[Federal Register Volume 82, Number 49 (Wednesday, March 15, 2017)]
[Proposed Rules]
[Pages 13928-13957]
[FR Doc No: 2017-04323]

Vol. 82

Wednesday,

No. 49

March 15, 2017

Part II

Securities and Exchange Commission

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17 CFR Part 240

 Proposed Amendments to Municipal Securities Disclosure; Proposed Rule

Federal Register / Vol. 82 , No. 49 / Wednesday, March 15, 2017 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-80130; File No. S7-01-17]
RIN 3235-AL97

Proposed Amendments to Municipal Securities Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule amendments.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is publishing for comment proposed amendments to the Municipal
Securities Disclosure Rule (Rule 15c2-12) under the Securities Exchange
Act of 1934 (``Exchange Act'') that would amend the list of event
notices that a broker, dealer, or municipal securities dealer
(collectively, ``dealers'') acting as an underwriter in a primary
offering of municipal securities must reasonably determine that an
issuer or an obligated person has undertaken, in a written agreement or
contract for the benefit of holders of the municipal securities, to
provide to the Municipal Securities Rulemaking Board (``MSRB'').

DATES: Comments should be received on or before May 15, 2017.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an email to<EMAIL_ADDRESS>Please include
File No. S7-01-17 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

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

All submissions should refer to File No. S7-01-17. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be posted without change; we do
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion--in the comment file of any such
materials will be made available on the Commission's Web site. To
ensure direct electronic receipt of such notifications, sign up through
the ``Stay Connected'' option at www.sec.gov to receive notifications
by email.

FOR FURTHER INFORMATION CONTACT: Jessica Kane, Director; Rebecca Olsen,
Deputy Director; Edward Fierro, Senior Counsel to the Director; Mary
Simpkins, Senior Special Counsel; Hillary Phelps, Senior Counsel; or
William Miller, Attorney-Adviser; Office of Municipal Securities,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-6628 or at<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The Commission is requesting public comment
on the proposed amendments to Rule 15c2-12 \1\ under the Securities
Exchange Act of 1934.\2\
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    \1\ 17 CFR 240.15c2-12.
    \2\ The Commission is not proposing any other changes to Rule
15c2-12, nor is the Commission otherwise reopening Rule 15c2-12 for
comment.

I. Introduction
II. Background
    A. History
    B. Rule 15c2-12
    C. Commission's Report on the Municipal Securities Market
    D. Market Developments and the Need for Further Amendments to
Rule 15c2-12
III. Description of the Proposed Amendments to Rule 15c2-12
    A. Overview of Proposed Amendments
    1. Incurrence of a Financial Obligation of the Obligated Person,
If Material, or Agreement to Covenants, Events of Default, Remedies,
Priority Rights, or Other Similar Terms of a Financial Obligation of
the Obligated Person, Any of Which Affect Security Holders, If
Material
    i. Definition of a Financial Obligation
    2. Default, Event of Acceleration, Termination Event,
Modification of Terms, or Other Similar Events Under the Terms of a
Financial Obligation of the Obligated Person, Any of Which Reflect
Financial Difficulties
    B. Technical Amendment
    C. Compliance Date and Transition
    D. Request for Comment
IV. Paperwork Reduction Act
    A. Summary of Collection of Information
    B. Proposed Use of Information
    C. Respondents
    D. Total Annual Reporting and Recordkeeping Burden
    1. Dealers
    i. Proposed Amendments to Events To Be Disclosed Under a
Continuing Disclosure Agreement
    ii. One-Time Paperwork Burden
    iii. Total Annual Burden for Dealers
    2. Issuers
    i. Proposed Amendments to Event Notice Provisions of the Rule
    ii. Total Burden on Issuers for Proposed Amendments to Event
Notices
    iii. Total Burden for Issuers
    3. MSRB
    4. Annual Aggregate Burden for Proposed Amendments
    E. Total Annual Cost
    1. Dealers and the MSRB
    2. Issuers
    F. Retention Period of Recordkeeping Requirements
    G. Collection of Information Is Mandatory
    H. Responses to Collection of Information Will Not Be
Confidential
    I. Requests for Comment
V. Economic Analysis
    A. Introduction
    B. Economic Baseline
    1. The Current Municipal Securities Market
    2. Rule 15c2-12
    3. MSRB Rules
    4. Existing State of Efficiency, Competition, and Capital
Formation
    C. Benefits, Costs and Effects on Efficiency, Competition, and
Capital Formation
    1. Anticipated Benefits of the Proposed Rule 15c2-12 Amendments
    i. Benefits to Investors
    ii. Benefits to Issuers and Obligated Persons
    iii. Benefits to Rating Agencies and Municipal Analysts
    2. Anticipated Costs of the Proposed Rule 15c2-12 Amendments
    i. Costs to Issuers and Obligated Persons
    ii. Costs to Dealers
    iii. Costs to Lenders
    iv. Costs to Municipal Securities Rulemaking Board
    3. Effects on Efficiency, Competition, and Capital Formation
    D. Alternative Approaches
    E. Request for Comment
VI. Small Business Regulatory Enforcement Fairness Act
VII. Regulatory Flexibility Certification
VIII. Statutory Authority and Text of Proposed Rule Amendments

I. Introduction

    The Commission is publishing for comment proposed amendments to
Exchange Act Rule 15c2-12 (``Rule'' or ``Rule 15c2-12'').\3\ The
proposed amendments would amend the list of events for which notice is
to be provided to the MSRB to include (i) incurrence of a financial
obligation of the obligated person, if material, or agreement to
covenants, events of default, remedies, priority rights, or

other similar terms of a financial obligation of the obligated person,
any of which affect security holders, if material; and (ii) default,
event of acceleration, termination event, modification of terms, or
other similar events under the terms of a financial obligation of the
obligated person, any of which reflect financial difficulties
(collectively, the ``proposed events''). The Commission believes the
proposed amendments would facilitate investors' and other market
participants' access to important information in a timely manner and
help to enhance transparency in the municipal securities market and
improve investor protection.
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    \3\ See 17 CFR 240.15c2-12(a), (b)(5)(i), (b)(5)(i)(C).
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    Under Rule 15c2-12, a dealer that acts as an underwriter (a
``Participating Underwriter'' when used in connection with an Offering)
in a primary offering of municipal securities with an aggregate
principal amount of $1,000,000 or more (an ``Offering'') is prohibited
from purchasing or selling municipal securities in connection with an
Offering unless the Participating Underwriter has reasonably
determined, among other things, that an issuer of municipal securities,
or an obligated person \4\ for whom financial or operating data is
presented in the final official statement \5\ has undertaken in a
written agreement or contract for the benefit of holders of such
securities to provide to the MSRB in a timely manner not in excess of
ten business days after the occurrence of the event, notice of certain
events listed in Rule 15c2-12. Participating Underwriters comply with
this provision of Rule 15c2-12 by requiring that an issuer of municipal
securities or an obligated person undertakes in a written agreement or
contract (``continuing disclosure agreement'') to provide event notices
to the MSRB in a manner that is consistent with the requirements of
Rule 15c2-12.
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    \4\ The term ``obligated person'' means any person, including an
issuer of municipal securities, who is either generally or through
an enterprise, fund or account of such person committed by contract
or other arrangement to support payment of all, or part of the
obligations on the municipal securities to be sold in the Offering
(other than providers of municipal bond insurance, letters of
credit, or other liquidity facilities). See 17 CFR 240.15c2-
12(f)(10).
    \5\ An ``official statement'' is a document or set of documents
prepared by an issuer of municipal securities or an obligated
person, or its representatives, in connection with a primary
offering of municipal securities that discloses material information
about the offering of such securities. Official statements include
information concerning the terms of the proposed securities,
financial information or operating data concerning such issuers of
municipal securities and those entities, funds, accounts, and other
persons material to an evaluation of the Offering, a description of
the undertakings to be provided pursuant to the Rule, and if
applicable, any instances in the previous five years of any failures
to comply, in all material respects, with any previous undertakings.
A version of the official statement referred to as the ``preliminary
official statement'' is prepared by or for an issuer of municipal
securities or obligated person for dissemination to potential
customers prior to the availability of the ``final official
statement''. Rule 15c2-12 specifically defines the terms
``preliminary official statement'' and ``final official statement''
for purposes of Rule 15c2-12. See 17 CFR 240.15c2-12(f)(3) and (6).
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    Additionally, under Rule 15c2-12,\6\ it is unlawful for any dealer
to recommend the purchase or sale of a municipal security unless such
dealer has procedures in place that provide reasonable assurance that
it will receive prompt notice of event notices. Dealers typically
comply with this provision by ensuring that they have procedures in
place that, among other things, require their registered
representatives who recommend municipal securities transactions to
customers in the secondary market to have access to the MSRB's
Electronic Municipal Market Access (``EMMA'') system, the single
centralized repository for the electronic collection and availability
of continuing disclosure information about municipal securities.\7\
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    \6\ See 17 CFR 240.15c2-12(c).
    \7\ See Exchange Act Release No. 34-59062 (Dec. 5, 2008), 73 FR
76104 (Dec. 15, 2008) (``2008 Amendments Adopting Release''); see
also Exchange Act Release No. 34-58255 (July 30, 2008), 73 FR 46138
(Aug. 7, 2008); see also Section II.B. herein for additional
discussion about the requirements of Rule 15c2-12.
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    Beginning in 2009, issuers and obligated persons have increasingly
used direct purchases of municipal securities \8\ and direct loans \9\
(collectively, ``direct placements'') \10\ as alternatives to publicly
offered municipal securities.\11\
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    \8\ For example, an investor purchasing a municipal security
directly from an issuer or obligated person.
    \9\ For example, a lender entering into a bank loan, loan
agreement, or other type of financing agreement with an issuer or
obligated person.
    \10\ Standard and Poor's Ratings Services (``S&P'') has
estimated that as much as $50 to $60 billion in direct placement
transactions may occur annually. See Mike Cherney, S&P Calls for
More Disclosure of Municipal Bank Loans, Wall St. J. (Feb. 18,
2014), available at http://www.wsj.com/articles/SB10001424052702304675504579391431039227484.
    \11\ See e.g., Municipal Market Bank Loan Disclosure Task Force,
Considerations Regarding Voluntary Secondary Market Disclosure About
Bank Loans (``Considerations Regarding Voluntary Secondary Market
Disclosure About Bank Loans'') (May 1, 2013), available at http://www.nfma.org/assets/documents/position.stmt/wp.direct.bank.loan.5.13.pdf. The Task Force was comprised of
representatives from the American Bankers Association, Bond Dealers
of America, Government Finance Officers Association (``GFOA''),
Investment Company Institute (``ICI''), National Association of Bond
Lawyers, National Association of Health and Educational Facilities
Finance Authorities, National Association of Independent Public
Finance Advisors, National Federation of Municipal Analysts
(``NFMA''), and Securities Industry and Financial Markets
Association (``SIFMA'').
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    The Commission understands that existing security holders and
potential investors (collectively, ``investors'') and other market
participants may not have any access or timely access to disclosure
about the incurrence of certain debt obligations, such as direct
placements, and other financial obligations \12\ by issuers of
municipal securities and obligated persons. For example, investors and
other market participants may not learn that the issuer or obligated
person has incurred a financial obligation if the issuer or obligated
person does not provide annual financial information or audited
financial statements to EMMA,\13\ or does not subsequently issue debt
in a primary offering subject to Rule 15c2-12 that results in the
provision of a final official statement to EMMA. Even if investors and
other market participants have access to disclosure about an issuer's
or obligated person's incurrence of a financial obligation, such access
may not be timely if, for example, the issuer or obligated person has
not submitted annual financial information or audited financial
statements to EMMA in a timely manner or does not frequently issue debt
that results in a final official statement being provided to EMMA.
Typically, investors and other market participants do not have access
to an issuer's or obligated person's annual financial information or
audited financial statements until several months \14\ or up to a year
after the end

of the issuer's or obligated person's applicable fiscal year,\15\ and a
significant amount of time could pass before the issuer's or obligated
person's next primary offering subject to Rule 15c2-12. In many cases,
this lack of access or delay in access to disclosure means that
investors could be making investment decisions, and other market
participants could be undertaking credit analyses, without important
information.
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    \12\ For the purposes of this proposing release, ``financial
obligation'' means a debt obligation, lease, guarantee, derivative
instrument, or monetary obligation resulting from a judicial,
administrative, or arbitration proceeding. See Section III.A.1.i.
herein for further discussion of the term ``financial obligation.''
    \13\ See e.g., Community Unit School District Number 18 (Blue
Ridge), Securities Act of 1933 (``Securities Act'') Release No.
10155 (Aug. 24, 2016), available at https://www.sec.gov/litigation/admin/2016/33-10155.pdf (settled action) (finding that the school
district made a materially false statement in the final official
statement for a 2012 offering that it had not failed to comply in
all material respects in the previous five years with any
undertaking entered into pursuant to Rule 15c2-12, when in fact the
school district had failed to file its audited financial statements
for fiscal years 2008 through 2011 by the time of the 2012 offering
and filed its 2007 audited financial statements late by 811 days).
    \14\ See MSRB, Timing of Annual Financial Disclosures by Issuers
of Municipal Securities (Feb. 2017), available at http://www.msrb.org/msrb1/pdfs/MSRB-CD-Timing-of-Annual-Financial-Disclosures-2016.pdf (stating that, excluding disclosures received
by the MSRB more than one year after the end of the fiscal year, the
timing of audited financial statements submissions in 2016 averaged
199 calendar days after the end of the applicable fiscal year and
the timing of annual financial information submissions in 2016
averaged 189 calendar days after the end of the applicable fiscal
year). See also Richard A. Ciccarone, Change Doesn't Come Easy for
Municipal Bond Audit Timing, Merritt Research Services (Oct. 25,
2015), available at http://muninetguide.com/change-doesnt-come-easy-for-municipal-bond-audit-timing/ (stating that, in a study examining
a total of 73,586 municipal issuer audited financial statements
submissions from 2008 to 2014, audits typically take close to six
months to complete, while revenue bond borrowers generally take
closer to four months to complete their audits).
    \15\ In March 2014, the Division of Enforcement announced the
Municipalities Continuing Disclosure Cooperative Agreement (``MCDC
Initiative''), a voluntary program to encourage underwriters and
issuers and obligated persons to self-report federal securities law
violations involving inaccurate certifications in primary offerings
where issuers and obligated persons represented in their final
official statements that they had complied with previous continuing
disclosure agreements when they had not. The Commission brought
settled actions against 71 issuers and obligated persons under the
MCDC Initiative. See SEC Charges 71 Municipal Issuers in Muni Bond
Disclosure Initiative (Aug. 24, 2016), available at https://www.sec.gov/news/pressrelease/2016-166.html. See e.g., Boulder
County, Colorado, Securities Act Release No. 10135 (Aug. 24, 2016),
available at https://www.sec.gov/litigation/admin/2016/33-10135.pdf
(settled action) (Respondent stated it was in compliance with
earlier continuing disclosure agreements, but had in fact filed its
annual financial information and audited financial reports to the
MSRB between 140 and 230 days late for fiscal years 2007 through
2009); Wyoming Community Development Authority, Securities Act
Release No. 10196 (Aug. 24, 2016), available at https://www.sec.gov/litigation/admin/2016/33-10196.pdf (settled action) (Respondent
stated it was in compliance with earlier continuing disclosure
agreements, but had in fact provided its fiscal years 2006, 2008,
and 2009 audited financial statements to the MSRB approximately 50,
26, and 13 months late, respectively); and City of Devils Lake,
North Dakota, Securities Act Release No. 10144 (Aug. 24, 2016),
available at https://www.sec.gov/litigation/admin/2016/33-10144.pdf
(settled action) (Respondent stated it was in compliance with
earlier continuing disclosure agreements, but had in fact provided
its fiscal years 2007, 2008, 2009, and 2010 audited financial
statements to the MSRB 228, 153, 149, and 64 days late,
respectively).
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    Additionally, the Commission understands that to the extent
information about financial obligations is disclosed and accessible to
investors and other market participants, such information currently may
not include certain details about the financial obligations. For
example, disclosure about a financial obligation in an issuer's or
obligated person's audited financial statements or in an official
statement may be limited to the amount of the financial obligation and
may not provide certain details, such as whether the financial
obligation contains covenants, events of default, remedies, priority
rights, or other similar terms of a financial obligation, any of which
affect security holders, if material.\16\ In these cases, investors
could be making investment decisions, and other market participants
could be undertaking credit analyses, without important information,
including the debt payment priority structure.
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    \16\ See MSRB Notice 2012-18, infra note 20 (stating that
information about certain financings undertaken by issuers is not
readily available to holders of an issuer's outstanding debt until
the release of an issuer's audit, and such information is typically
quite limited). See also 2012 Municipal Report, infra note 58, at
65-66 (stating that commenters have expressed concern about the lack
of detailed information in official statements about municipal
issuers' outstanding debt, including liens, security, collateral
pledges, etc., and stating that market participants also have raised
concerns that municipal entities may not properly disclose the
existence or the terms and conditions of bank loans, particularly
when the terms of the bank loans may affect the payment priority
from revenues in a way that adversely affects bondholders).
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    Furthermore, the Commission understands that investors and other
market participants may not have any access or timely access to
disclosure regarding the occurrence of events reflecting financial
difficulties, including a default, event of acceleration, termination
event, modification of terms, or other similar events under the terms
of a financial obligation.\17\ For example, if an issuer or obligated
person defaults under the terms of a financial obligation, investors
either may not ever have access or may not have timely access to
information about the event. This lack of access or delay in access to
disclosure means investors could be making investment decisions, and
other market participants could be undertaking credit analyses, without
important information.
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    \17\ See Section II.D. herein for additional discussion.
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    The MSRB \18\ and certain market participants \19\ have raised
concerns about the lack of secondary market disclosure about certain
financial obligations. While some market participants have encouraged
issuers and obligated persons to voluntarily disclose information about
certain financial obligations,\20\ the MSRB has stated that the number
of actual disclosures made is limited.\21\ To address concerns that
investors and other market participants may not have any access or
timely access to information about the incurrence of a financial
obligation by an issuer or obligated person, the Commission proposes
amendments to Rule 15c2-12. The proposed amendments would require a
Participating Underwriter in an Offering to reasonably determine that
an issuer or obligated person has undertaken in a written agreement or
contract to provide to the MSRB, within ten business days after the
occurrence of the events, notice of the proposed events.
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    \18\ See Letter from Kym Arnone, Chair, MSRB, to Pamela Dyson,
Chief Information Officer, Securities and Exchange Commission (Jan.
20, 2015) (``MSRB Letter to SEC CIO''), available at http://www.msrb.org/msrb1/pdfs/MSRB-Comment-Letter-on-SEC-Rule-15c2-12-January-2015.pdf. The MSRB noted that bank loans and direct-purchase
debt are not subject to Rule 15c2-12 and, therefore, are not
required to be reported through filings on EMMA. The MSRB also noted
its concern that bank loans or other debt-like obligations such as
swap transactions, guarantees, and lease financing arrangements,
that create significant financial obligations and which do not get
currently reported, could impair the rights of existing bondholders,
including the seniority status of such bondholders, or impact the
credit or liquidity profile of an issuer.
    \19\ See e.g., Letter from Lisa Washburn, Chair, NFMA to Mary Jo
White, Chair, Securities and Exchange Commission (Aug. 10, 2016)
(``NFMA Letter to SEC Chair''), available at http://www.nfma.org/assets/documents/position.stmt/ps_stateofdisclosure_aug2016white.pdf. NFMA noted that certain
events and/or circumstances that are material are omitted from
reporting under continuing disclosure agreements, such as the
incurrence of additional long and short-term debt, early swap
terminations, swap collateral postings, and defaults under other
contractual agreements. NFMA also expressed the view that the lack
of such disclosure--or the delay in providing such information--
impairs secondary market pricing and liquidity and can affect bond
ratings.
    \20\ See e.g., MSRB, Notice Concerning Voluntary Disclosure of
Bank Loans to EMMA, MSRB Notice 2012-18 (Apr. 3, 2012) (``MSRB
Notice 2012-18''), available at http://msrb.org/Rules-and-Interpretations/Regulatory-Notices/2012/2012-18.aspx. See also GFOA,
GFOA Alert: Bank Loan Disclosure (May 12, 2016) (recommending that
municipal issuers should voluntarily disclose information about bank
loans), available at http://www.gfoa.org/gfoa-alert-bank-loan-disclosure.
    \21\ See MSRB Request For Comment, infra note 76 at 3. Issuer
representatives have indicated that challenges associated with
posting and locating information about financial obligations on EMMA
have led to the appearance of under-disclosure by issuers. See infra
note 83.
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II. Background

A. History

    The Securities Act and the Exchange Act exempt municipal securities
from certain registration and reporting requirements,\22\ but not the
antifraud provisions of Securities Act Section 17(a),\23\ or Exchange
Act Section 10(b) \24\ and Rule 10b-5 \25\ promulgated thereunder.
Congress, as part of the Securities Acts Amendments of 1975 (``1975
Amendments''),\26\ created a limited regulatory scheme for the
municipal securities market at the

federal level \27\ in response to the growth of the market, market
abuses, and the increasing participation of retail investors.\28\ The
1975 Amendments required firms transacting business in municipal
securities to register with the Commission as broker-dealers, required
banks dealing in municipal securities to register with the Commission
as municipal securities dealers,\29\ and gave the Commission broad
rulemaking and enforcement authority \30\ over such broker-dealers and
municipal securities dealers. The 1975 Amendments did not establish a
regulatory scheme for, or impose any new requirements on, issuers of
municipal securities.\31\ In addition, the 1975 Amendments authorized
the creation of the MSRB and granted it authority to promulgate rules
concerning transactions in municipal securities by dealers.
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    \22\ 15 U.S.C. 77c(a)(2); 15 U.S.C. 78c(a)(12), (29).
    \23\ 15 U.S.C. 77q(a).
    \24\ 15 U.S.C. 78j(b).
    \25\ 17 CFR 240.10b-5.
    \26\ The Securities Acts Amendments of 1975, Public Law 94-29,
89 Stat. 97 (1975).
    \27\ See, e.g., Exchange Act Sections 15(c)(1), 15(c)(2),
15B(c)(1), 15B(c)(2), 17(a), 17(b), and 21(a)(1) (15 U.S.C.
78o(c)(1), 78o(c)(2), 78o-4(c)(1), 78o-4(c)(2), 78q(a), 78q(b), and
78u(a)(1)).
    \28\ S. Rep. No. 94-75, at 3-4, 37-43 (1975) (Conf. Rep.).
    \29\ The Exchange Act defines a ``municipal securities dealer''
as any person (including a separately identifiable department or
division of a bank) engaged in the business of buying and selling
municipal securities for his own account, as a part of regular
business, through a broker or otherwise. See 15 U.S.C. 78c(a)(30).
    \30\ See, e.g., Exchange Act Sections 15(c)(1), 15(c)(2),
15B(c)(1), 15B(c)(2), 17(a), 17(b), and 21(a)(1) (15 U.S.C.
78o(c)(1), 78o(c)(2), 78o-4(c)(1), 78o-4(c)(2), 78q(a), 78q(b), and
78u(a)(1)). Enforcement activities regarding municipal securities
dealers must be coordinated by the Commission, the Financial
Industry Regulatory Authority, and the appropriate bank regulatory
agency. See Exchange Act Sections 15B(c)(6)(A), 15B(c)(6)(B), and
17(c) (15 U.S.C. 78o-4(c)(6)(A), 78o-4(c)(6)(B), 78q(c)). The term
``appropriate regulatory agency,'' when used with respect to a
municipal securities dealer, is defined in Section 3(a)(34)(A) of
the Exchange Act. See 15 U.S.C. 78c(a)(34)(A). The Commission also
has the authority to examine all registered municipal securities
dealers. See 15 U.S.C. 78q(b)(1).
    \31\ The 1975 Amendments amended the definition of ``person''
under Exchange Act Section 3(a)(9) to include issuers of municipal
securities, thus clarifying that state and local government issuers
were not exempt from the antifraud provisions of the federal
securities laws.
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    The 1975 Amendments provided a system of regulation for both
municipal securities professionals and the municipal securities market,
but limited the Commission's and the MSRB's authority to require
issuers, either directly or indirectly, to file any application,
report, or document with the Commission or the MSRB prior to any sale
of municipal securities by an issuer.\32\ Exchange Act Section
15B(d)(2),\33\ however, states that ``[n]othing in this paragraph shall
be construed to impair or limit the power of the Commission under any
provision of this title.'' \34\ Further, in Exchange Act Section
15(c)(2), Congress expanded the Commission's authority by providing it
with broad rulemaking and enforcement authority over dealers. Thus,
while Congress limited the Commission's ability to require issuers to
file reports or documents prior to issuing municipal securities in
Exchange Act Section 15B(d)(1),\35\ Congress preserved and expanded the
Commission's mandate to adopt rules reasonably designed to prevent
fraud in Exchange Act Sections 15B(d)(2) and 15(c)(2).
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    \32\ Exchange Act Section 15B(d), commonly referred to as the
``Tower Amendment,'' states: ``(1) Neither the Commission nor the
Board is authorized under this title, by rule or regulation, to
require any issuer of municipal securities, directly or indirectly
through a purchaser or prospective purchaser of securities from the
issuer, to file with the Commission or the Board prior to the sale
of such securities by the issuer any application, report, or
document in connection with the issuance, sale, or distribution of
such securities. (2) The Board is not authorized under this title to
require any issuer of municipal securities, directly or indirectly
through a municipal securities broker, municipal securities dealer,
municipal advisor, or otherwise, to furnish to the Board or to a
purchaser or a prospective purchaser of such securities any
application, report, document, or information with respect to such
issuer: Provided, however, That the Board may require municipal
securities brokers and municipal securities dealers or municipal
advisors to furnish to the Board or purchasers or prospective
purchasers of municipal securities applications, reports, documents,
and information with respect to the issuer thereof which is
generally available from a source other than such issuer. Nothing in
this paragraph shall be construed to impair or limit the power of
the Commission under any provision of this title.''
    \33\ 15 U.S.C. 78o-4(d)(2).
    \34\ 15 U.S.C. 78o-4(d)(2).
    \35\ 15 U.S.C. 78o-4(d)(1).
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B. Rule 15c2-12

    In 1988, to address concerns about the quality of disclosure in
certain municipal offerings and timely dissemination of disclosure
documents,\36\ the Commission proposed a limited rule designed to
prevent fraud in the municipal securities market by enhancing the
timely access of official statements to underwriters, investors, and
other interested persons.\37\ In 1989, the Commission adopted Rule
15c2-12 as a means reasonably designed to prevent fraudulent,
deceptive, or manipulative acts or practices in the municipal
securities market.\38\ A dealer that acts as a Participating
Underwriter in an Offering is required, subject to certain exemptions:
(i) To obtain and review an official statement that an issuer of the
securities ``deems final'', except for the omission of specified
information, prior to making a bid, purchase, offer, or sale of
municipal securities; (ii) in non-competitively bid offerings, to send,
upon request, a copy of the most recent preliminary official statement
(if one exists) to potential customers; (iii) to send, upon request, a
copy of the final official statement to potential customers for a
specified period of time; and (iv) 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.\39\
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    \36\ The Commission also stated that the practices revealed in
the 1988 Commission Staff Report on the Investigation in the Matter
of Transactions in Washington Power Supply System Securities
underscored the need to explore the benefits that would result from
a specific regulatory requirement for underwriters to be uniformly
subject to a requirement to obtain and review a nearly final
disclosure document and make disclosure documents available to
investors in both negotiated and competitive offerings. See Exchange
Act Release No. 34-26100 (Sept. 22, 1988), 53 FR 37778, 37781 (Sept.
28. 1988) (``1988 Proposing Release''). The Commission also
highlighted the changes that had occurred in the municipal
securities market since securities laws were first enacted,
including the nationwide scope of the municipal securities market,
size of the municipal securities market, broader range of types of
investors in municipal securities (including a significant number of
household investors), and increasing complexity of municipal
financing structures. Id. at 37779.
    \37\ Id. at 37782.
    \38\ See Exchange Act Release No. 34-26985 (June 28, 1989), 54
FR 28799 (July 10, 1989) (``1989 Adopting Release'').
    \39\ See 17 CFR 240.15c2-12(b).
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    In November 1994, the Commission adopted amendments to Rule 15c2-12
(``1994 Amendments'') to deter fraud and manipulation in the municipal
securities market by prohibiting the underwriting and subsequent
recommendation of securities for which adequate information is not
available.\40\ Specifically, Rule 15c2-12, as amended by the 1994
Amendments, prohibits Participating Underwriters from purchasing or
selling municipal securities in connection with an Offering unless the
Participating Underwriter has ``reasonably determined'' that an issuer
or an obligated person has undertaken in a written agreement or
contract for the benefit of holders of such securities \41\ to provide
continuing disclosure information regarding the security and the issuer
or obligated person for the life of the municipal security.\42\ The

continuing disclosure information consists of: (i) Certain annual
financial and operating information and audited financial statements,
if available (``annual filings''); \43\ (ii) notices of the occurrence
of certain events (``event notices''); \44\ and (iii) notices of the
failure of an issuer or obligated person to provide required annual
financial information, on or before the date specified in the
continuing disclosure agreement (``failure to file notices'').\45\ The
1994 Amendments also prohibit a dealer from recommending the purchase
or sale of a municipal security unless it has procedures in place that
provide reasonable assurance that such dealer will promptly receive any
event notices and failure to file notices with respect to that
security.\46\ The Commission stated that as a result of the 1994
Amendments dealers would be better able to satisfy both their
obligation under the federal securities laws to have a reasonable basis
on which to recommend municipal securities in the secondary market and
their obligations under MSRB rules.\47\ The Commission further stated
that the availability of secondary market disclosure to all market
participants would enable investors to better protect themselves from
misrepresentations or other fraudulent activities by dealers.\48\ The
Commission emphasized that a lack of consistent secondary market
disclosure impairs investors' ability to acquire information necessary
to make informed investment decisions, and thus, protect themselves
from fraud.\49\
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    \40\ See Exchange Act Release No. 34-33742 (Mar. 9, 1994), 59 FR
12759 (Mar. 17, 1994) (``1994 Amendments Proposing Release'');
Exchange Act Release No. 34-34961 (Nov. 10, 1994), 59 FR 59590,
59591 (Nov. 17, 1994) (``1994 Amendments Adopting Release'').
    \41\ In some instances, continuing disclosure undertakings may
be set forth in other deal documents (e.g., the bond resolution or
trust indenture).
    \42\ See 17 CFR 240.15c2-12(b)(5)(i). This provision now
requires submission of annual information and event notices to a
single repository maintained by the MSRB. See 2008 Amendments
Adopting Release, supra note 7.
    \43\ See 17 CFR 240.15c2-12(b)(5)(i)(A) and (B).
    \44\ See 17 CFR 240.15c2-12(b)(5)(i)(C). Currently, the
following events require notice in a timely manner not in excess of
ten business days after the occurrence of the event: (1) Principal
and interest payment delinquencies; (2) non-payment related
defaults, if material; (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 tax opinions, 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 status of the
security, or other material events affecting the tax status of the
security; (7) modifications to rights of security holders, if
material; (8) bond calls, if material, and tender offers; (9)
defeasances; (10) release, substitution, or sale of property
securing repayment of the securities, if material; (11) rating
changes; (12) bankruptcy, insolvency, receivership or similar event
of the obligated person; (13) 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 (14) appointment
of a successor or additional trustee or the change of name of a
trustee, if material. In addition, Rule 15c2-12(d) provides full and
limited exemptions from the requirements of Rule 15c2-12. See 17 CFR
240.15c2-12(d).
    \45\ See 17 CFR 240.15c2-12(b)(5)(i)(D). Annual filings, event
notices, and failure to file notices are referred to collectively
herein as ``continuing disclosure documents.''
    \46\ See 1994 Amendments Adopting Release, supra note 40, at
59602; 17 CFR 240.15c2-12(c).
    \47\ See 1994 Amendments Adopting Release, supra note 40, at
59591.
    \48\ Id.
    \49\ Id.
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    In December 2008, in connection with its longstanding interest in
reducing the potential for fraud and manipulation in the municipal
securities market by facilitating greater availability of information
about municipal securities, the Commission adopted amendments to Rule
15c2-12 (``2008 Amendments'') to provide for the EMMA system.\50\ EMMA
is established and maintained by the MSRB and provides free public
access to disclosure documents. The 2008 Amendments require the
Participating Underwriter to reasonably determine that the issuer or
obligated person has undertaken in its continuing disclosure agreement
to provide continuing disclosure documents: (i) Solely to the MSRB; and
(ii) in an electronic format and accompanied by identifying
information, as prescribed by the MSRB.\51\ In adopting the 2008
Amendments, the Commission stated that it was furthering its efforts to
deter fraud and manipulation in the municipal securities market.\52\
The Commission further stated that public access to all continuing
disclosure documents on the Internet, as required by the 2008
Amendments, would promote market efficiency and deter fraud by
improving the availability of information to investors, market
professionals, and the public generally.\53\
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    \50\ See 2008 Amendments Adopting Release, supra note 7.
    \51\ See id. See also Exchange Act Release No. 34-59061 (Dec. 5,
2008), 73 FR 75778 (Dec. 12, 2008) (order approving the MSRB's
proposed rule change to establish as a component of its central
municipal securities document repository, the EMMA system, the
collection and availability of continuing disclosure documents over
the Internet free of charge).
    \52\ See 2008 Amendments Adopting Release, supra note 7, at
76105.
    \53\ Id. at 76110.
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    In May 2010, the Commission adopted further amendments to Rule
15c2-12 (``2010 Amendments'').\54\ The 2010 Amendments (a) require
Participating Underwriters to reasonably determine that an issuer or
obligated person has agreed to provide event notices in a timely manner
not in excess of ten business days after the event's occurrence; (b)
include new events \55\ for which a notice is to be provided; (c)
modify the events that are subject to a materiality determination
before triggering a requirement to provide notice to the MSRB; \56\ and
(d) revise an exemption for certain offerings of municipal securities
with put features.\57\
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    \54\ See Exchange Act Release No. 34-62184A (May 26, 2010), 75
FR 33100 (June 10, 2010) (``2010 Amendments Adopting Release'').
    \55\ The amendments added the following events to paragraph
(b)(5)(i)(C) of Rule 15c2-12: (a) Tender offers; (b) bankruptcy,
insolvency, receivership or similar event of the issuer or obligated
person; (c) 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 (d) appointment of a
successor or additional trustee, or the change of name of a trustee,
if material. Id. at 33102.
    \56\ The amendments removed the materiality determination for
the following events: (a) Principal and interest payment
delinquencies with respect to the subject securities; (b)
unscheduled draws on debt service reserves or on credit enhancements
for the subject securities reflecting financial difficulties; (c)
substitution of credit or liquidity providers, or their failure to
perform; (d) defeasances; (e) rating changes; (f) tender offers; and
(g) bankruptcy events. The amendments clarified the materiality
determination for the event notice related to the tax status of the
subject securities. Id. at 33111-12, 33118-19.
    \57\ Id. at 33100.
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C. Commission's Report on the Municipal Securities Market

    In July 2012, the Commission issued its Report on the Municipal
Securities Market following a broad review of the municipal securities
market that included a series of public field hearings and numerous
meetings with market participants.\58\ The 2012 Municipal Report
provides an overview of the municipal securities market and addresses
two key areas of concern: disclosure and market structure.\59\ The 2012
Municipal Report includes a series of recommendations for potential
further consideration, including legislative changes, Commission
rulemaking, MSRB rulemaking, and enhancement of industry best
practices.\60\ These recommendations were designed to address concerns
raised by market participants and others and provide avenues to improve
the municipal securities market, including transparency for municipal
securities investors.\61\
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    \58\ Securities and Exchange Commission, Report on the Municipal
Securities Market (July 31, 2012) (``2012 Municipal Report'').
    \59\ Id.
    \60\ Id. at 133-50.
    \61\ Id. at 4.
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    The 2012 Municipal Report states, among other things, that the

Commission could consider further amendments to Rule 15c2-12 to mandate
more specific types of secondary market event disclosures, including
disclosure relating to new indebtedness (whether or not such debt is
subject to Rule 15c2-12 and whether or not arising as a result of a
municipal securities issuance).\62\ The Commission further noted that
market participants raised concerns that issuers and obligated persons
may not properly disclose the existence or the terms of bank loans,
particularly when the terms of the bank loans may affect the payment
priority from revenues in a way that adversely affects bondholders.\63\
---------------------------------------------------------------------------

    \62\ Id. at 139-40.
    \63\ Id. at 66.
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D. Market Developments and the Need for Further Amendments to Rule
15c2-12

    The municipal securities market is a significant part of the United
States credit markets, with over $3.83 trillion in principal amount
outstanding.\64\ At the end of the third quarter 2016, individuals or
retail investors held, either directly or indirectly through mutual
funds, money market mutual funds, closed-end funds, and exchange-traded
funds, approximately $2.545 trillion of outstanding municipal
securities.\65\ According to the MSRB, approximately $2.42 trillion of
municipal securities were traded in 2015 in approximately 9.26 million
trades.\66\ There are approximately 44,000 \67\ state and local issuers
of municipal securities, ranging from villages, towns, townships,
cities, counties, territories, and states, as well as special
districts, such as school districts and water and sewer
authorities.\68\ Historically, municipal securities have had
significantly lower rates of default than corporate and foreign
government bonds.\69\ Nevertheless, issuers and obligated persons have
defaulted on their municipal bonds, and these defaults may negatively
impact investors in ways other than non-payment, including delayed
payments and pricing disruptions in the secondary market.\70\ Since
2011, the municipal securities market has experienced four of the five
largest municipal bankruptcy filings in U.S. history,\71\ and some
issuers and obligated persons continue to experience declining fiscal
situations and steadily increasing debt burdens.\72\
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    \64\ See Federal Reserve Board, Financial Accounts of the United
States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic
Accounts, at 121 Table L.212 (Third Quarter 2016) (Dec. 8, 2016)
(``Flow of Funds''), available at https://www.federalreserve.gov/releases/z1/current/z1.pdf.
    \65\ Id. As of the third quarter 2016, the amount of municipal
securities held directly by the household sector was $1.591 trillion
and mutual funds, money market mutual funds, closed-end funds, and
exchange-traded funds collectively held $954.5 billion.
    \66\ See MSRB, 2015 Fact Book, at 7-8 (Mar. 3, 2016), available
at http://www.msrb.org/msrb1/pdfs/msrb-fact-book-2015.pdf.
    \67\ See 2012 Municipal Report, supra note 58, at 1.
    \68\ See Registration of Municipal Advisors, Exchange Act
Release No. 34-70462 (Sept. 20, 2013), 78 FR 67468, 67472 (Nov. 12,
2013).
    \69\ See 2012 Municipal Report, supra note 58, at 22-23 & n.113
(citing Moody's Investors Service (``Moody's''), The U.S. Municipal
Bond Rating Scale: Mapping to the Global Rating Scale and Assigning
Global Scale Ratings to Municipal Obligations (Mar. 2007), available
at https://www.moodys.com/sites/products/DefaultResearch/102249_RM.pdf; and Report to Accompany H.R. 6308, H.R. Rep. No. 110-
835, at Sec.  205 (Feb. 14, 2008), available at https://www.gpo.gov/fdsys/pkg/CRPT-110hrpt835/html/CRPT-110hrpt835.htm).
    \70\ See 2012 Municipal Report, supra note 58, at 23.
    \71\ The five largest municipal bankruptcies, to date, ranked by
amount of debt, are Detroit, Michigan, in 2013 ($18 billion in
debt); Jefferson County, Alabama, in 2011 ($4.2 billion in debt);
Orange County, California, in 1994 ($2.0 billion in debt); Stockton,
California, in 2012 ($1.0 billion in debt); and San Bernardino,
California, in 2012 ($492 million in debt). See Detroit's Bankruptcy
Is the Nation's Largest, N.Y. Times (July 18, 2013), available at
http://www.nytimes.com/interactive/2013/07/18/us/detroit-bankruptcy-is-the-largest-in-nation.html.
    \72\ For example, the government of Puerto Rico failed to pay
more than half of more than $1 billion in general obligation bond
payments due on July 1, 2016, marking the first time that a state or
territory has failed to pay general obligation bonds since the early
1930s. See The Commonwealth of Puerto Rico Amended Event Notice
(July 12, 2016), available at http://emma.msrb.org/ER980533-ER766970-ER1168826.pdf (providing notice of Puerto Rico's first
default of its general obligation bond payments). See also Heather
Gillers & Nick Timiraos, Puerto Rico Defaults on Constitutionally
Guaranteed Debt, Wall St. J. (July 1, 2016), available at http://www.wsj.com/articles/puerto-rico-to-default-on-constitutionally-guaranteed-debt-1467378242.
---------------------------------------------------------------------------

    Beginning in 2009, issuers and obligated persons have increasingly
used direct placements as alternatives to public offerings of municipal
securities.\73\ According to the MSRB, direct placements, when used as
an alternative to public offerings, could provide potential advantages
for issuers, such as, among other things, lower interest and
transaction costs, reduced exposure to bank regulatory capital
requirements, simpler execution process, greater structuring
flexibility, no requirement for a rating or offering document, and
direct interaction with the lender instead of multiple bondholders.\74\
However, the MSRB and certain market participants have raised concerns
about lack of secondary market disclosure regarding financial
obligations that are direct placements, as well as other financial
obligations.\75\ Numerous market participants, including the MSRB,\76\
the Financial

Industry Regulatory Authority (``FINRA''),\77\ and industry groups \78\
have encouraged issuers and obligated persons to voluntarily disclose
information about certain financial obligations that are not currently
included in the list of events for which a Participating Underwriter
must reasonably determine that an issuer or obligated person has
undertaken in a written agreement or contract to provide notice under
Rule 15c2-12. The MSRB has suggested that voluntary disclosure
submissions include the loan or financing agreement or a summary of
some or all of the features of the debt obligation, including, for
example, principal amount, maturity and amortization dates, prepayment
provisions, security for repayment, source of repayment, and events of
default and remedies.\79\ GFOA, representing more than 18,000 federal,
state, and local finance officials, has recommended that if municipal
entities choose to disclose information regarding certain financial
obligations, those entities should disclose information that may be
relevant to current or prospective bondholders either by submitting the
entire financing agreement to EMMA or preparing a summary of material
terms, including, for example, the loan amount; debt service schedule;
legal security and/or source of payment; covenants; events of defaults
and remedies; term-out provisions, acceleration provisions or other
non-standard payment considerations; and any other information the
issuer believes to be important.\80\ Moreover, at least one rating
agency currently requires, and other rating agencies strongly
encourage, issuers and obligated persons to notify the rating agency of
the incurrence of certain financial obligations, including direct
placements, and to provide all relevant documentation related to such
indebtedness.\81\ Despite continued efforts by market participants to
encourage disclosure of certain financial obligations, the MSRB has
stated that the number of actual disclosures made is limited.\82\ In
response, issuer representatives have indicated that challenges
associated with posting and locating information about financial
obligations on EMMA have led to the appearance of under-disclosure by
issuers.\83\ While the MSRB's estimate of the number of voluntary
disclosure submissions may understate the actual number of voluntary
disclosure submissions, the Commission preliminarily believes that a
rule requiring a Participating Underwriter in an Offering to reasonably
determine that an issuer or an obligated person has undertaken, in a
continuing disclosure agreement, to provide to the MSRB within 10
business days the event notices specified in the proposed rule
amendments is nevertheless necessary for the reasons discussed
throughout this proposing release.
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    \73\ See Section I and Considerations Regarding Voluntary
Secondary Market Disclosure About Bank Loans, supra note 11. See
also MSRB Bank Loan Notice, infra note 76, at 2. See also Section
V.A. herein.
    \74\ See MSRB Bank Loan Notice, infra note 76, at 1 n.2.
    \75\ See supra notes 18 and 19. In addition, the ICI
recommended, in its comment letter addressing the 2010 amendments to
Rule 15c2-12, that the Commission implement a disclosure requirement
regarding the creation of any material financial obligation
(including contingent obligations) whether in the form of direct
debt, hedge, swap or other derivative instrument, capital lease,
operating lease or otherwise, because of the implications these
obligations may have on the credit risk and value of associated
bonds. See Letter from Karrie McMillan, General Counsel, ICI, to
Elizabeth Murphy, Secretary, Securities and Exchange Commission
(Sept. 8, 2009), available at https://www.sec.gov/comments/s7-15-09/s71509-23.pdf.
    \76\ In April 2012, the MSRB published a regulatory notice
encouraging issuers to voluntarily post information about bank loan
financings to the MSRB's EMMA Web site. See MSRB Notice 2012-18,
supra note 20. In January 2015, the MSRB published a regulatory
notice regarding the importance of voluntary disclosure of bank
loans, defining bank loans as a direct purchase of a bond directly
from the issuer or a direct loan or other type of financing
agreement with the issuer. The MSRB also noted that many of the
principles described in its notice would be equally applicable to
other types of indebtedness, including direct loans from other
investors. The MSRB noted that the availability of timely disclosure
of additional debt in any form, including debt-like obligations, is
beneficial to foster market transparency and to ensure a fair and
efficient market. See MSRB, Bank Loan Disclosure Market Advisory,
MSRB Notice 2015-03 (Jan. 29, 2015) (``MSRB Bank Loan Notice''),
available at http://www.msrb.org/~/media/Files/Regulatory-Notices/
Announcements/2015-03.ashx. Also in January 2015, the MSRB submitted
a comment letter in response to the Commission's request, pursuant
to the Paperwork Reduction Act of 1995, for comment on the existing
collection of information provided for in Rule 15c2-12. In this
letter, the MSRB stated its concern about the lack of disclosure of
bank loans and other debt and debt-like obligations (e.g., swap
transactions, guarantees and lease financing arrangements that
create significant financial obligations). The MSRB stated that bank
loans or other debt-like obligations could impair the rights of
existing bondholders or impact the credit or liquidity profile of an
issuer. See MSRB Letter to SEC CIO, supra note 18. In October 2015,
in response to a request from the Commission's Office of the
Investor Advocate to identify products and practices within the
municipal securities market that may have an adverse impact on
retail investors, the MSRB submitted a letter that identified the
lack of bank loan disclosures as an area of particular concern. See
Letter from Lynnette Kelly, Executive Director, MSRB, to Rick
Fleming, Investor Advocate, Securities and Exchange Commission (Oct.
30, 2015) (``MSRB 2015 Letter to SEC's Investor Advocate''),
available at http://www.msrb.org/msrb1/pdfs/MSRB-Letter-to-Investor-Advocate-October-2015.pdf. In March 2016, the MSRB published a
request for comment seeking public input on whether and how the MSRB
could improve disclosure of direct purchases and bank loans entered
into by issuers of municipal securities. The comment period closed
on May 27, 2016, and the MSRB received 30 letters in response to the
request for comment. See MSRB, Request for Comment on a Concept
Proposal to Improve Disclosure of Direct Purchases and Bank Loans,
MSRB Notice 2016-11 (Mar. 28, 2016) (``MSRB Request For Comment''),
available at http://www.msrb.org/~/media/Files/Regulatory-Notices/
RFCs/2016-11.ashx?n=1. Many commenters on the MSRB's proposal to
require municipal advisors to disclose their municipal issuer
clients' direct placements noted that the best way to ensure
disclosure of direct placements is to amend Rule 15c2-12. See MSRB,
Comment Letters in Response to MSRB Request for Comment (2016)
(``Comment Letters in Response to MSRB Request for Comment
(2016)''), available at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2016/2016-11.aspx?c=1. See also
Jack Casey, Why MSRB Is Giving a $5.5M Rebate to Dealers, The Bond
Buyer (Aug. 1, 2016), available at http://www.bondbuyer.com/news/washington-securities-law/why-msrb-is-giving-a-55m-rebate-to-dealers-1109888-1.html. In August 2016, the MSRB announced that, in
light of comments received in response to the MSRB Request for
Comment, it would not pursue a rulemaking at this time. The MSRB,
however, noted their continuing belief that disclosure of
alternative financings is important for assessing a municipal
entity's creditworthiness and evaluating the impact of these
financings on existing and potential investors. The MSRB further
stated that they would continue to raise awareness about the issue
among regulators and market participants, and encourage industry-led
initiatives that support voluntary disclosure best practices. MSRB,
MSRB Holds Quarterly Meeting (Aug. 1, 2016), available at http://www.msrb.org/News-and-Events/Press-Releases/2016/MSRB-Holds-Quarterly-Board-Meeting-July-2016.aspx. In November 2016, in
response to a request from the Commission's Office of the Investor
Advocate to identify products and practices within the municipal
securities market that may have an adverse impact on retail
investors, the MSRB submitted a letter that reemphasized the lack of
bank loan disclosures as a continuing area of concern. See Letter
from Lynnette Kelly, Executive Director, MSRB, to Rick Fleming,
Investor Advocate, Securities and Exchange Commission (Nov. 3, 2016)
(``MSRB 2016 Letter to SEC's Investor Advocate''), available at
http://www.msrb.org/msrb1/pdfs/MSRB-Response-to%20Investor-Advocate-November-2016.pdf.
    \77\ In April 2016, the MSRB and FINRA published a joint
regulatory notice reminding firms of their obligations in connection
with privately placing municipal securities with a single purchaser
and the use of bank loans in the municipal securities market. The
regulatory notice encouraged the voluntary disclosure of bank loans
in a timely manner. See FINRA, Direct Purchases and Bank Loans as
Alternatives to Public Financing in the Municipal Securities Market,
FINRA Regulatory Notice 16-10 (Apr. 2016), available at http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-10.pdf.
    \78\ See e.g., GFOA, Best Practice: Understanding Bank Loans
(Sept. 2013) (``Understanding Bank Loans''), available at http://www.gfoa.org/understanding-bank-loans; NFMA, Recommended Best
Practices in Disclosure for Direct Purchase Bonds, Bank Loans, and
Other Bank-Borrower Agreements (June 2015) (``NFMA 2015 Recommended
Best Practices''), available at http://www.nfma.org/assets/documents/RBP/rbp_bankloans_615.pdf; Considerations Regarding
Voluntary Secondary Market Disclosure About Bank Loans, supra note
11.
    \79\ See MSRB Notice 2012-18, supra note 20.
    \80\ See Understanding Bank Loans, supra note 78. See also
Considerations Regarding Voluntary Secondary Market Disclosure About
Bank Loans, supra note 11.
    \81\ In 2014, S&P sent letters to approximately 24,000 issuers
of municipal securities that it rated, citing concerns over hidden
debt exposure in the municipal securities market and related credit
implications. S&P informed issuers that to maintain its ratings and
possibly assign future ratings the rating agency now required
notification and documentation related to any direct placements,
including bank loan financings. S&P further stated that it may
suspend or withdraw its ratings if issuers or obligated persons do
not provide such notification in a timely manner. See Letter from
S&P to Clients (May 6, 2014), available at http://cdn.bondbuyer.com/pdfs/SMLetter5-15-14.pdf. Other ratings agencies have articulated
the importance of the disclosure of direct placements to their
ability to maintain ratings on an issuer's public debt. See e.g.,
Fitch Ratings, Special Report: Direct Bank Placements Credit
Implications (Oct. 25, 2011); Moody's, Growth of Bank Loans and
Private Placements Increases Risk and Reduces Transparency in the
Municipal Market (Oct. 16, 2014).
    \82\ See MSRB Request for Comment, supra note 76, at 3. In
footnote 8 of that document, the MSRB describes the search
methodology it used to identify bank loan disclosures on EMMA. The
MSRB noted that as of March 28, 2016, a search of EMMA for the term
``bank loan'' produced 143 results. Of these results, 79 included
the words ``bank loan'' in the issue description and were filed
under the subcategory suggested by the MSRB. Another 23 submissions
included the words ``bank loan'' in the issue description, but the
document reported under a subcategory other than that suggested by
the MSRB may not be related to a bank loan. The remaining 41
results, while including the words ``bank loan'' in the document,
did not include any document under the subcategory suggested by the
MSRB.
    \83\ See Jack Casey, Why the Issuer Bank Loan Disclosure System
Needs an Overhaul, The Bond Buyer (May 22, 2016), available at
http://www.bondbuyer.com/news/washington-securities-law/why-the-issuer-bank-loan-disclosure-system-needs-an-overhaul-1104388-1.html.
At a May 2016 GFOA debt committee meeting, an issuer representative
noted that many issuers do not know where to post, and market
participants do not know where to find, bank loan disclosure
information on EMMA. In response to feedback from issuer
representatives, the MSRB enhanced the bank loan disclosure
submission process and the display of these documents on EMMA. See
MSRB, MSRB Improves Bank Loan Disclosure on EMMA Web site (Sept. 26,
2016), available at http://msrb.org/News-and-Events/Press-Releases/2016/MSRB-Improves-Bank-Loan-Disclosure-on-EMMA-Web site.
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    Rule 15c2-12 is designed to address fraud and manipulation in the
municipal securities market by prohibiting the underwriting of
municipal securities and subsequent recommendation of those municipal
securities by dealers for which adequate information is not available.
The Commission has long emphasized that, under the antifraud provisions
of the federal securities laws, a dealer recommending securities to
investors implies by its recommendation that it has an adequate basis
for making the recommendation.\84\ The Commission

has stated that if, based on publicly available information, a dealer
discovers any factors that indicate the disclosure is inaccurate or
incomplete or signal the need for further inquiry, a dealer may need to
obtain additional information or seek to verify existing
information.\85\ Accordingly, the Commission has stated that when
dealers make recommendations in the secondary market, they must be
based on information that is up-to-date and accessible.\86\
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    \84\ See 1988 Proposing Release, supra note 36, at 37787.
    \85\ See Statement of the Commission Regarding Disclosure
Obligations of Municipal Securities Issuers and Others, Securities
Act Release No. 33-7049, Exchange Act Release No. 34-33741 (Mar. 9,
1994), 59 FR 12748, 12758 (Mar. 17, 1994) (``1994 Interpretive
Release'').
    \86\ See 1994 Amendments Proposing Release, supra note 40, at
12760.
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    In addition, the MSRB has emphasized that secondary market
disclosure information publicized by the issuer must be taken into
account by dealers to meet the investor protection standards imposed by
the MSRB's investor protection rules (e.g., MSRB Rule G-17 requiring
dealers to deal fairly with all persons and to not engage in any
deceptive, dishonest, or unfair practice; MSRB Rule G-19 requiring
dealers to have a reasonable basis to believe that a recommended
transaction or investment strategy is suitable for a customer; MSRB
Rule G-30 requiring dealers to ensure that prices for customer
transactions are fair and reasonable; and MSRB Rule G-47 requiring
dealers to provide all material information known about a transaction,
including material information that is reasonably accessible to the
market).\87\
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    \87\ See 1994 Amendments Adopting Release, supra note 40, at
59602. See also MSRB Reminds Firms of their Sales Practice and Due
Diligence Obligations when Selling Municipal Securities in the
Secondary Market, MSRB Notice 2010-37 (Sept. 20, 2010), available at
http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2010/2010-37.aspx.
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    Under Rule 15c2-12(c), a dealer recommending the purchase or sale
of a municipal security is required to have procedures in place that
provide reasonable assurance that it will receive prompt notice of
event notices. The availability of this information to investors would
enable them to make more informed investment decisions and should
reduce the likelihood that investors would be subject to fraud
facilitated by inadequate disclosure. Furthermore, this information
would assist dealers in satisfying their obligation to have a
reasonable basis to recommend municipal securities to investors.
    In keeping with the objectives set forth in the Exchange Act,
including Section 15(c)(2),\88\ and the antifraud provisions of the
federal securities laws, the Commission preliminarily believes the
proposed amendments are reasonably designed to prevent fraudulent,
deceptive, or manipulative acts or practices in the municipal
securities market. Accordingly, the Commission proposes to amend Rule
15c2-12. The Commission believes the proposed amendments to Rule 15c2-
12 are consistent with the limitations set forth in Exchange Act
Section 15B(d)(1) because the proposed amendments do not require an
issuer of municipal securities to make any filing with the Commission
or MSRB prior to the sale of municipal securities.
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    \88\ 17 CFR 240.15c2-12 was adopted under a number of Exchange
Act provisions, including Section 15(c); 15 U.S.C. 78o(c).
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III. Description of the Proposed Amendments to Rule 15c2-12

A. Overview of Proposed Amendments

    The Commission proposes to amend paragraph (b)(5)(i)(C) to add
notices for the proposed events that a Participating Underwriter must
reasonably determine that the issuer or obligated person has agreed to
provide in its continuing disclosure agreement. Similar to the other
events listed in Rule 15c2-12, the proposed events reflect on the
creditworthiness of the issuer or obligated person and the terms of the
securities that they issue.\89\ In addition, the Commission proposes an
amendment to Rule 15c2-12(f) to add a definition for ``financial
obligation'' and a technical amendment to subparagraph
(b)(5)(i)(C)(14).
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    \89\ See e.g., 1994 Interpretive Release, supra note 85; 1994
Amendments Adopting Release, supra note 40; 2010 Amendments Adopting
Release, supra note 54.
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1. Incurrence of a Financial Obligation of the Obligated Person, If
Material, or Agreement to Covenants, Events of Default, Remedies,
Priority Rights, or Other Similar Terms of a Financial Obligation of
the Obligated Person, Any of Which Affect Security Holders, If Material
    The Commission proposes to add an event notice for incurrence of a
financial obligation of the obligated person, if material, or agreement
to covenants, events of default, remedies, priority rights, or other
similar terms of a financial obligation of the obligated person, any of
which affect security holders, if material, to the list of events in
paragraph (b)(5)(i)(C) of the Rule for which notice is to be provided.
The actual incurrence of the financial obligation, or agreement to
covenants, events of default, remedies, priority rights, or other
similar terms would trigger the obligation to provide the event notice.
The event notice would be due in a timely manner not in excess of ten
business days.\90\
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    \90\ See 17 CFR 240.15c2-12(b)(5)(i)(C).
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    The Commission preliminarily believes that including a materiality
determination would strike an appropriate balance. As proposed, the
materiality determination applies to the incurrence of a financial
obligation and each of the agreed upon terms listed (i.e., covenants,
events of default, remedies, priority rights, or other similar terms).
For example, an issuer or obligated person may incur a financial
obligation for an amount that, absent other circumstances, would not
raise the concerns the proposed amendments are intended to address. On
the other hand, if an issuer or obligated person agrees to provide a
counterparty to a financial obligation with a senior position in the
debt payment priority structure, and that agreement affects existing
security holders, the event likely does rise to the level of importance
that it should be disclosed to investors and other market participants.
    As described above, investors and other market participants may not
have access to disclosure that an issuer or obligated person has
incurred a material financial obligation, or agreed to certain terms
that affect security holders, unless or until disclosure is made in the
issuer's or obligated person's annual financial information or audited
financial statements or in an official statement in connection with the
issuer's or obligated person's next primary offering subject to Rule
15c2-12 that results in the provision of a final official statement to
EMMA.
    Timely access to disclosure about the incurrence of a material
financial obligation by an issuer or obligated person would provide
potentially important information about the current financial condition
of the issuer or obligated person, including potential impacts to the
issuer's or obligated person's liquidity and overall creditworthiness.
A material financial obligation that results in an increase or change
in the issuer's or obligated person's outstanding debt can weaken the
measures (e.g., debt service as a percentage of expenditures or debt
service coverage ratio) used to assess an issuer's or obligated
person's liquidity and creditworthiness and may result in a
reevaluation of the issuer's or obligated person's overall credit

quality.\91\ For example, an increase in outstanding debt could affect
an issuer's or obligated person's level of debt service as a percent of
expenditures, which industry commenters view as an important indicator
of credit quality for general obligation bonds, or such an increase in
debt could affect the amount of revenues available to pay debt service
for revenue bonds, which is considered in connection with rate
covenants or additional bonds tests.\92\ If an issuer's or obligated
person's liquidity and creditworthiness is impacted, the credit quality
of the issuer's or obligated person's outstanding municipal securities
could be adversely affected which could impact an investor's investment
decision or other market participant's credit analysis.\93\
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    \91\ See NFMA 2015 Recommended Best Practices, supra note 78, at
6-7; See also Considerations Regarding Voluntary Secondary Market
Disclosure About Bank Loans, supra note 11.
    \92\ See NFMA 2015 Recommended Best Practices, supra note 78, at
6-7.
    \93\ See MSRB Bank Loan Notice, supra note 76, at 4 (stating
that the inability to timely assess a bank loan's impact on an
issuer's credit profile could inadvertently distort valuation
related to the buying or selling of an issuer's bonds in both the
primary and secondary markets). See also Considerations Regarding
Voluntary Secondary Market Disclosure About Bank Loans, supra note
11.
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    Timely access to disclosure about a material agreement to
covenants, events of default, remedies, priority rights, or other
similar terms of a financial obligation, any of which affect security
holders, could potentially provide important information about the
creation of contingent liquidity risk, credit risk, and refinancing
risk that could impact the issuer's or obligated person's liquidity and
overall creditworthiness, and affect security holders' rights to assets
or revenues. If an issuer's or obligated person's liquidity and
creditworthiness is impacted and/or the rights of security holders are
affected, the credit quality and price of the issuer's or obligated
person's outstanding municipal securities could be affected.\94\
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    \94\ Id.
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    We propose to include in the rule a list of events--specifically,
covenants, events of default, remedies, priority rights, or other
similar terms--which are typically agreed to in connection with the
incurrence of a financial obligation and analyzed by market
participants.\95\ These terms of a financial obligation could result
in, among other things, contingent liquidity and credit risks,
refinancing risk, and reduced security for existing security
holders.\96\ For example, the issuer or obligated person may agree to
covenants that are more restrictive than those applicable to the
issuer's or obligated person's outstanding municipal securities such as
a requirement to maintain a higher debt service coverage ratio.\97\ The
more restrictive covenant would potentially trigger an event of default
more easily and as a result the counterparty to the financial
obligation would be able to assert remedies prior to existing security
holders. For further example, the issuer or obligated person may agree
to events of default that differ from those that are applicable to an
issuer's or obligated person's outstanding municipal securities such as
a failure to observe any term of the financial obligation (as opposed
to specifically identified terms) that would enable the counterparty to
the financial obligation to assert remedies prior to existing security
holders. In addition, the issuer or obligated person may agree to
different remedies than the issuer or obligated person has provided to
existing security holders. For example, an acceleration provision could
provide that any unpaid principal becomes immediately due to the
counterparty upon the occurrence of a specified event of default
without any grace period, which would effectively prioritize the
payment of the financial obligation to the counterparty if the security
holders do not have the benefit of the same provision. By agreeing to
such a term, the counterparty to the financial obligation could benefit
by being repaid prior to existing security holders. By agreeing to a
material covenant, event of default or remedy under the terms of a
financial obligation, such as the examples provided above, security
holders could be affected, and the issuer or obligated person may
create contingent liquidity and credit risks that could potentially
impact the issuer's or obligated person's liquidity and overall
creditworthiness.\98\
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    \95\ See e.g., NFMA 2015 Recommended Best Practices, supra note
78.
    \96\ Id.
    \97\ See MSRB, Glossary of Municipal Securities Terms: Coverage,
available at http://www.msrb.org/Glossary/Definition/COVERAGE.aspx
(defining ``coverage'' as the ``ratio of available revenues
available annually to pay debt service over the annual debt service
requirement. This ratio is one indication of the availability of
revenues for payment of debt service.'').
    \98\ See e.g., NFMA 2015 Recommended Best Practices, supra note
78.
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    In addition, issuers and obligated persons may agree to material
priority rights which provide the counterparty with better terms than
existing security holders and, as a result, adversely affect the rights
of security holders. For example, an issuer or obligated person may
agree to provide superior rights to the counterparty in assets or
revenues that were previously pledged to existing security holders and,
as a result, reduce security for existing security holders. Lastly,
there are other material terms similar to covenants, events of default,
remedies, and priority rights that an issuer or obligated person may
agree to that could, among other things, create liquidity, credit, or
refinancing risks that could affect the liquidity and creditworthiness
of an issuer or obligated person or the terms of the securities they
issue. For example, an investor may make an investment decision without
knowing the issuer or obligated person has entered into a financial
obligation structured with a balloon payment at maturity creating
refinancing risk that could compromise the issuer or obligated person's
liquidity and creditworthiness and their ability to repay their
outstanding municipal securities.\99\ The provision requiring the
balloon payment may not be typically identified as a covenant, event of
default, remedy, or priority right, however, such a term could
potentially impact the issuer's or obligated person's liquidity and
overall creditworthiness and adversely affect security holders.
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    \99\ Id.
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    Lack of access or delay in access to continuing disclosure
information about material financial obligations means that there are
more opportunities for investors to make investment decisions, and
other market participants to undertake credit analyses, without access
to this important information. Timely access to information about the
incurrence of a material financial obligation of the issuer or
obligated person would allow investors and other market participants to
learn important information about the current financial condition of
the issuer or obligated person, including potential impacts to the
issuer's or obligated person's liquidity and overall creditworthiness.
Timely access to information about the agreement to covenants, events
of default, remedies, priority rights, or other similar terms of a
financial obligation of the issuer or obligated person, any of which
affect security holders, if material, would allow investors and other
market participants to learn important information about the creation
of contingent liquidity risk, credit risk, and refinancing risk,
including these risks' potential impact to the issuer's or obligated
person's liquidity and overall creditworthiness, and whether security
holders have been affected. Timely access to this information would
help reduce the likelihood that market participants would have
insufficient information to make informed investment decisions

and to undertake informed credit analyses and would enhance investor
protection.
    The MSRB and certain market participants have been focused on the
potential negative impacts associated with the lack of secondary market
disclosure regarding debt obligations that are direct placements, as
well as other financial obligations,\100\ and certain of the examples
discussed above are focused on the potential adverse effects to an
issuer's or obligated person's liquidity and creditworthiness and
valuation of their municipal securities. However, the Commission
recognizes that the information disclosed about financial obligations
may have a positive impact on an issuer's or obligated person's
liquidity and creditworthiness, and the credit quality of the issuer's
or obligated person's outstanding municipal securities could be
positively affected.
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    \100\ See supra notes 76, 77, and 78.
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    The Commission believes the proposed amendments would facilitate
investor access to important information in a timely manner and help to
enhance transparency. If an issuer or obligated person provides an
event notice to the MSRB, it would be displayed on the MSRB's EMMA Web
site. EMMA provides free public access to continuing disclosure
documents, including event notices. In addition, EMMA includes a
feature that allows market participants to sign up to receive automatic
alerts from EMMA when information becomes available with respect to
individual or groups of municipal securities, including notice of the
submission of an event notice with respect to such individual or groups
of municipal securities. The Commission further preliminarily believes
that the event notice generally should include a description of the
material terms of the financial obligation. Examples of some material
terms may be the date of incurrence, principal amount, maturity and
amortization, interest rate, if fixed, or method of computation, if
variable (and any default rates); other terms may be appropriate as
well, depending on the circumstances. A description of the material
terms would help further the availability of information in a timely
manner to assist investors in making more informed investment
decisions.
    The Commission requests comment regarding all aspects of the
proposed addition of subparagraph (b)(5)(i)(C)(15) concerning the event
notice for the incurrence of a financial obligation of the issuer or
obligated person, if material, or agreement to covenants, events of
default, remedies, priority rights, or other similar terms of a
financial obligation of the issuer or obligated person, any of which
affect security holders, if material. When responding to the requests
for comment, please explain your reasoning.
     The Commission requests comment relating to the frequency
of such event and the utility of this information by investors and
other market participants in the secondary market.
     Is the triggering of the obligation to provide the event
notice clear?
     Should the rule or guidance explicitly address where an
issuer or obligated person incurs a series of related financial
obligations, where a single incurrence may not be material but in the
aggregate the incurrences would be material? In such a scenario, when
should the trigger of the obligation to provide the event notice occur?
     Are there other events that should be included in
subparagraph (b)(5)(i)(C)(15) of the Rule? Should any of the events
proposed to be included be eliminated or modified?
     The Commission further requests comment as to whether the
materiality conditions are appropriate conditions for subparagraph
(b)(5)(i)(C)(15) of the Rule. Should any or all of the items included
in the proposed rule text not be subject to the proposed materiality
condition?
     Are there any events that should be added to subparagraph
(b)(5)(i)(C)(15) of the Rule, but should not be subject to a
materiality condition?
     The Commission further requests comment as to whether
``any of which affect security holders'' is an appropriate condition to
include with respect to ``agreement to covenants, events of default,
remedies, priority rights, or other similar terms of a financial
obligation of the issuer or obligated person'' in subparagraph
(b)(5)(i)(C)(15) of the Rule. Should any of the items included in the
proposed rule text not be subject to the ``any of which affect security
holders'' condition? Should the proposed condition be modified to only
capture events which adversely affect security holders?
     Should the Commission provide additional guidance on the
types of information issuers and obligated persons should consider in
drafting event notices?
     The Commission also requests comment regarding the
benefits and costs of adding this proposed event.
i. Definition of a Financial Obligation
    The Commission proposes to amend Rule 15c2-12(f) to add a
definition for ``financial obligation.'' Under the proposed definition,
the term financial obligation means a debt obligation, lease,
guarantee, derivative instrument, or monetary obligation resulting from
a judicial, administrative, or arbitration proceeding. The term
financial obligation does not include municipal securities as to which
a final official statement has been provided to the MSRB consistent
with Rule 15c2-12.
    As discussed above, some market participants are concerned not only
about the lack of access or delay in access to disclosure regarding
financial obligations that are direct placements, but also about the
lack of access or delay in access to disclosure of the existence of
other financial obligations. Similar to the concerns that market
participants raised about financial obligations that are direct
placements, an issuer's or obligated person's incurrence of other
financial obligations could impair the rights of existing security
holders, including the seniority status of such security holders, or
impact the creditworthiness of an issuer or obligated person.\101\ For
example, the MSRB is concerned about other financial obligations that
are lease financing arrangements, guarantees, and swap
transactions.\102\ Additionally, the Commission understands that there
are instances where monetary obligations resulting from judicial,
administrative, or arbitration proceedings created significant
financial obligations for issuers and obligated persons.\103\ The
proposed definition of financial obligation includes an issuer's or
obligated person's debt obligations, leases, guarantees, derivative
instruments, and monetary obligations resulting from judicial,
administrative, or arbitration proceedings.
---------------------------------------------------------------------------

    \101\ See e.g., MSRB Letter to SEC CIO, supra note 18.
    \102\ Id.
    \103\ See infra note 111.
---------------------------------------------------------------------------

    As proposed, the term debt obligation is intended to capture short-
term and long-term debt obligations of an issuer or obligated person
under the terms of an indenture, loan agreement, or similar contract
that will be repaid over time. Under the proposed amendments, for
example, a direct purchase of municipal securities by an investor and a
direct loan by a bank would be debt obligations of the issuer or
obligated person. As proposed, the term lease is intended to capture a
lease that is entered into by an issuer or obligated person, including
an operating or capital lease. Under the proposed amendments, for
example, if an issuer or obligated person enters into a lease-

purchase agreement to acquire an office building or an operating lease
to lease an office building for a stated period of time, both would be
a lease under the proposed amendments. Debt obligations and leases are
included in the proposed definition of financial obligation because the
incurrence of a material debt obligation or lease and agreement to the
material terms of a debt obligation or lease, which affect security
holders, and the occurrence of a default, event of acceleration,
termination event, modification of terms, or other similar events under
the terms of a debt obligation or lease, any of which reflect financial
difficulties, could provide important information about the current
financial condition of the issuer or obligated person, including
potential impacts to the issuer's or obligated person's liquidity and
overall creditworthiness, and whether security holders could be
affected.
    The term guarantee \104\ is intended to capture a contingent
financial obligation of the issuer or obligated person to secure
obligations of a third party or obligations of the issuer or obligated
person. Under certain circumstances, in order to facilitate a financing
by a third party, an issuer or obligated person may provide a guarantee
to reduce risks to the provider of the financing and lower the cost of
borrowing for the third party. That guarantee may assume different
forms including a payment guarantee or other arrangement that could
expose the issuer or obligated person to a contingent financial
obligation. For example, an issuer that is a county could agree to
guarantee the repayment of municipal securities issued by a town
located in the county. In this instance, the county could be required
to use its own funds to repay the town's municipal securities.
Furthermore, an issuer or obligated person may provide a guarantee with
respect to its own financial obligation. For example, an issuer or
obligated person could, in connection with the issuance of variable
rate demand obligations, agree to repurchase, with its own capital,
bonds that have been tendered but are unable to be remarketed. In this
instance, the issuer or obligated person uses its own funds to purchase
the bonds instead of a third party liquidity facility. A guarantee
provided for the benefit of a third party or a self-liquidity facility
or other contingent arrangement would be a guarantee under the proposed
amendments. Like debt obligations and leases, guarantees are included
in the proposed definition because the incurrence of such material
guarantees and the agreements to the material terms of such guarantees,
which affect security holders, and the occurrence of a default, event
of acceleration, termination event, modification of terms, or other
similar events under the terms of a guarantee, any of which reflect
financial difficulties, could provide important information about the
current financial condition of the issuer or obligated person,
including potential impacts to the issuer's or obligated person's
liquidity and overall creditworthiness, and whether security holders
have been affected.
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    \104\ The description of a ``guarantee'' set forth in this
proposing release is solely for purposes of the Rule.
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    As proposed, the term derivative instrument is intended to capture
any swap, security-based swap, futures contract, forward contract,
option, any combination of the foregoing, or any similar instrument to
which an issuer or obligated person is a counterparty.\105\ The
Commission preliminarily believes that the proposed definition should
include derivative instruments that would be entered into by an issuer
or obligated person because a derivative instrument could impact the
issuer's or obligated person's liquidity and overall creditworthiness
or the terms may affect security holders. For example, a common
derivative instrument that issuers and obligated persons may enter into
is an interest rate swap (i.e., a swap used to hedge interest rate
risk), which allows issuers and obligated persons to fix all or part of
their exposure to variable interest rates. The use of a derivative
instrument, such as a swap or security-based swap, can provide issuers
and obligated persons with benefits, including the ability to reduce
borrowing costs and/or manage interest rate risk. However, the use of a
derivative instrument can also expose the issuer or obligated person to
a variety of risks, some of which may be significant.\106\ The
agreement to material terms of a derivative instrument, which affect
security holders, and the occurrence of a default, event of
acceleration, termination event, modification of terms, or other
similar events under the terms of a derivative instrument, any of which
reflect financial difficulties, could adversely impact the issuer's or
obligated person's liquidity and overall creditworthiness or adversely
affect security holders.\107\ For example, if an issuer or obligated
person enters into a derivative instrument with terms that may create
contingent liquidity risk for the issuer or obligated person, such as a
requirement to post collateral or pay a termination fee upon the
occurrence of certain events, then such terms could adversely impact
the issuer or obligated person's overall liquidity and overall
creditworthiness.\108\ Further, for example, the occurrence of a
termination event under the terms of a derivative instrument reflecting
financial difficulties could adversely impact the issuer's or obligated
person's overall creditworthiness. Accordingly, the incurrence of a
material derivative instrument or the agreement to material terms of a
derivative instrument, which affect security holders, and the
occurrence of a default, event of acceleration, termination event,
modification of terms, or other similar events under the terms of a
derivative instrument, any of which reflect financial difficulties,
could provide important information about the current financial
condition of the issuer or obligated person, including potential
adverse impacts to the issuer's or obligated person's liquidity and
overall creditworthiness, and whether security holders have been
affected.
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    \105\ The Commission recognizes that certain of the items
intended to be captured under the term derivative instrument may not
currently be used by many issuers and obligated persons. However,
this list is intended to be sufficiently comprehensive to cover the
use of derivative instruments that may develop in the future.
    \106\ See e.g., Yvette Shields, Chicago's Market Foray Triggers
Bleak Disclosures, The Bond Buyer (May 12, 2015), available at
http://www.bondbuyer.com/news/regionalnews/chicagos-market-foray-triggers-bleak-disclosures-1073129-1.html (discussing the City of
Chicago's payment of $31 million in termination fees to get out of
certain interest rate swaps). See also Elizabeth Campbell, Chicago
Settling $390 Million Tab When City Can Least Afford It, Bloomberg
(Mar. 17, 2016), available at https://www.bloomberg.com/news/articles/2016-03-17/chicago-settling-390-million-tab-when-city-can-least-afford-it (stating that the City of Chicago had already paid
about $290 million to exit various swaps and was planning to spend
$100 million more).
    \107\ See 2012 Municipal Report, supra note 58, at 91-92.
    \108\ See e.g., NFMA 2015 Recommended Best Practices, supra note
78.
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    Monetary obligations resulting from a judicial, administrative, or
arbitration proceeding are included in the proposed definition \109\
because the requirement to pay \110\ such an obligation could adversely
impact the issuer's or obligated person's overall creditworthiness and
liquidity and adversely affect security holders. For example, a
monetary obligation

resulting from a judicial, administrative, or arbitration proceeding
could be imposed upon an issuer or obligated person that could
immediately and adversely impact an issuer's or obligated person's
creditworthiness, including its ability to repay its outstanding
municipal securities, because of its overall financial condition.\111\
While information about monetary obligations resulting from judicial,
administrative, or arbitration proceedings may be publicly available,
having this information available on EMMA would help provide investors
and other market participants with ready and prompt access to this
information in an electronic format and in one central location.
Further, while information about a monetary obligation resulting from
judicial, administrative, or arbitration proceedings may be
disseminated through the media or otherwise in the issuer's or
obligated person's immediate community, such information may not be
circulated to investors and other market participants who reside
outside of the issuer's or obligated person's locality. Accordingly,
the material incurrence of a monetary obligation resulting from
judicial, administrative, or arbitration proceedings and the agreements
to the material terms of such obligation, which affect security
holders, and the occurrence of a default, event of acceleration,
termination event, modification of terms, or other similar events under
the terms of such obligation, any of which reflect financial
difficulties, could provide important information about the current
financial condition of the issuer or obligated person, including
potential adverse impacts to the issuer's or obligated person's
liquidity and overall creditworthiness, and whether security holders
have been affected.
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    \109\ A settlement order or consent decree that includes a
monetary obligation would be included under this proposed
definition.
    \110\ The Commission preliminarily believes that notice of the
incurrence of a monetary obligation resulting from a judicial,
administrative, or arbitration proceeding, should be provided within
10 business days of the initial imposition of the monetary
obligation.
    \111\ In 2012, a court awarded a trucking school an $11.4
million judgment against the City of Hillview, Kentucky which
prompted the city of 9,000, which typically brings in less than $3
million a year in taxes and revenues, to enter into bankruptcy
proceedings when it was initially unable to negotiate a repayment
deal. While the City of Hillview posted a notice of the commencement
of the bankruptcy to EMMA in 2015, the monetary judgment was imposed
on the city in 2012, leaving investors without timely access to
important information about the incurrence of a debt obligation that
affected the city's creditworthiness and terms of the securities
that they issue. This information may have impacted an investor's
investment decision regarding the city's municipal securities. See
Notice: To All Creditors of City of Hillview, Kentucky and Other
Parties in Interest (Sep. 2, 2015), available at http://emma.msrb.org/EP869434-EP673418-EP1075085.pdf. See also Katy Stech,
How a $15 Million Legal Bill Put a Kentucky Town in Bankruptcy, Wall
St. J. (Sep. 30, 2015), available at http://blogs.wsj.com/bankruptcy/2015/09/30/how-a-15-million-legal-bill-put-a-kentucky-town-in-bankruptcy/. See also Katy Stech, Bankrupt Kentucky City
Reaches Repayment Deal, Wall St. J. (Mar. 30, 2016), available at
http://www.wsj.com/articles/bankrupt-kentucky-city-reaches-repayment-deal-1459366153. For further example, in 2008, a court
awarded a developer a $43 million judgment against the Town of
Mammoth Lakes, California. The judgment, which was three times the
size of the town's operating budget, prompted the town to enter into
bankruptcy when it was initially unable to negotiate a settlement
with the developer. While the town posted notice of the commencement
of the bankruptcy to EMMA in 2012, the monetary judgment was imposed
on the town in 2008, leaving investors without timely access to
important information about the incurrence of a debt obligation that
affected the town's creditworthiness and terms of the securities
they issue. This information may have impacted an investor's
investment decision regarding the town's municipal securities. See
Notice of Commencement of Case and Objection Deadline (July 19,
2012), available at http://emma.msrb.org/EP670581-EP522435-EP923717.pdf. See also Louis Sahagun, Mammoth Lakes Files for
Bankruptcy Over $43 Million Judgment, L.A. Times (July 2, 2012),
available at http://articles.latimes.com/2012/jul/02/local/la-me-mammoth-lakes-20120703. See also Robert Holmes, Mammoth Lakes: Back
From the Brink, Urban Land (June 10, 2013), available at http://urbanland.uli.org/industry-sectors/mammoth-lakes-back-from-the-brink/. See also Dakota Smith, L.A. Needs to Borrow Millions to
Cover Legal Payouts, City Report Says, L.A. Times (Jan. 9, 2017),
available at http://www.latimes.com/local/lanow/la-me-ln-legal-payouts-20170109-story.html; Jessica DiNapoli, Hillview's Bankruptcy
Negative for Small Town Government--Moody's, Reuters (Aug. 31,
2015), available at http://www.reuters.com/article/usa-kentucky-hillview-idUSL1N1112RP20150831.
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    The proposed definition would help improve the timely availability
of important information to investors and other market participants
regarding financial obligations and provide investors the ability to
take such information into account when making investment decisions and
other market participants the ability to take such information into
account when undertaking credit analyses.
    The Commission requests comment regarding all aspects of the
proposed definition of financial obligation. When responding to the
requests for comment, please explain your reasoning.
     Are there any more appropriate alternative definitions?
For example, would it be more appropriate to include a definition that
does not identify each type of financial obligation?
     Should each type of financial obligation included in the
proposed definition be defined? Or is there an existing definition of
financial obligation that the Commission could instead use?
     Are there any financial obligations that would not be
covered in the proposed definition that should be?
     Should other contracts that create future payment
obligations (e.g., a contract for waste disposal services) be included
in the proposed definition?
     Should any of the terms included in the definition be
modified? Should any terms be added to the definition to achieve the
stated goal?
     Comment is also requested on whether including a
definition in the Rule is necessary.
2. Default, Event of Acceleration, Termination Event, Modification of
Terms, or Other Similar Events Under the Terms of a Financial
Obligation of the Obligated Person, Any of Which Reflect Financial
Difficulties
    The Commission proposes to add an event notice for the occurrence
of a default, event of acceleration, termination event, modification of
terms, or other similar events under the terms of a financial
obligation of the issuer or obligated person, provided the occurrence
reflects financial difficulties, to the list of events in paragraph
(b)(5)(i)(C) of the Rule. As with the other event notice, a
Participating Underwriter would need to reasonably determine that the
issuer or obligated person has agreed to provide notice of such events
in its continuing disclosure agreement.
    The Commission preliminarily believes that qualifying the event
notice trigger with ``any of which reflect financial difficulties,''
would strike an appropriate balance. As proposed, the term ``any of
which reflect financial difficulties'' applies to all of the events
listed in the proposed event notice (i.e., a default, event of
acceleration, termination event, modification of terms, or other
similar events). For example, an issuer or obligated person may
covenant to provide the counterparty with notice of change in its
address and may not promptly comply with the covenant. A failure to
comply with such a covenant may not reflect financial difficulties;
therefore, absent other circumstances, this event likely does not raise
the concerns the proposed amendments are intended to address. On the
other hand an issuer or obligated person could agree to replenish a
debt service reserve fund if draws have been made on such fund. In this
example, if an issuer or obligated person fails to comply with such
covenant, then such an event likely should be disclosed to investors
and other market participants. The concept of ``reflecting financial
difficulties'' has been used since the adoption of Rule 15c2-12 in
paragraph (b)(5)(i)(C)(3) and in paragraph (b)(5)(i)(C)(4), and, as
such, market participants should be familiar with the concept as it
relates to the operation of Rule 15c2-12.\112\
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    \112\ See 1994 Amendments Proposing Release, supra note 40; 1994
Amendments Adopting Release, supra note 40; See also Securities and
Exchange Act Release No. 34-60332 (July 17, 2009), 74 FR 36832 (July
24, 2009); 2010 Amendments Adopting Release, supra note 54.

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    As described above, investors and other market participants may not
have any access or timely access to disclosure regarding the occurrence
of a default, event of acceleration, termination event, modification of
terms, or other similar events under the terms of a financial
obligation of the obligated person, and any of which reflect financial
difficulties. For example, if an issuer or obligated person defaults
and such default reflects financial difficulties, investors either may
not ever become aware of the default or may not become aware of the
default in a timely manner. In both these cases, investors could be
making investment decisions, and other market participants could be
undertaking credit analyses, without important information regarding
the current financial condition of the issuer or obligated person that
could potentially adversely impact the issuer's or obligated person's
liquidity and overall creditworthiness. If an issuer's or obligated
person's liquidity and creditworthiness are adversely impacted, the
credit quality and price of the issuer's or obligated person's
outstanding municipal securities could be affected which could impact
an investor's investment decision or a market participant's credit
analysis.
    A default could be a monetary default, where an issuer or obligated
person fails to pay principal, interest, or other funds due, or a non-
payment related default, which occurs when the issuer or obligated
person fails to comply with specified covenants.\113\ Generally, under
standard contract terms, if a monetary default occurs, or a non-payment
related default is not cured within a specified period, such default
becomes an ``event of default'' and the trustee or counterparty to the
financial obligation may exercise legally available rights and remedies
for enforcement, including an event of acceleration. An event of
acceleration typically provides the outstanding balance becomes
immediately due and payable upon the occurrence of one or more
specified events of default.\114\ Both the occurrence of a default and
an event of acceleration if reflecting financial difficulties are
included in the proposed amendments because both types of events
provide current information regarding the financial condition of the
issuer or obligated person and the occurrence of either event could
adversely impact an issuer's or obligated person's liquidity and
overall creditworthiness.\115\ For example, the occurrence of a
monetary default caused by the issuer or obligated person's failure to
make a payment due likely would be relevant to evaluating the current
financial condition of the issuer or obligated person. Further, for
example, an event of acceleration of the financial obligation and the
issuer or obligated person's obligation to pay the outstanding balance
of the financial obligation immediately could have an impact on the
issuer's or obligated person's liquidity and overall creditworthiness.
Investors could be making investment decisions, and other market
participants could be undertaking credit analyses, without important
information about these types of events.
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    \113\ See, e.g., MSRB, Glossary of Municipal Securities Terms:
Default, available at http://www.msrb.org/Glossary/Definition/DEFAULT.aspx.
    \114\ See, e.g., MSRB, Glossary of Municipal Securities Terms:
Acceleration, available at http://www.msrb.org/Glossary/Definition/ACCELERATION.aspx.
    \115\ See NFMA 2015 Recommended Best Practices, supra note 78.
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    A termination event typically allows either party to a financial
obligation to terminate the agreement subject to certain conditions,
including in some cases payment of a termination fee by the issuer or
obligated person.\116\ Industry commenters have noted that the
occurrence of a termination event, that results in an increase in
outstanding debt, could affect an issuer's or obligated person's level
of debt service as a percent of expenditures, which is an important
indicator of credit quality for general obligation bonds, or such
increase in debt could affect the amount of available revenues to pay
debt service for revenue bonds which is considered in connection with
rate covenants or additional bonds tests. If an issuer's or obligated
person's liquidity and overall creditworthiness is impacted, the credit
quality and price of the issuer's or obligated person's outstanding
municipal securities could be affected, which could impact an
investor's investment decision.\117\ For example, if the terms of a
derivative instrument such as a swap require, upon the occurrence of a
termination event (e.g., a credit rating downgrade), that an issuer or
obligated person pay a termination fee, such termination event may have
an immediate impact on the issuer's or obligated person's liquidity and
creditworthiness and may cause investors to reevaluate their investment
decisions and other market participants to reevaluate their credit
analyses.
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    \116\ See, e.g., Liz Farmer, Cities Paying Millions to Get Out
of Bad Bank Deals, Governing (Mar. 6, 2015), available at http://www.governing.com/topics/finance/gov-chicago-paying-millions-bad-swap-deals.html (discussing payments of termination fees by several
municipalities and municipal entities to exit unfavorable interest
rate swaps).
    \117\ See NFMA 2015 Recommended Best Practices, supra note 78.
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    A modification of terms of a financial obligation may occur when an
issuer or obligated person is in a distressed financial situation. For
example, there may be circumstances where an issuer or obligated
person, due to financial difficulties, anticipates not meeting the
terms of a financial obligation, such as a covenant to maintain a
specified debt service coverage ratio,\118\ and the issuer or obligated
person is able to negotiate the modification of the terms of the
financial obligation with the counterparty. Furthermore, in addition to
negotiating a change to certain covenants in the financial obligation
with the counterparty to avoid default under the terms of the financial
obligation, the issuer or obligated person could agree to new terms
including providing the counterparty with superior rights to assets or
revenues that were previously pledged to existing security holders.
Modifications agreed to could provide important information about the
current financial condition of the issuer or obligated person,
including potential impacts to the issuer's or obligated person's
liquidity and overall creditworthiness, and whether security holders
have been affected.
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    \118\ See supra note 97.
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    Other similar events under the terms of a financial obligation of
the obligated person reflecting financial difficulties share similar
characteristics to one of the listed events (a default, event of
acceleration, termination event, or modification of terms). An issuer
or obligated person could fail to perform a covenant not related to
payment required under a financial obligation that does not result in
the occurrence of a default, but the occurrence of this other event
does reflect financial difficulties of the issuer or obligated person.
For example, an issuer could fail to meet a construction deadline with
respect to a facility being financed by the proceeds of a financial
obligation due to financial difficulties. As a result of the failure to
meet this deadline, a default does not occur, but the lender is
entitled to take possession of the facility and complete construction.
Like the events described above, the occurrence of the failure to meet
a performance covenant reflecting financial difficulties could provide
information relevant in making an assessment of the current financial
condition of the issuer or obligated person, including potential

adverse impacts to the issuer's or obligated person's liquidity and
overall creditworthiness, and whether security holders have been
affected.
    Although the occurrence of defaults \119\ and other events under
the terms of a financial obligation of the obligated person reflecting
financial difficulties listed in proposed subparagraph (b)(5)(i)(C)(16)
may not be common in the municipal market, the Commission notes that
the occurrence of such events can significantly and adversely impact
the value of an issuer's or obligated person's outstanding municipal
securities. The Commission also believes the proposed amendments would
facilitate investor access to important information in a timely manner
and help to enhance transparency in the municipal securities market and
enhance investor protection. If an issuer or obligated person provides
an event notice to the MSRB, it would be displayed on the MSRB's EMMA
Web site and the public would be provided with free public access to
the event notice and, if wanted, automatic alerts from EMMA regarding
the occurrence of the event. In order to apprise investors of
information, the Commission further preliminarily believes an event
notice for the occurrence of a default, event of acceleration,
termination event, modification of terms, or other similar events under
the terms of a financial obligation of the issuer or obligated person,
any of which reflect financial difficulties, generally should include a
description of the event and the consequences of the event, if any. A
description of the event and the consequences of the event, if any,
would help further the availability of information in a timely manner
to further assist investors in making more informed investment
decisions.
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    \119\ According to Moody's, between 1970 and 2014, 95 municipal
issuers rated by Moody's have defaulted on their bonded debt or
related guarantees. In particular, only eight general obligation
bond issuers, including cities, counties, and other districts,
defaulted during this 45-year period. However, Moody's notes that
municipal issuers can experience financial distress without
triggering a default. For example, they state that there were no
Moody's rated municipal defaults in 2014 despite a sharp
deterioration in credit quality by a number of public finance
credits. See Moody's, U.S. Municipal Bond Defaults and Recoveries,
1970-2014 (July 24, 2015).
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    The Commission requests comment regarding all aspects of the
proposed addition of subparagraph (b)(5)(i)(C)(16) concerning the event
notice for an occurrence of a default, event of acceleration,
termination event, modification of terms, or other similar events under
the terms of a financial obligation of the issuer or obligated person,
any of which reflect financial difficulties. When responding to the
requests for comment, please explain your reasoning.
     Are there additional events that should be specified in
the rule text? Is ``other similar event'' broad enough to capture all
events that upon their occurrence may reflect that an issuer or
obligated person is in financial difficulty? Are there events included
in the proposed rule text that should be omitted?
     The Commission further requests comment as to whether the
qualification ``reflecting financial difficulties'' is appropriate for
subparagraph (b)(5)(i)(C)(16) of the Rule. Should any or all of the
items included in the proposed rule text not be subject to the proposed
qualification? Although the concept of ``reflecting financial
difficulties'' has been used since the adoption of Rule 15c2-12, the
Commission asks whether it should provide guidance regarding the use of
this concept in the context of these proposed amendments to Rule 15c2-
12.
     In addition, commenters should address the benefits and
costs of this aspect of the proposed amendments.

B. Technical Amendment

    The Commission proposes a technical amendment to paragraph
(b)(5)(i)(C)(14) of the Rule to remove the term ``and'' since new
events are proposed to be added to paragraph (b)(5)(i)(C) of the Rule.

C. Compliance Date and Transition

    If the Commission adopts the proposed amendments to Rule 15c2-12,
they would apply to continuing disclosure agreements that are entered
into in connection with primary offerings occurring on or after the
compliance date of such proposed amendments. The Commission recognizes
that continuing disclosure agreements entered into prior to the
compliance date of any final amendments likely would not reflect
changes made to the Rule by such amendments. As a result, event items
covered by a continuing disclosure agreement entered into prior to the
compliance date of any amendments may be different from those event
items covered by a continuing disclosure agreement entered into on or
after the compliance date.
    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 preliminarily is considering a
compliance date that would be three months after any final adoption of
the proposed amendments to allow sufficient time for the MSRB to make
necessary modifications to the EMMA system, and for Participating
Underwriters to comply with the new Rule.\120\ The Commission requests
comment on such a compliance date and whether another compliance date
might be preferable. 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.
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    \120\ The 2010 Amendments became effective on August 9, 2010,
six months after Commission approval, with the exception of the
Commission interpretive guidance (Part 241) which became effective
June 10, 2010. Due to the limited scope of the proposed amendments
as compared to the 2010 Amendments, the Commission proposes that the
compliance date of the proposed amendments discussed herein would be
no earlier than three months after any final approval of the
proposed amendments, should the Commission adopt these proposed rule
amendments.
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    The Commission notes that currently under paragraph (c) of the
Rule, a dealer cannot recommend the purchase or sale of a municipal
security unless such 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. In the case of
municipal securities subject to a continuing disclosure agreement
entered into prior to the compliance date of any final amendments, the
recommending dealer would receive notice solely of those events covered
by that continuing disclosure agreement, namely, the events specified
in the Rule when the continuing disclosure agreement was entered into.
Because, in such case, the continuing disclosure agreement likely would
not cover any of the items proposed to be added to the Rule, the
recommending dealer would not be required to have procedures in place
that provide reasonable assurance that it would receive prompt notice
of events proposed to be added to the Rule.\121\
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    \121\ 17 CFR 240.15c2-12(c) requires a dealer to have procedures
in place that provide reasonable assurance that the dealer will
receive prompt notice of any event that the Rule requires to be
disclosed. Dealers are also required to comply with MSRB fair
practice rules (i.e., rules that relate primarily to customer
protection, fair dealing and supervision), including, for example,
MSRB Rule G-47 that requires dealers transacting in municipal
securities to provide all material information known about the
transaction, including material information about the security that
is reasonably accessible to the market.

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    The Commission requests comment on the impact of the proposed
amendments with respect to dealers that recommend the purchase or sale
of municipal securities. The Commission also requests comment on what
changes, if any, dealers would have to make to their procedures in
connection with any final amendments that the Commission may adopt
relating to the receipt of event notices. The Commission further seeks
comment on any other transition issues in connection with the proposed
amendments to Rule 15c2-12.

D. Request for Comment

    The Commission seeks comment on all aspects of the proposed
amendments to the Rule. In addition to the comments requested
throughout this proposing release, comment is requested on whether the
proposed amendments would further enhance the availability of important
information to investors, and whether the proposed amendments would