, event notices and failure to file notices. Under the Rule,
Participating Underwriters are required to reasonably determine that an
issuer has entered into a continuing disclosure agreement to provide
continuing disclosure documents to the MSRB in an electronic format as
prescribed by the MSRB. Under the proposed amendments to the Rule,
Participating Underwriters of VRDO issuers would need to reasonably
determine that these VRDO issuers have entered into continuing
disclosure agreements. The Commission understands that models currently
exist for continuing disclosure agreements that are relied upon by
legal counsel to issuers and, accordingly, these documents are likely
to be updated by

outside attorneys to reflect the proposed amendments, if the Commission
should adopt them. Based on a review of industry sources, the
Commission believes that continuing disclosure agreements are form
agreements. Also, based on a review of industry sources, the
Commission's staff estimates that it would take an outside attorney
approximately 1.5 hours to draft a continuing disclosure agreement.
Thus, the Commission's staff estimates that the approximate cost of
preparing a continuing disclosure agreement for each VRDO issuer would
be approximately $600,\213\ for a one-time total cost of $1,200,000
\214\ for all VRDO issuers, if an outside counsel were to prepare the
entire agreement.
---------------------------------------------------------------------------

    \213\ 1 (continuing disclosure agreement) x $400 (hourly wage
for an outside attorney) x 1.5 hours (estimated time for outside
attorney to draft a continuing disclosure document) = $600. The $400
per hour estimate is based on the Commission's staff review of
industry sources.
    \214\ $600 (cost for continuing disclosure agreement) x 2,000
(number of VRDO issuers) = $1,200,000.
---------------------------------------------------------------------------

    The Commission believes that VRDO issuers generally would not incur
any other external costs associated with the preparation of annual
filings, event notices (including those notices for the new event
disclosure items included in the proposed amendments) and failure to
file notices. The Commission believes that VRDO issuers would prepare
the information contained in these continuing disclosure documents
internally and that these internal costs have been accounted for in the
hourly burden section above.\215\
---------------------------------------------------------------------------

    \215\ See supra Section V.D.
---------------------------------------------------------------------------

    The Commission believes that the only external costs VRDO issuers
could incur in connection with the submission of continuing disclosure
documents to the MSRB would be the costs associated with converting
them into an electronic format. The Commission believes that many
issuers of municipal securities currently have the computer equipment
and software necessary to convert paper copies of continuing disclosure
documents to electronic copies and to electronically transmit the
documents to the MSRB. VRDO issuers that presently do not have the
ability to prepare their annual filings, event notices and/or failure
to file notices in an electronic format could incur some costs to
obtain electronic copies of such documents if they are prepared by a
third party (e.g., accountant or attorney) or, alternatively, to have a
paper copy converted into an electronic format. These costs would vary
depending on how the VRDO issuer elected to convert its continuing
disclosure documents into an electronic format. An issuer could elect
to have a third-party vendor transfer its paper continuing disclosure
documents into the appropriate electronic format. An issuer also could
decide to undertake the work internally, and its costs would vary
depending on the issuer's current technology resources. An issuer also
could elect to use a designated agent to submit its continuing
disclosure documents to the MSRB. In the 2008 Amendments Adopting
Release, the Commission estimated that 30% of issuers would elect to
use designated agents to submit continuing disclosure documents to the
MSRB.\216\ Generally, when issuers utilize the services of a designated
agent, they enter into a contract with the agent for a package of
services, including the submission of continuing disclosure documents,
for a single fee. Based on a review of industry sources, the
Commission's staff estimates this fee to range from $100 to $500 per
year depending on which designated agent an issuer uses.\217\
Accordingly, the Commission's staff estimates that the high end of the
total annual cost that could be incurred by VRDO issuers that use the
services of a designated agent would be approximately $300,000.\218\
---------------------------------------------------------------------------

    \216\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \217\ This estimated range of the annual fee for the services of
a designated agent is based on the Commission's staff review of
industry sources in December 2008.
    \218\ 2,000 (number of VRDO issuers) x .30 (percentage of
issuers that use designated agents) x $500 (estimated annual cost
for issuer's use of a designated agent) = $300,000. In order to
provide a total cost estimate that is not under-inclusive the
Commission's staff elected to use the higher end of the estimated
range of annual fees for designated agent's services.
---------------------------------------------------------------------------

    The cost for an issuer to have a third-party vendor transfer its
paper continuing disclosure documents into an appropriate electronic
format could vary depending on what resources are required to transfer
the documents into the appropriate electronic format. One example of
such a transfer would be the scanning of paper-based continuing
disclosure documents into an electronic format. In the 2008 Amendments
Adopting Release, the Commission estimated that the approximate cost
for an issuer to use a third party vendor to scan an event notice or
failure to file notice would be $8 per notice, and that the maximum
number of event notices or failure to file notices that an issuer would
submit annually is three.\219\ The Commission still believes these
estimates are accurate. Under the proposed amendments to the Rule, the
Commission's staff estimates that the maximum number of event notices
and failure to file notices submitted by issuers would increase to
four.\220\ Accordingly, the Commission's staff estimates that the
maximum external costs for a VRDO issuer who elects to have a third-
party scan continuing event notices or failure to file notices into an
electronic format under the proposed amendments would be $32.\221\ In
the 2008 Amendments Adopting Release, the Commission estimated that the
approximate cost for an issuer to use a third party vendor to scan an
average-sized annual financial statement would be $64 per annual
statement, and that the maximum number of annual filings submitted per
year is two.\222\ The Commission believes that these estimates are
still accurate. The proposed amendments to the Rule would increase the
number of issuers submitting annual filings each year. However, the
proposed amendments to the Rule would not increase the number of annual
filings each issuer submits yearly. Thus, the Commission expects that
the number of annual filings submitted yearly, per issuer, under the
proposed amendments to the Rule would remain the same. Accordingly, the
Commission's staff estimates that the maximum external costs for a VRDO
issuer who elects to have a third-party scan annual filings into an
electronic format under the proposed amendments would be $128.\223\
---------------------------------------------------------------------------

    \219\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \220\ 6,757 (estimated additional event notices submitted under
proposed amendments)/12,000 (estimated number of issuers under
proposed amendments) = .563 notices per issuer (rounded up to 1)
(estimated number of additional event notices submitted annually per
issuer). To provide an estimate that would not be under-inclusive,
the Commission's staff has elected to use an estimate that expects
each issuer would submit one additional material event notice as a
result of the proposed amendments.
    \221\ The maximum cost is the cost to scan and convert four
material event or failure to file notices: 4 (number of notices
submitted annually) x $8.00 (cost to scan and convert each notice) =
$32.
    \222\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \223\ The maximum cost is the cost to scan and convert two
annual filings: 2 (number of annual filings submitted annually) x
$64.00 (cost to scan and convert each annual filing) = $128.
---------------------------------------------------------------------------

    Alternatively, a VRDO issuer that currently does not have the
appropriate technology to convert paper continuing disclosure documents
into an electronic format could elect to purchase the resources to do
so.\224\ In the 2008

Amendments Adopting Release, the Commission estimated that an issuer's
initial cost to acquire these technology resources could range from
$750 to $4,300.\225\ Some VRDO issuers may have the necessary hardware
to transmit documents electronically to the MSRB, but may need to
upgrade or obtain the software necessary to submit documents to the
MSRB in the electronic format that it prescribes. In the 2008
Amendments Adopting Release, the Commission estimated that an issuer's
cost to update or acquire this software could range from $50 to
$300.\226\ The Commission believes these estimates are still accurate.
---------------------------------------------------------------------------

    \224\ Generally, the technology resources necessary to transfer
a paper document into an electronic format are a computer, scanner
and possibly software to convert the scanned document into the
appropriate electronic document format. Most scanners include a
software package that is capable of converting scanned images into
multiple electronic document formats. An issuer would only need to
purchase software if the issuer (i) has a scanner that does not
include a software package that is capable of converting scanned
images into the appropriate electronic format, or (ii) purchases a
scanner that does not include a software package capable of
converting documents into the appropriate electronic format.
    \225\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \226\ Id.
---------------------------------------------------------------------------

    In addition, VRDO issuers without direct Internet access could
incur some costs to obtain such access to submit the documents. In the
2008 Amendments Adopting Release, the Commission noted that Internet
access is now broadly available to and utilized by businesses,
governments, organizations and the public, and the Commission expects
that most issuers of municipal securities currently have Internet
access.\227\ In the event that a VRDO issuer does not have Internet
access, it could incur costs in obtaining such access, which the
Commission estimates to be approximately $50 per month, based on its
limited inquiries to Internet service providers.\228\ Otherwise, there
are multiple free or low cost locations that an issuer could utilize,
such as various commercial sites, which could help an issuer to avoid
the costs of maintaining continuous Internet access solely to comply
with the proposed amendments to the Rule.\229\
---------------------------------------------------------------------------

    \227\ Id.
    \228\ Id.
    \229\ Id.
---------------------------------------------------------------------------

    Accordingly, the Commission estimates that the costs to some of the
VRDO issuers to acquire technology necessary to convert continuing
disclosure documents into an electronic format to submit to the MSRB
could include: (i) An approximate cost of $8 per notice to use a third
party vendor to scan an event notice or failure to file notice, and an
approximate cost of $64 to use a third party vendor to scan an average-
sized annual financial statement, (ii) an approximate cost ranging from
$750 and $4,300 to acquire technology resources to convert continuing
disclosure documents into an electronic format, (iii) $50 to $300
solely to upgrade or acquire the software to submit documents in an
electronic format; and (iv) approximately $50 per month to acquire
Internet access. The Commission included these estimates in the 2008
Amendments Adopting Release and the Commission believes that they are
still accurate.\230\
---------------------------------------------------------------------------

    \230\ Id.
---------------------------------------------------------------------------

    For a VRDO issuer that does not have Internet access and elects to
have a third party convert continuing disclosure documents into an
electronic format (``Category 1''), the total maximum external cost
such issuer would incur would be $760 per year.\231\ For an issuer that
does not have Internet access and elects to acquire the technological
resources to convert continuing disclosure documents into an electronic
format internally (``Category 2''), the total maximum external cost
such VRDO issuer would incur would be $4,900 for the first year and
$600 per year thereafter.\232\ To be conservative for purposes of the
PRA, the Commission estimates that any VRDO issuers that incur costs
associated with converting continuing disclosure documents into an
electronic format would choose the Category 2 option.\233\ The
Commission's staff estimates that approximately no more than 400 VRDO
issuers would incur costs associated with acquiring technology
resources to convert continuing disclosure documents into an electronic
format.\234\ Additionally, the Commission's staff estimates that the
estimated maximum annual costs for those VRDO issuers that need to
acquire technology resources to submit documents to the MSRB would be
approximately $1,960,000 \235\ for the first year after the adoption of
the proposed amendments and approximately $240,000 \236\ for each year
thereafter.
---------------------------------------------------------------------------

    \231\ The total maximum external cost for a Category 1 VRDO
issuer would be calculated as follows: [$64 (cost to have third
party convert annual filing into an electronic format) x 2 (maximum
estimated number of annual filings filed per year per issuer)] + [$8
(cost to have third party convert material event notice or failure
to file notice into an electronic format) x 4 (maximum estimated
number of event or failure to file notices filed per year per
issuer)] + [$50 (estimated monthly Internet charge) x 12 months] =
$760. The Commission's staff estimates that an issuer would file one
to six continuing disclosure documents per year. These documents
generally would consist of no more than two annual filings and four
event or failure to file notices. The Commission's staff estimates
the maximum number of documents filed annually per issuer as
follows: 5 documents (consisting of 2 annual filings and 3 event or
failure to file notices based on the Commission's estimate from the
2008 Amendment Adopting Release) + 1 document (consisting of the
additional event notice that would be filed under the proposed
amendments to the Rule).
    \232\ The total maximum external cost for a Category 2 VRDO
issuer would be calculated as follows: [$4300 (maximum estimated
one-time cost to acquire technology to convert continuing disclosure
documents into an electronic format)] + [$50 (estimated monthly
Internet charge) x 12 months] = $4900. After the initial year,
issuers who acquire the technology to convert continuing disclosure
documents into an electronic format internally would only have the
cost of obtaining Internet access. $50 (estimated monthly Internet
charge) x 12 months = $600.
    \233\ See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104.
    \234\ 2,000 VRDO issuers x 20% = 400 VRDO issuers. The
Commission used a 20% estimate in the 2008 Amendment Adopting
Release. See 2008 Amendments Adopting Release, supra note 11, 73 FR
76104. The Commission believes that this estimate is still
appropriate.
    \235\ 400 (Category 2 issuers) x $4,900 = $1,960,000.
    \236\ 400 (Category 2 issuers) x $600 = $240,000.
---------------------------------------------------------------------------

(c) Current and VRDO Issuers
    Lastly, some current and VRDO issuers may incur a one-time external
cost associated with the proposed amendment to change the timing
requirement for submitting event notices in the Rule from ``in a timely
manner'' to ``in a timely manner not to exceed ten business days after
the occurrence of the event.'' In particular, some current and VRDO
issuers may incur a one-time external cost associated with monitoring
for a change in the name of the issuer's trustee. One way an issuer may
monitor a change in the name of its trustee cost would be to have
outside counsel add a notice provision to the issuer's trust indenture
requiring the trustee to provide the issuer with notice of any change
in the trustee's name. Based on a review of industry sources, the
Commission's staff estimates that it would take an outside attorney
approximately 15 minutes to draft and add a notice provision for a
change in name of the trustee to an indenture agreement. Thus, the
Commission's staff estimates that the approximate cost of adding this
notice provision to an issuer's trust indenture for each issuer would
be approximately $100,\237\ for a one-time annual cost of $1,200,000
\238\ for all issuers.
---------------------------------------------------------------------------

    \237\ 1 (continuing disclosure agreement) x $400 (hourly wage
for an outside attorney) x .25 hours (estimated time for outside
attorney to draft and add a change of name notice provision to a
trust indenture) = $100. The $400 per hour estimate for an outside
attorney's work is based on the Commission's staff review of
industry sources.
    \238\ $100 (estimated cost to have outside counsel add a change
of name notice provision to a trust indenture) x 12,000 (number of
issuers under the proposed amendments) = $1,200,000.
---------------------------------------------------------------------------

F. Retention Period of Recordkeeping Requirements

    As an SRO subject to Rule 17a-1 under the Exchange Act,\239\ the
MSRB is

required to retain records of the collection of information for a
period of not less than five years, the first two years in an easily
accessible place. The proposed amendments to the Rule would contain no
recordkeeping requirements for any other persons.
---------------------------------------------------------------------------

    \239\ 17 CFR 240.17a-1.
---------------------------------------------------------------------------

G. Collection of Information Is Mandatory

    Any collection of information pursuant to the proposed amendments
to the Rule would be a mandatory collection of information.

H. Responses to Collection of Information Will Not Be Kept Confidential

    The collection of information pursuant to the proposed amendments
to the Rule would not be confidential and would be publicly available.
The collection of information that would be provided pursuant to the
continuing disclosure documents under the proposed amendments would be
accessible through the MSRB's EMMA system and would be publicly
available via the Internet.

I. Request for Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments regarding: (1) Whether the proposed collections of information
are necessary for the proper performance of the functions of the
agency, including whether the information will have practical utility;
(2) the accuracy of the Commission's estimate of the burden of the
revised collections of information; (3) whether there are ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
    The Commission has submitted to OMB for approval the proposed
revisions to the current collection of information titled ``Municipal
Securities Disclosure.'' Persons submitting comments on the collection
of information requirements should direct them to the Office of
Management and Budget, Attention: Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and should also send a copy of their comments to
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-0609, with reference to File No. S7-15-09, and to
the Securities and Exchange Commission, Public Reference Room, 100 F
Street, NE., Washington, DC 20549. As OMB is required to make a
decision concerning the collection of information between 30 and 60
days after publication, a comment to OMB is best assured of having its
full effect if OMB receives it within 30 days of publication. Requests
for materials submitted to OMB by the Commission with regard to this
collection of information should be in writing, should refer to File
No. S7-15-09, and be submitted to the Securities and Exchange
Commission, Public Reference Room, 100 F Street, NE., Washington, DC
20549.

VI. Costs and Benefits of Proposed Amendment to Rule 15c2-12

    The Commission is proposing amendments to Rule 15c2-12 that would
amend certain requirements regarding the information that a broker,
dealer, or municipal securities dealer acting as an underwriter in a
primary offering of municipal securities must reasonably determine that
an issuer of municipal securities or an obligated person has
undertaken, in a written agreement or contract for the benefit of
holders of the issuer's municipal securities, to provide to the MSRB.
Specifically, the proposed amendments would require a broker, dealer,
or municipal securities dealer to reasonably determine that the issuer
or obligated person has agreed to provide notice of specified events in
a timely manner not in excess of ten business days after the event's
occurrence, would amend the list of events for which a notice must be
provided, and would modify the events that are subject to a materiality
determination before triggering a notice to the MSRB. In addition, the
amendments would revise an exemption from the rule for certain
offerings of municipal securities with put features. These proposed
amendments are intended to help improve the availability of timely and
important information to investors and other market participants
regarding municipal securities, including demand securities, so that
investors could make more knowledgeable investment decisions,
effectively manage and monitor their investments, and help protect
themselves against fraud, and so brokers, dealers, and municipal
securities dealers could satisfy their obligation to have a reasonable
basis on which to recommend a municipal security.
    The Commission is sensitive to the costs and benefits of the
proposed rule amendments and requests comment on the costs and benefits
of the proposed amendments to Rule 15c2-12 discussed above. The
Commission encourages commenters to identify, discuss, analyze, and
supply relevant data regarding any such costs or benefits.

A. Benefits

    The proposed amendments would modify paragraphs (b)(5)(i)(C) and
(d)(2)(ii)(B) of the Rule to provide that a Participating Underwriter
must reasonably determine that the issuer or obligated person has
undertaken in a continuing disclosure agreement to provide event
notices to the MSRB in a timely manner not to exceed ten business days
after the occurrence of the event. The current provisions of the Rule
state that a Participating Underwriter must reasonably determine that
the continuing disclosure agreement provides that event notices are to
be provided ``in a timely manner'' to the MSRB in an electronic format.
As discussed above, the Commission preliminarily believes that more
timely availability of such significant information would assist
investors in making better informed investment decisions and should
help reduce instances of fraud. The Commission also anticipates that,
in providing for a maximum time frame within which event notices should
be disclosed under a continuing disclosure agreement, the proposed
amendment should foster the availability of up-to-date information
about municipal securities, thereby further promoting greater
transparency and investor confidence in the municipal securities market
as a whole, and assisting investors to better protect themselves
against fraud. Moreover, brokers, dealers and municipal securities
dealers should be able to more readily carry out their responsibilities
under the securities laws. The Commission believes that the proposed
change regarding the maximum time frame for submission of event notices
should continue to provide an issuer with adequate time to become aware
of the event and, pursuant to its undertaking, submit notice of the
event's occurrence to the MSRB. In proposing that event notices be
provided ``in a timely manner not in excess of ten business days after
the occurrence of the event,'' the Commission intends to strike a
balance between the need for such information to be disseminated
promptly and the need to allow adequate time for an issuer to become
aware of the event and to prepare and file such a notice. The
Commission preliminarily believes that the proposed time frame of ten
business days after the occurrence of the event would provide a
reasonable amount of time for issuers to comply with their

obligations under their continuing disclosure agreements, while also
allowing event notices to be made available to investors in a more
timely manner. The Commission notes that issuers would not be precluded
from submitting subsequent notices as additional information relating
to the event becomes available.
    The proposed amendments would modify subparagraph (b)(5)(i)(C)(6)
of the Rule to require a Participating Underwriter to reasonably
determine that the issuer or obligated person has undertaken in a
continuing disclosure agreement to provide notice to the MSRB of the
issuance of proposed and final determinations of taxability, Notices of
Proposed Issue (IRS form 5701-TEB), or other material notices or
determinations with respect to the tax-exempt status of securities by
the Internal Revenue Service, as well as adverse tax opinions and other
events affecting the tax-exempt status of such securities. As discussed
earlier, the Commission believes that the tax-exempt status of
municipal securities is of significant importance to investors and
other participants in the municipal securities market.\240\ The
Commission believes that this tax-exempt status has a significant
impact on the value of municipal securities, as well as on the
potential tax liability a municipal security holder may incur if such
status were to change. Accordingly, the Commission believes that this
amendment to subparagraph (b)(5)(i)(C)(6) of the Rule would clarify a
Participating Underwriter's obligation to determine that the issuer has
undertaken in its continuing disclosure agreements to provide notice of
these events that could affect the tax-exempt status of its municipal
securities.
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    \240\ See supra Section II.C.
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    The Commission is proposing to delete the condition in paragraph
(b)(5)(i)(C) of the Rule that presently provides that notice of all of
the listed events need be made only ``if material.'' The Commission has
reviewed each of the Rule's current disclosure event items and
determined six instances in which no materiality evaluation should be
necessary.\241\ Issuers would not need to undertake the determination
of materiality for these six events, which should help speed the
disclosure of these events to investors and the public and eliminate
the costs presently required of an issuer to make such a determination.
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    \241\ These events are: (1) Principal and interest payment
delinquencies with respect to the securities being offered; (2)
unscheduled draws on debt service reserves reflecting financial
difficulties; (3) unscheduled draws on credit enhancements
reflecting financial difficulties; (4) substitution of credit or
liquidity providers, or their failure to perform; (5) defeasances;
and (6) rating changes.
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    The proposed amendments would add tender offers to subparagraph
(b)(5)(i)(C)(8) of the Rule, which currently covers bond calls.\242\
The Commission believes that the need to reach all investors with
important information regarding a tender offer, which necessitates that
an investor decide whether or not to tender within the prescribed time
period, makes its proposed addition to the Rule appropriate. As a
result, the proposal would help improve the ability of issuers and
other obligated persons to communicate tender offers to bondholders
effectively and of bondholders to respond within the tender offer
period. In addition, the proposed amendment to subparagraph
(b)(5)(i)(C)(8) of the Rule could help eliminate the possibility of any
investor confusion regarding whether a certain municipal security is
the subject of a tender offer. In all these ways, the availability of
this information would help investors protect themselves from
misrepresentation and fraud, and would also aid brokers, dealers and
municipal securities dealers to satisfy their obligation to have a
reasonable basis to recommend a municipal security.
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    \242\ See supra Section II.E.1.
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    The proposed addition of subparagraph (b)(5)(i)(C)(12) to the Rule
would require the Participating Underwriter to reasonably determine
that the issuer or obligated person has undertaken in a continuing
disclosure agreement to provide notice to the MSRB, upon its
bankruptcy, insolvency, receivership or similar event.\243\ The
Commission notes that, while bankruptcy, insolvency, receivership or
similar event of the issuer or obligated person are uncommon in the
municipal market, these events can have a significant impact on the
price of the municipal issuer's securities. The Commission believes
that the potential severity of the consequences to investors from
bankruptcy, insolvency, receivership or similar event of the issuer or
obligated person, and the corresponding benefit of the availability of
that information to help prevent fraud, supports its proposal that the
Participating Underwriter should be required to reasonably determine
that the issuer or obligated person has undertaken in its continuing
disclosure agreement to provide notice to the MSRB if such an event
should occur.
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    \243\ See supra Section II.E.2.
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    In addition, the proposed amendments would add subparagraph
(b)(5)(i)(C)(13) to the Rule, which would require the Participating
Underwriter to reasonably determine that the issuer or obligated person
has undertaken in a continuing disclosure agreement to provide notice
to the MSRB, if material, of the consummation of a merger,
consolidation, or acquisition involving an obligated person or the sale
of all or substantially all of the assets of the obligated person,
other than in the ordinary course of business, the entry into a
definitive agreement to undertake such an action or the termination of
a definitive agreement relating to any such actions, other than
pursuant to its terms.\244\ As with bankruptcy, insolvency,
receivership or similar event of the issuer or obligated person, there
can be a potential impact on the price of a municipal security as a
result of the consummation of a material merger, consolidation, or
acquisition involving an obligated person or the sale of all or
substantially all of the assets of the obligated person, other than in
the ordinary course of business, the entry into a definitive agreement
to undertake such an action or the termination of a definitive
agreement relating to any such actions, other than pursuant to its
terms. In such a circumstance, the Commission believes that the
proposed amendment would help to ensure that investors and other market
participants could obtain knowledge of the identity of the entity that
would have responsibility for municipal security repayment obligations
after the transaction is consummated. In addition, investors and other
market participants would have the opportunity to review the
creditworthiness and other aspects of the acquiring entity that would
support repayment of the security following the transaction. Thus, the
proposed amendment would help to prevent fraud.
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    \244\ See supra Section II.E.3.
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    Proposed subparagraph (b)(5)(i)(C)(14) to the Rule would add the
appointment of a successor or additional trustee or the change of name
of a trustee to the list of events contained in the Rule, if material.
As discussed earlier, the Commission believes that the trustee of a
municipal security performs important functions for investors in that
security.\245\ The Commission notes that the proposed amendment would
benefit investors by helping to ensure that the continuing disclosure
agreement would provide that investors be made aware of the identity of
and contact information for the most current trustee for a municipal
security and that any changes to the trustee's identity would be made

known to investors in a timely manner, not in excess of ten business
days of the event's occurrence.
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    \245\ See supra Section II.E.4.
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    Further, the Commission proposes to modify the exemption in the
Rule for demand securities. As discussed above, when the Commission
adopted this exemption, demand obligations made up a relatively small
portion of the municipal market.\246\ Recently, issuances of demand
securities have increased.\247\ The Commission believes that it is
important that there be greater information regarding these securities
available to investors, market professionals, and the public generally.
Accordingly, the Commission believes that modifying the Rule's
exemption for demand securities would be beneficial to investors and
the prevention of fraud. The modification of the Rule's exemption for
demand securities would provide investors with notice of the events set
forth in the Rule regarding demand securities that may not have been
available previously. In addition, this proposal would restrict a
broker, dealer or municipal securities dealer from making
recommendations regarding such securities unless it has procedures in
place that provide reasonable assurance that it would receive prompt
notice of the events set forth in the Rule,\248\ which should benefit
investors because the broker, dealer or municipal securities dealer
should have available to it continuing disclosure information regarding
the demand obligation it recommends.
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    \246\ See supra Section II.A.
    \247\ Id.
    \248\ See 17 CFR 240.15c2-12(c).
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    The Commission believes that the proposed amendments would benefit
individual and institutional investors who would be able to obtain
greater information about municipal securities that they could use to
make informed investment decisions. Moreover, this information would
aid investors by helping them to determine that they are not the
subject of fraudulent or manipulative acts or practices with respect to
municipal security transactions. In addition, the Commission believes
that the proposed amendments could assist broker-dealers and others,
such as mutual funds, with their compliance with regulatory
requirements because they would have access to greater information
about municipal securities. Moreover, municipal securities vendors
could benefit from the proposed amendments because additional
information about municipal securities and their issuers would be made
available, which they then could use in developing or enhancing value-
added products to offer to interested parties.
    In the Commission's view, the proposed amendments would have a
positive impact on the municipal securities market and participants in
that market sector. It is possible that, with more information
available to market professionals, individual investors, and others
regarding municipal securities, including VRDOs, there could be greater
competition in the marketplace with respect to the offer and sale of
municipal securities, to the benefit of these individuals and entities.
Greater information enhances the ability of market professionals,
investors and others to make investment-related decisions about
particular municipal securities, which in turn can promote competition
in the marketplace. Moreover, individual and institutional investors
might take into account the fact that more information would be
available about municipal securities, including VRDOs, when they decide
whether to purchase municipal securities.
    The Commission seeks comment on the anticipated benefits of the
proposed amendments.

B. Costs

1. Broker-Dealers
    The proposed amendments to paragraph (b)(5)(i)(C) of the Rule would
add events that would require Participating Underwriters to reasonably
determine that issuers or obligated persons agreed to provide notice of
and would specify the maximum time period in which such notices would
need to be submitted to the MSRB. The Commission does not believe that
the proposed amendments to paragraph (b)(5)(i)(C) of the Rule would
cause broker-dealers to incur any additional recurring external or
internal costs in connection with their implementation, if the
proposals are adopted, because they would not significantly alter the
existing Rule's requirements for broker-dealers. Under the Rule,
broker-dealers already must reasonably determine that issuers or
obligated persons have undertaken to provide notice of specified events
in their continuing disclosure agreements and the addition of a few
more events that would require notice to the MSRB and the addition of a
provision regarding the timeliness of such notices should not
significantly increase broker-dealers' obligations and thus their
costs. As noted above, continuing disclosure documents generally are
form documents. The broker-dealer must reasonably determine that
provisions relating to the issuer's or obligated person's undertaking
to provide notice of those events that are specified in the current
Rule, as well as those events that are proposed to be added to the
Rule, are contained in the continuing disclosure agreement.
    The proposed amendments also would modify the Rule's exemption for
demand securities. The Commission preliminarily believes that these
proposed amendments would not result in any external recurring costs
for broker-dealers but could result in their incurring a small increase
in internal recurring costs because these proposals would increase the
number of municipal securities offerings subject to paragraphs (b)(5)