[Federal Register: December 15, 2008 (Volume 73, Number 241)]
[Rules and Regulations]
[Page 76103-76133]
[DOCID:fr15de08-16]

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Part II

Securities and Exchange Commission

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17 CFR Part 240

Amendment to Municipal Securities Disclosure; Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-59062; File No. S7-21-08]
RIN 3235-AK20

Amendment to Municipal Securities Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to a rule under the Securities Exchange Act of 1934
(``Exchange Act'') relating to municipal securities disclosure. This
final rule amends certain requirements regarding the information that
the broker, dealer, or municipal securities dealer acting as an
underwriter in a primary offering of municipal securities must
reasonably determine that an issuer of municipal securities or an
obligated person has undertaken, in a written agreement or contract for
the benefit of holders of the issuer's municipal securities, to
provide. Specifically, the amendments require the broker, dealer, or
municipal securities dealer to reasonably determine that the issuer or
obligated person has agreed: To provide the information covered by the
written agreement to the Municipal Securities Rulemaking Board
(``MSRB'' or ``Board''), instead of to multiple nationally recognized
municipal securities information repositories (``NRMSIRs'') and state
information depositories (``SIDs''); and to provide such information in
an electronic format and accompanied by identifying information as
prescribed by the MSRB. The Commission's rulemaking is intended to
improve the availability of information about municipal securities to
investors, market professionals, and the public generally.
Concurrently, we have approved a companion proposal by the MSRB
relating to its Electronic Municipal Market Access (``EMMA'') system
for municipal securities disclosures. Finally, we are withdrawing
proposed amendments to the Rule, issued in 2006, that would have
eliminated the MSRB as a location to which issuers could submit certain
municipal disclosure documents.

DATES: Effective Date: July 1, 2009.

FOR FURTHER INFORMATION CONTACT: Martha Mahan Haines, Assistant
Director and Chief, Office of Municipal Securities, at<PHONE_NUMBER>;
Nancy J. Burke-Sanow, Assistant Director, Office of Market Supervision,
at<PHONE_NUMBER>; Mary N. Simpkins, Senior Special Counsel, Office of
Municipal Securities, at<PHONE_NUMBER>; Rahman J. Harrison, Special
Counsel, Office of Market Supervision, at<PHONE_NUMBER>; David J.
Michehl, Special Counsel, Office of Market Supervision, at (202) 551-
5627; and Steven Varholik, Attorney, Office of Market Supervision, at
(202) 551-5615, Division of Trading and Markets, Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: We are adopting amendments to Rule 15c2-12
\1\ under the Exchange Act.\2\
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    \1\ 17 CFR 240.15c2-12.
    \2\ 15 U.S.C. 78a et seq.
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I. Executive Summary

    On August 7, 2008, the Commission published for comment amendments
to Rule 15c2-12 to provide for a single centralized repository for the
electronic collection and availability of information about municipal
securities outstanding in the secondary market.\3\ The comment period
for the proposed amendments expired on September 22, 2008. The proposed
amendments would 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: (1) Solely to the MSRB; and (2) in an electronic format and
accompanied by identifying information, as prescribed by the MSRB. We
received twenty-three comment letters in response to our proposed
amendments from a wide range of commenters.\4\ The respondents included
an issuer; a mutual fund complex; NRMSIRs; SIDs; the MSRB; trade
organizations representing broker-dealers, investment advisors,
financial analysts, government financial officials, and bond lawyers;
and individual investors. The majority of commenters supported the
proposed amendments and believed that the Commission's proposal would
help improve disclosure for municipal securities, protect investors,
restore confidence in the market, assist investors in making informed
investment decisions, and make it easier for issuers and other
obligated persons to comply with their continuing disclosure
agreements. Of the comment letters we received, twenty expressed their
support of the proposed amendments,\5\ two NRMSIRs opposed the
amendments \6\ and one commenter neither expressed its support of nor
opposition to the proposed amendments.\7\ In addition, a number of
commenters offered suggestions relating to the implementation and
operation of the proposed disclosure system.\8\
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    \3\ See Securities Exchange Act Release No. 58255 (July 30,
2008), 73 FR 46138 (August 7, 2008) (``Proposing Release'').
    \4\ Exhibit A, which is attached to this release, contains the
full title of each comment letter cited herein and the citation key
for these letters. Copies of all comments received on the proposed
amendments are available on the Commission's Internet Web site,
located at http://www.sec.gov/comments/s7-21-08/s72108.shtml, and in
the Commission's Public Reference Room at its Washington, DC
headquarters.
    \5\ See Busby Letter, GFOA Letter, Vanguard Letter, SIFMA
Letter, MSRB Letter, NABL Letter, IAA Letter, Treasurer of the State
of Connecticut Letter, e-certus Letter, Texas MAC Letter, NASACT
Letter, OMAC Letter, ICI Letter, NAHEFFA Letter, Multiple-Markets
Letter, NFMA Letter, EDGAR Online Letter, Dickman Letter, Mooney
Letter, Grant Letter.
    \6\ See SPSE Letter and DPC DATA Letter.
    \7\ See DAC Letter.
    \8\ See, e.g., GFOA Letter, NABL Letter, IAA Letter, e-certus
Letter, NAHEFFA Letter, Multiple-Markets Letter, NFMA Letter, and
EDGAR Online Letter.
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    In general, commenters supported the use of a single repository for
receiving continuing disclosures and believed that such an arrangement
would be more efficient than the current decentralized system.\9\
Commenters generally expressed their support for the MSRB as the single
repository and believed that the MSRB would be a logical operator of
the proposed disclosure system.\10\ Commenters also expressed their
support for the use of an entirely electronic format for submissions to
the single repository, with some commenters stating that paper copies
should not be permitted.\11\ In addition, commenters supported the
indexing of information to be submitted to the single repository but
had a variety of opinions on the scope of the information to be
included in such indexing.\12\ Some commenters expressed concern about
access to information submitted to the single repository and the fees
that could result from the use of such repository,\13\ with

some commenters opposing a system that would impose fees on issuers,
obligated persons or investors.\14\ One commenter believed that the
exemptive provision in paragraph (d)(2) of the Rule, which generally is
used by smaller issuers, should be retained in its current form.\15\ A
number of comment letters addressed both the proposed amendments and
the MSRB's companion proposal to establish a continuing disclosure
service within its EMMA system.\16\ This release describes and
addresses only those portions of the comment letters that are relevant
to the proposed amendments; the portions of the comment letters
pertaining to the continuing disclosure component of the MSRB's EMMA
system are considered separately in the Commission's order approving
the MSRB's proposal, which we also are issuing today.\17\
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    \9\ See, e.g., OMAC Letter, NFMA Letter, and Treasurer of the
State of Connecticut Letter.
    \10\ See, e.g., GFOA Letter, Vanguard Letter, SIFMA Letter,
NASACT Letter, ICI Letter, and NFMA Letter.
    \11\ See, e.g., Vanguard Letter, at 3, and Multiple-Markets
Letter, at 2.
    \12\ See, e.g., GFOA Letter, Vanguard Letter, ICI Letter, OMAC
Letter, NAHEFFA Letter, Multiple-Markets Letter, NFMA Letter, Edgar
Online Letter, and DAC Letter. Neither the proposed nor the final
Rule 15c2-12 amendments address the specific information to be
indexed. Indexing information is addressed in the MSRB's proposed
rule change and the Commission's approval order relating to the EMMA
system and is considered separately. See Securities Exchange Act
Release Nos. 58256 (July 30, 2008), 73 FR 46161 (August 7, 2008)
(SR-MSRB-2008-05) (``MSRB EMMA Proposal'') and 59061 (December 5,
2008)(order approving MSRB EMMA Proposal) (``MSRB Approval Order'').
    \13\ See, e.g., NFMA Letter, GFOA Letter, Vanguard Letter, IAA
Letter, ICI Letter, and SPSE Letter.
    \14\ See, e.g., GFOA Letter, Vanguard Letter, IAA Letter, ICI
Letter, and NAHEFFA Letter.
    \15\ See NABL Letter, at 2.
    \16\ See MSRB EMMA Proposal, supra note 12.
    \17\ See MSRB Approval Order, supra note 12.
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    We have carefully considered all the comments we received regarding
the proposed amendments and, as discussed below, are adopting the
amendments, as proposed. In adopting these amendments, we are
furthering our intent to deter fraud and manipulation in the municipal
securities market by improving the availability of information about
municipal securities outstanding in the secondary market.

II. Background

A. History of Rule 15c2-12

    We have long been concerned with improving the quality, timing, and
dissemination of disclosure in the municipal securities markets. In an
effort to improve the transparency of the municipal securities market,
in 1989, we adopted Rule 15c2-12 (``Rule'' or ``Rule 15c2-12'') and an
accompanying interpretation modifying a previously published
interpretation of the legal obligations of underwriters of municipal
securities.\18\ At the time of its adoption in 1989, Rule 15c2-12
required, and still requires, an underwriter acting in a primary
offering of municipal securities of $1,000,000 or more: (1) To obtain
and review an official statement ``deemed final'' by an issuer of the
securities, except for the omission of specified information, prior to
making a bid, purchase, offer, or sale of municipal securities; (2) in
non-competitively bid offerings, to send, upon request, a copy of the
most recent preliminary official statement (if one exists) to potential
customers; (3) to send, upon request, a copy of the final official
statement to potential customers for a specified period of time; and
(4) to contract with the issuer to receive, within a specified time,
sufficient copies of the final official statement to comply with the
Rule's delivery requirement, and the requirements of the rules of the
MSRB.\19\
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    \18\ See Securities Exchange Act Release No. 26985 (June 28,
1989), 54 FR 28799 (July 10, 1989) (``1989 Adopting Release'').
    \19\ 17 CFR 240.15c2-12.
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    While the availability of primary offering disclosure significantly
improved following the adoption of Rule 15c2-12, there was a continuing
concern about the adequacy of disclosure in the secondary market.\20\
To enhance the quality, timing, and dissemination of disclosure in the
secondary municipal securities market, in 1994 we adopted amendments to
Rule 15c2-12.\21\ Among other things, the 1994 Amendments placed
certain requirements on brokers, dealers, and municipal securities
dealers (``Dealers'' or, when used in connection with primary
offerings, ``Participating Underwriters''). In adopting the 1994
Amendments, we intended ``to deter fraud and manipulation in the
municipal securities market'' by prohibiting the underwriting and
subsequent recommendation of transactions in municipal securities for
which adequate information was not available on an ongoing basis.\22\
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    \20\ In 1993, the Commission's Division of Market Regulation (n/
k/a the Division of Trading and Markets) conducted a comprehensive
review of many aspects of the municipal securities market, including
secondary market disclosure (``1993 Staff Report''). Findings in the
1993 Staff Report highlighted the need for improved disclosure
practices in both the primary and secondary municipal securities
markets. The 1993 Staff Report found that investors need sufficient
current information about issuers and significant obligors to better
protect themselves from fraud and manipulation, to better evaluate
offering prices, to decide which municipal securities to buy, and to
decide when to sell. Moreover, the 1993 Staff Report found that the
growing participation of individuals as both direct and indirect
purchasers of municipal securities underscored the need for sound
recommendations by brokers, dealers, and municipal securities
dealers. See Securities and Exchange Commission, Division of Market
Regulation (n/k/a Division of Trading and Markets), Staff Report on
the Municipal Securities Market (September 1993) (available at
http://www.sec.gov/info/municipal.shtml).
    \21\ See Securities Exchange Act Release No. 34961 (November 10,
1994), 59 FR 59590 (November 17, 1994) (``1994 Amendments'').
    In light of the growing volume of municipal securities
offerings, as well as the growing ownership of municipal securities
by individual investors, in March 1994, the Commission published the
Statement of the Commission Regarding Disclosure Obligations of
Municipal Securities Issuers and Others. See Securities Exchange Act
Release No. 33741 (March 9, 1994), 59 FR 12748 (March 17, 1994). The
Commission intended that its statement of views with respect to
disclosures under the federal securities laws in the municipal
market would encourage and expedite the ongoing efforts by market
participants to improve disclosure practices, particularly in the
secondary market, and to assist market participants in meeting their
obligations under the antifraud provisions. Id.
    \22\ See 1994 Amendments, supra note 21.
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    Specifically, under the 1994 Amendments, Participating Underwriters
are prohibited, subject to certain exemptions, from purchasing or
selling municipal securities covered by the Rule in a primary offering,
unless the Participating Underwriter has reasonably determined that an
issuer of municipal securities or an obligated person \23\ has
undertaken in a written agreement or contract for the benefit of
holders of such securities (``continuing disclosure agreement'') to
provide specified annual information and event notices to certain
information repositories. The information to be provided consists of:
(1) Certain annual financial and operating information and audited
financial statements (``annual filings''); \24\ (2) notices of the
occurrence of any of eleven specific events (``material event
notices''); \25\ and (3) notices of the failure of an issuer or other
obligated person to make a submission required by a continuing
disclosure agreement (``failure to file notices'').\26\ The 1994
Amendments require the Participating Underwriter to reasonably
determine that an issuer of municipal securities or an obligated person
has undertaken in the continuing disclosure agreement to provide: (1)
Annual filings to each NRMSIR; (2) material event notices and failure
to file notices either to each NRMSIR or to the

MSRB; and (3) in the case of states that established SIDs, all
continuing disclosure documents to the appropriate SID. Finally, the
1994 Amendments revise the definition of ``final official statement''
to include a description of the issuer's or obligated person's
continuing disclosure undertakings for the securities being offered,
and of any instances in the previous five years in which the issuer or
obligated person failed to comply, in all material respects, with
undertakings in previous continuing disclosure agreements.
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    \23\ Obligated persons include persons, including the issuer,
committed by contract or other arrangement to support payment of all
or part of the obligations on the municipal securities to be sold in
an offering. See 17 CFR 240.15c2-12(f)(10).
    \24\ 17 CFR 240.15c2-12(b)(5)(i)(A) and (B).
    \25\ 17 CFR 240.15c2-12(b)(5)(i)(C). The following events, if
material, require notice: (1) Principal and interest payment
delinquencies; (2) non-payment related defaults; (3) unscheduled
draws on debt service reserves reflecting financial difficulties;
(4) unscheduled draws on credit enhancements reflecting financial
difficulties; (5) substitution of credit or liquidity providers, or
their failure to perform; (6) adverse tax opinions or events
affecting the tax-exempt status of the security; (7) modifications
to rights of security holders; (8) bond calls; (9) defeasances; (10)
release, substitution, or sale of property securing repayment of the
securities; and (11) rating changes.
    In addition, Rule 15c2-12(d)(2) provides an exemption from the
application of paragraph (b)(5) of the Rule with respect to primary
offerings if, among other things, the issuer or obligated person has
agreed to a limited disclosure obligation, including sending certain
material event notices to each NRMSIR or the MSRB, as well as the
appropriate SID. See 17 CFR 240.15c2-12(d)(2).
    \26\ 17 CFR 240.15c2-12(b)(5)(i)(D). Annual filings, material
event notices, and failure to file notices are referred to
collectively herein as ``continuing disclosure documents.''
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B. Disclosure Practices in the Secondary Market and Need for Improved
Availability to Continuing Disclosure

    Since the adoption of Rule 15c2-12 in 1989 and its subsequent
amendment in 1994, the size of the municipal securities market has
grown considerably.\27\ There were over $2.6 trillion of municipal
securities outstanding at the end of 2007.\28\ Notably, at the end of
2007, retail investors held approximately 35% of outstanding municipal
securities directly and up to another 36% indirectly through money
market funds, mutual funds, and closed end funds.\29\ There is also
substantial trading volume in the municipal securities market.
According to the MSRB, more than $6.6 trillion of long and short term
municipal securities were traded in 2007 in more than 9 million
transactions.\30\ Further, the municipal securities market is extremely
diverse, with more than 50,000 state and local issuers of these
securities.\31\
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    \27\ According to statistics assembled by SIFMA, the amount of
outstanding municipal securities grew from $1.2616 trillion in 1996
to $2.617.4 trillion at the end of 2007. See SIFMA ``Outstanding U.S
Bond Market Debt'' (available at http://www.sifma.org/research/pdf/
Overall_Outstanding.pdf).
    \28\ See SIFMA ``Outstanding U.S. Bond Market Debt'' (available
at http://www.sifma.org/research/pdf/Overall_Outstanding.pdf).
    \29\ See SIFMA ``Holders of U.S. Municipal Securities''
(available at http://www.sifma.org/research/pdf/Holders_Municipal_
Securities.pdf).
    \30\ See MSRB's Real-Time Transaction Reporting Statistical
Information, Monthly Summaries 2007 (available at http://
www.msrb.org/msrb1/TRSweb/MarketStats/statistical_patterns_in_
the_muni.htm).
    \31\ See Securities Exchange Act Release No. 33741, supra note
21.
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    Currently, there are four NRMSIRs \32\ and three SIDs.\33\ Each of
the NRMSIRs utilizes the information obtained from continuing
disclosure documents to create proprietary information products that
are primarily sold to and used by dealers, institutional investors and
other market participants who subscribe to such products. With respect
to the availability of municipal securities information to retail
investors, each of the NRMSIRs also makes continuing disclosure
documents available for sale to non-subscribers.\34\
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    \32\ The four NRMSIRs are the Bloomberg Municipal Repository,
DPC DATA, Interactive Data Pricing and Reference Data, Inc., and
SPSE.
    \33\ The three SIDs are the Municipal Advisory Council of
Michigan, Texas MAC, and OMAC.
    \34\ See http://www.bloomberg.com/markets/rates/
municontacts.html (Bloomberg Municipal Repository); http://
www.munifilings.com/help/help.cfm (DPC DATA); http://
www.interactivedata-prd.com/07company_info/about_us/MN/
NRMSIR.shtml (Interactive Data Pricing and Reference Data, Inc.);
and http://www.disclosuredirectory.standardandpoors.com/ (SPSE).
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    Although the existing practice for the collection and availability
of municipal securities disclosures has substantially improved the
availability of information to the market, we believe that improvements
could achieve more efficient, effective, and wider availability of
municipal securities information to market participants.\35\ Among
other things, improvements in information availability may allow
investors to obtain information more readily and may help them to make
more informed investment decisions. Specifically, we believe that
municipal securities disclosure documents should be made more readily
and more promptly available to the public and that all investors should
have better access to important market information that may affect the
price of a municipal security, such as information in financial
statements and notices regarding defaults and changes in ratings,
credit enhancement provider, and tax status.
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    \35\ The Commission notes that the aspects of the Rule that
relate to the provision of continuing disclosure documents to
multiple locations (i.e., to each NRMSIR and SID) may have
engendered certain inefficiencies in the current system. See 17 CFR
240.15c2-12(b)(5)(i)(A) through (D). For instance, there have been
reports that NRMSIRs may not receive continuing disclosure documents
concurrently, resulting in the uneven availability of documents from
the various NRMSIRs for some period of time. There also have been
reports of inconsistent document collections among NRMSIRs, possibly
due to the failure of some issuers or obligated persons to provide
continuing disclosure documents to each NRMSIR. Finally, there have
been reports indicating possible weaknesses in document retrieval at
the NRMSIRs. See, e.g., Troy L. Kilpatrick and Antonio Portuondo, Is
This the Last Chance for the Muni Industry to Self-Regulate?, The
Bond Buyer, August 6, 2007, and comments made at the 2001 Municipal
Market Roundtable--``Secondary Market Disclosure for the 21st
Century'' held November 14, 2001 (``2001 Roundtable''), and the 2000
Municipal Market Roundtable held October 12, 2000 (available at
http://www.sec.gov/info/municipal/roundtables/thirdmuniround.htm and
http://www.sec.gov/info/municipal/roundtables/2000participants.htm,
respectively).
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    Furthermore, we believe that improved access to the information in
continuing disclosure documents not only would provide the investing
public with important information regarding municipal securities, both
during offerings and on an ongoing basis, but also would help fulfill
the regulatory and information needs of municipal market participants,
including Dealers, Participating Underwriters, mutual funds, and
others. For example, many mutual funds include municipal securities in
their portfolios that they routinely monitor for regulatory and other
reasons.\36\ They do so by reviewing annual filings, as well as
material event notices and failure to file notices, obtained from
NRMSIRs and SIDs.\37\ In addition, the MSRB requires Dealers to
disclose to a customer at the time of trade all material facts about a
transaction known by the Dealer.\38\ Further, the MSRB requires a
Dealer to disclose material facts about a security when such facts are
reasonably accessible to the market.\39\ Accordingly, a Dealer is
responsible for disclosing to a customer any material fact concerning a
municipal security transaction made publicly available through sources
such as NRMSIRs, the MSRB's Municipal Securities Information Library
(``MSIL'') system,\40\ the MSRB's Real-Time Transaction Reporting
System (``RTRS''), rating agency reports and

other sources of information relating to the municipal securities
transaction generally used by Dealers that affect transactions in the
type of municipal securities at issue.\41\ Dealers use the information
contained in the continuing disclosure documents to carry out these
obligations. Therefore, improving access to information in the
continuing disclosure documents would help facilitate and simplify the
process of gathering the necessary information to carry out their
obligations. For these reasons, we proposed, and are now adopting,
amendments to Rule 15c2-12 that, in our view, will provide municipal
market participants with more efficient access to information in
continuing disclosure documents to satisfy their regulatory
requirements and informational needs.
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    \36\ For example, Rule 2a-7 under the Investment Company Act of
1940 specifies the characteristics of investments that may be
purchased and held by money market funds. Among other requirements,
Rule 2a-7 requires a money market fund to limit its portfolio
investments to those securities that the fund's board of directors
determines present minimal credit risks (including factors in
addition to any assigned rating). See Rule 2a-7(c)(3), 17 CFR
270.2a-7(c)(3).
    \37\ See, e.g., the comments of Leslie Richards-Yellen,
Principal, The Vanguard Group, at the 2001 Roundtable, supra note
35.
    \38\ See MSRB ``Interpretive Notice Regarding Rule G-17 on
Disclosure of Material Facts'' (March 20, 2002) (available at http:/
/www.msrb.org/msrb1/rules/notg17.htm). See also Securities Exchange
Act Release No. 45591 (March 18, 2002), 67 FR 13673 (March 25, 2002)
(SR-MSRB-2002-01) (order approving MSRB's proposed interpretation of
the duty to deal fairly set forth in MSRB Rule G-17).
    \39\ Id.
    \40\ Municipal Securities Information Library and MSIL are
registered trademarks of the MSRB. The Official Statement and
Advance Refunding Document (``OS/ARD'') system of the MSIL system
was initially approved by the Commission in 1991 and was amended in
2001 to establish the MSRB's current optional electronic system for
underwriters to submit official statements and advance refunding
documents. See Securities Exchange Act Release Nos. 29298 (June 13,
1991), 56 FR 28194 (June 19, 1991) (File No. SR-MSRB-90-2) (order
approving MSRB's proposal to establish and operate the OS/ARD of the
MSIL system, through which information collected pursuant to MSRB
Rule G-36 would be made available electronically to market
participants and information vendors) and 44643 (August 1, 2001), 66
FR 42243 (August 10, 2001) (File No. SR-MSRB-2001-03) (order
approving MSRB's proposal to amend the OS/ARD system to establish an
optional procedure for electronic submissions of required materials
under MSRB Rule G-36).
    \41\ See supra note 38.
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C. The MSRB's Electronic Systems

    In 2006, the Commission published for comment proposed amendments
to Rule 15c2-12 in response to a petition from the MSRB \42\ that would
permit the MSRB to close its Continuing Disclosure Information Net
(``CDINet'') system, thereby eliminating the MSRB as a location to
which issuers could submit material event notices and failure to file
notices.\43\ In the 2006 Proposed Amendments, we indicated our belief
that, given the limited usage of the MSRB's CDINet system, among other
things, the proposed elimination of the provision in Rule 15c2-12 that
allows the filing of material event notices with the MSRB was
warranted.\44\
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    \42\ See Letter from Diane G. Klinke, General Counsel, MSRB, to
Jonathan G. Katz, Secretary, Commission, dated September 8, 2005
(``MSRB Petition'') (File No. 4-508).
    \43\ See Securities Exchange Act Release No. 54863 (December 4,
2006), 71 FR 71109 (December 8, 2006) (``2006 Proposed
Amendments''). According to the MSRB Petition, the CDINet system was
designed to permit issuers to satisfy their undertakings to provide
material event notices through a single submission to the MSRB,
rather than through separate submissions to each of the NRMSIRs. The
MSRB stated that relatively few issuers had opted to use the CDINet
system, and, in recent years, usage of the CDINet system had
diminished. See MSRB Petition, supra note 42.
    \44\ See 2006 Proposed Amendments, supra note 43.
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    We recently approved the MSRB's proposed rule change, filed under
section 19(b) of the Exchange Act,\45\ to establish a pilot program for
an Internet-based public access portal (``pilot portal'') for the
consolidated availability of primary offering information about
municipal securities that currently is made available in paper form,
subject to copying charges, at the MSRB's public access facility, and
electronically by paid subscription on a daily over-night basis and by
purchase of annual back-log collections.\46\ The MSRB has implemented
the pilot portal as a service of its new Internet-based public access
system, which it designated as the EMMA system, as a pilot facility
within the MSIL system.
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    \45\ 15 U.S.C. 78s(b).
    \46\ See Securities Exchange Act Release No. 57577 (March 28,
2008), 73 FR 18022 (April 2, 2008) (File No. SR-MSRB-2007-06) (order
approving the pilot portal). Primary offering information consists
of the official statement and the advance refunding document that
Participating Underwriters are required to send to the MSRB under
MSRB Rule G-36.
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    In the course of developing the primary offering information
component of the EMMA system, the MSRB determined that it could
incorporate in the EMMA system the collection and availability of
continuing disclosure documents, thus eliminating the need for the
Commission to adopt its proposed changes to Rule 15c2-12 to remove the
MSRB as a repository of material event notices.\47\ As a result, the
MSRB submitted to the Commission a proposed rule change, filed under
section 19(b) of the Exchange Act,\48\ to expand the EMMA system to
accommodate the collection and availability of annual filings, material
event notices and failure to file notices.\49\ We published the MSRB's
proposal to incorporate continuing disclosure documents in the EMMA
system simultaneously with the proposed amendments to Rule 15c2-12 that
we are adopting today.\50\ While the MSRB still intends to propose to
terminate its CDINet System, subject to Commission approval,\51\ the
MSRB's subsequent decision to file a proposed rule change to expand the
EMMA system to accommodate annual filings, material event notices, and
failure to file notices \52\ has led it to withdraw the MSRB
Petition.\53\ In the Proposing Release, we noted that, in light of our
most recent proposed amendments, we were considering whether to
withdraw our 2006 Proposed Amendments.\54\ We received no comments
regarding our proposed withdrawal of the 2006 Proposed Amendments.
Therefore, in conjunction with the Commission's proposal today to amend
Rule 15c2-12, the Commission is withdrawing its 2006 Proposed
Amendments.
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    \47\ See MSRB EMMA Proposal, supra note 12.
    \48\ 15 U.S.C. 78s(b).
    \49\ See MSRB EMMA Proposal, supra note 12.
    \50\ Id.
    \51\ Id.
    \52\ Id.
    \53\ See letter to Florence E. Harmon, Acting Secretary,
Commission, from Ernesto A. Lanza, General Counsel, MSRB, dated
October 22, 2008.
    \54\ See Proposing Release, supra note 3, 73 FR at 46141.
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III. Discussion of Amendments and Comments Received

A. Amendments to Rule 15c2-12

    We are adopting, without change, our proposed amendments to the
Rule, which facilitate the collection and availability of information
about outstanding municipal securities. For the reasons discussed in
this release and the Proposing Release, we believe that the amendments
are consistent with the Commission's mandate to, among other things,
adopt rules reasonably designed to prevent fraud in the municipal
securities market.
    In summary, we are amending paragraph (b)(5) of Rule 15c2-12, which
relates to a Participating Underwriter's obligation under the Rule to
reasonably determine that issuers or obligated persons have
contractually agreed to provide specified documents, in connection with
primary offerings subject to the Rule. The final amendments require a
Participating Underwriter to reasonably determine that the issuer or
obligated person has agreed at the time of a primary offering: (1) To
provide the continuing disclosure documents to the MSRB instead of to
each NRMSIR and the appropriate SID, if any; and (2) to provide the
continuing disclosure documents in an electronic format and accompanied
by identifying information as prescribed by the MSRB.\55\ In addition,
the final amendments make comparable changes to paragraph (d)(2) of the
Rule, which provides for a limited exemption from Rule 15c2-12(b)(5) as
long as specified conditions are met. We also are making revisions to
other provisions of Rule 15c2-12 to reflect that the MSRB will be the
sole repository and we are providing for a transition mechanism to
accommodate existing continuing disclosure agreements that refer to
NRMSIRs. As noted above, the rule amendments as adopted are identical
to the proposed amendments.
---------------------------------------------------------------------------

    \55\ We note that, as part of its EMMA proposal filed with the
Commission under Section 19(b) of the Exchange Act, the MSRB set
forth the electronic format it proposes to use. See MSRB EMMA
Proposal, supra note 12.
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1. Use of a Single Repository
    We are adopting amendments to Rule 15c2-12 to provide for a single
centralized repository that will receive submissions in an electronic
format. These amendments are expected to encourage a more efficient and
effective process for the submission and availability of continuing
disclosure

documents. In our view, a single repository that receives submissions
electronically should assist in facilitating and simplifying the
process of submitting continuing disclosure documents under the Rule.
Issuers and obligated persons will be able to comply with their
undertakings by submitting their continuing disclosure documents only
to one repository, as opposed to multiple repositories.
    We also believe that having a centralized repository that receives
submissions in an electronic format will help provide ready and prompt
access to continuing disclosure documents by investors and other
municipal securities market participants. Rather than having to
approach multiple locations, investors and other market participants
will be able to go solely to one location to retrieve continuing
disclosure documents, thereby allowing for a more convenient means to
obtain such information. Moreover, we believe that having one
repository electronically collect and make available all continuing
disclosure documents will increase the likelihood that investors and
other market participants will obtain complete information about a
municipal security or its issuer, since the information will not be
distributed across multiple repositories. In addition, we expect that
the consistent availability of municipal secondary market disclosures
from a single source can simplify compliance with regulatory
requirements by Participating Underwriters and others, such as mutual
funds and Dealers. Information vendors (including NRMSIRs and SIDs) and
others also will have ready access to continuing disclosure documents
from a single source for use in their value-added products.
    We have long been interested in improving the availability of
disclosure in the municipal securities market. At the time we adopted
Rule 15c2-12 and amended it in 1994, disclosure documents were
submitted in paper form. We believed that, in such an environment where
document retrieval would be handled manually, the establishment of one
or more repositories could be beneficial in widening the retrieval and
availability of information in the secondary market, since the public
could obtain the disclosure documents from multiple locations. Our
objective of encouraging greater availability of municipal securities
information remains unchanged. However, as indicated above, there have
been significant inefficiencies in the current use of multiple
repositories that likely have impacted the public's ability to retrieve
continuing disclosure documents.\56\ Although in the 1989 Adopting
Release we supported the development of an information linkage among
the repositories, none was established to help broaden the availability
of the disclosure information. Since the adoption of the 1994
Amendments, there have been significant advancements in technology and
information systems, including the use of the Internet, to provide
information quickly and inexpensively to market participants and
investors. In this regard, we believe that the use of a single
repository to receive, in an electronic format, and make available
continuing disclosure documents, in an electronic format, will
substantially and effectively increase the availability of information
about municipal issues, thereby preventing fraud, and enhance the
efficiency of the secondary trading market.
---------------------------------------------------------------------------

    \56\ See supra note 35.
---------------------------------------------------------------------------

    In the Proposing Release, we requested comment on whether we should
amend Rule 15c2-12 as proposed, or whether it would be preferable to
continue to have multiple sources for such information. In addition,
with respect to the transition to a sole repository for continuing
disclosure documents, we requested comment on whether commenters
foresee any differences that could occur between the existing structure
of multiple NRMSIRs and one repository regarding the scope, quantity,
and continuity of information.
    Many commenters supported amending the Rule to provide for only one
repository instead of multiple repositories for the submission of, and
access to, continuing disclosure documents.\57\ Generally, commenters
expressed the view that the creation of a single repository would be a
significant step forward in making municipal disclosure more
transparent in its scope,\58\ more efficient in its delivery,\59\ more
consistent \60\ and comparable \61\ across issuers, and more accessible
for investors,\62\ particularly individual investors, and others--
enhancing the overall efficiency of the secondary trading market for
municipal securities.\63\ As discussed below, two commenters objected
to the establishment of a single repository.\64\
---------------------------------------------------------------------------

    \57\ See, e.g., GFOA Letter, at 1, Vanguard Letter, at 1, SIFMA
Letter, at 1, MSRB Letter, at 1, Treasurer of the State of
Connecticut Letter, at 1, IAA Letter, at 1-2, Texas MAC Letter, at
1, NAHEFFA Letter, at 1, NFMA Letter, at 1, NASACT Letter, at 1, and
Multiple-Markets Letter, at 1.
    \58\ See Treasurer of the State of Connecticut Letter, at 1,
Mooney Letter, at 1, IAA Letter, at 1, and Multiple-Markets Letter,
at 1.
    \59\ See Treasurer of the State of Connecticut Letter, at 1,
Texas MAC Letter, and Multiple-Markets Letter, at 1.
    \60\ See Treasurer of the State of Connecticut Letter, at 1.
    \61\ See Treasurer of the State of Connecticut Letter, at 1, and
EDGAR Online Letter.
    \62\ See GFOA Letter, at 2, Vanguard Letter, at 2, SIFMA Letter,
at 2, MSRB Letter, at 3, Treasurer of the State of Connecticut
Letter, at 2-3, IAA Letter, at 1, NASACT Letter, at 1, and ICI
Letter, at 3.
    \63\ See Treasurer of the State of Connecticut Letter, at 1,
EDGAR Online Letter, SIFMA Letter, at 1, IAA Letter, at 3, and
NASACT Letter at 1.
    \64\ See SPSE Letter and DPC DATA Letter.
---------------------------------------------------------------------------

    In response to our question about whether having one repository
instead of multiple repositories for the submission of, and access to,
continuing disclosure documents would improve access to secondary
market disclosure for investors and municipal securities market
participants, commenters expressed the expectation that allowing only
one entity to serve as the repository for continuing disclosure
documents would greatly streamline the current system and resolve
previous accessibility and consistency issues that resulted from
submissions to several different information repositories.\65\ In
addition, commenters noted that having a single repository for
secondary market disclosures would benefit investors by allowing them
to obtain complete information without having to search for disclosures
in multiple locations.\66\ One commenter stated that its members
reported that it is rare for municipal securities disclosure
information currently to be found in one location.\67\ This commenter
expressed the view that a single repository would significantly improve
information availability by allowing investors to obtain information
more readily, increasing the likelihood that investors can obtain more
complete information and enabling them to better protect themselves
from misrepresentation or other fraudulent activities, and would assist
investors in making more informed investment decisions.\68\ Another
commenter echoed this concern when, in discussing the discrepancies
that currently exist, it stated that it is not reasonable to expect an
investor to have to search multiple locations for the same
information.\69\ One commenter--a financial information disseminator--
noted that it is not feasible under the current system for it to have
access to municipal bond

disclosures for the purpose of redistribution to investors because it
would have to either: (1) obtain disclosures individually from each of
50,000 different issuers; or (2) pay a NRMSIR an annual subscription
fee or a $25 per document fee, in which case it would still be unable
to redistribute the disclosures because the NRMSIRs have copyrighted
the documents by categorizing and reformatting the documents into a
proprietary format.\70\ This commenter further noted that obtaining
what it referred to as a ``fundamental database'' of municipal
disclosures is currently problematic because the disclosures are
difficult to locate, financial reporting between municipalities differs
greatly, and the volume of documents is too great.\71\ Another
commenter also supported the replacement of the current system and
agreed with the Commission that a centralized location for the
collection of information would eliminate the problem of an issuer
failing to provide certain information to every repository, resulting
in one repository not having a complete set of information.\72\ In
addition, a single source of secondary market information was
anticipated by some commenters to reduce the costs incurred by market
participants as a result of the existing fragmented system, which
forces investors and others to seek information from multiple
sources.\73\ Furthermore, it was suggested that, as with the
Commission's EDGAR system for reporting issuers, the establishment of a
single repository for municipal information would encourage links with
other information delivery sources that the investing public could
access, such as free Web sites, subscriptions, or brokerage services,
which would promote greater familiarity and usage and a more
transparent and efficient market.\74\
---------------------------------------------------------------------------

    \65\ See Treasurer of the State of Connecticut Letter, at 1,
EDGAR Online Letter, SIFMA Letter, at 1, IAA Letter, at 3, and
NASACT Letter at 1.
    \66\ See ICI Letter, at 3, and SIFMA Letter, at 2.
    \67\ See ICI Letter, at 3.
    \68\ Id.
    \69\ See Treasurer of the State of Connecticut Letter, at 1.
    \70\ See EDGAR Online Letter, at 2.
    \71\ See EDGAR Online Letter, at 4.
    \72\ See IAA Letter, at 2.
    \73\ See ICI Letter, at 3, and SIFMA Letter, at 2.
    \74\ See Treasurer of the State of Connecticut Letter, at 1-2.
---------------------------------------------------------------------------

    We also requested comment on whether the availability of such
information from a single source would simplify compliance with
regulatory requirements by Participating Underwriters and others.
Commenters anticipated that having a single site for continuing
disclosure information would assist dealers in meeting their obligation
to obtain the information necessary to establish a reasonable basis for
making investment recommendations, improve the due diligence activities
of underwriters of new offerings, and assist mutual funds in carrying
out their regulatory obligations.\75\ Some commenters indicated a
belief that a single repository would simplify the manner in which
municipal issuers, obligated persons and their agents make filings, and
promote full compliance by issuers and obligated persons with the
filing requirements contained in continuing disclosure agreements.\76\
---------------------------------------------------------------------------

    \75\ See SIFMA Letter, at 2, and ICI Letter, at 3.
    \76\ See GFOA Letter, at 1, and SIFMA Letter, at 2.
---------------------------------------------------------------------------

    Two commenters that are NRMSIRs opposed having a single
repository.\77\ Both commenters stated that the proposed amendments
would not accomplish the Commission's information goals because the
amendments do not address the root cause of current municipal
disclosure problems, such as issuers who file late or fail to file.\78\
One commenter stated the Commission's information goals would not be
accomplished because of the absence of uniform accounting and financial
reporting standards for issuers in the municipal market.\79\ One
commenter was of the opinion that the proposed amendment ``does nothing
to improve the overall continuing disclosure regime, except to make the
filing materials available free of charge to the public.'' \80\ This
commenter further stated that many problems with the present system of
municipal continuing disclosure would ``remain unaddressed in the
proposed rule change, as do other publicly described and measured
problems such as the significant level of municipal continuing
disclosure delinquency'' and that the ``proposed rule change has no
substantive benefit to offer.'' \81\ Another commenter, while noting
that numerous inefficiencies exist within the current NRMSIR system,
indicated that a single repository system still would depend on if,
how, and when an issuer submits information.\82\ The Commission
understands that the proposed amendments will not necessarily solve
every problem found in the current system based on NRMSIRs and SIDs.
Under the current system, it is not possible to determine with
certainty whether gaps in the continuing disclosure document
collections of NRMSIRs are the result of failures by issuers to provide
continuing disclosure documents as provided in their continuing
disclosure agreements or failures of NRMSIRs to maintain accurate
indices or adequate document retrieval systems. The Commission believes
that the use of a single repository will make it easier for investors
and others to identify issuers who fail to file. The Commission expects
that, with the rule amendments, investors will be able to make better
informed investment decisions and Participating Underwriters and
Dealers will be able to fulfill their regulatory responsibilities more
easily and accurately. At the same time, the Commission believes that
the use of a single venue, from which all continuing disclosure
documents will be available to the general public immediately upon
being filed, will provide a comprehensive source of information to
NRMSIRs and other vendors to utilize in their value added products.
---------------------------------------------------------------------------

    \77\ See SPSE Letter and DPC DATA Letter.
    \78\ See SPSE Letter, at 8, and DPC DATA Letter, at 1.
    \79\ See SPSE Letter, at 8.
    \80\ See DPC DATA Letter, at 1.
    \81\ Id.
    \82\ See DAC Letter, at 3.
---------------------------------------------------------------------------

    One commenter, who opposed the amendments, suggested the use of a
``central post office'' approach whereby all filings would be supplied
to a single location for immediate redistribution to all NRMSIRs and
SIDs and an index of filings would be available to the general public
at no charge.\83\ Another commenter, who supported a single repository,
requested that, in the event the Commission determines not to adopt the
proposed amendments, it consider the establishment of a ``central post
office'' facility.\84\ One commenter, which currently operates such a
``central post office'' facility, also supported having of a single
repository operated by the MSRB and indicated its belief that a single
repository would be more efficient than the current decentralized
system.\85\ The Commission has considered a ``central post office''
approach. However, while a central post office may benefit NRMSIRs by
providing a comprehensive source of continuing disclosure documents in
an electronic format, it would not result in such documents being made
available to the public at no charge. The Commission believes that
direct access to such information from a single repository, without
charge, will benefit investors, particularly individual investors,
while providing a comprehensive source of continuing disclosure
documents to information vendors and others who may wish to obtain all
filings or a subset thereof, such as filings related to issuers and
obligated persons in a single state.
---------------------------------------------------------------------------

    \83\ See SPSE Letter, at 2.
    \84\ See GFOA Letter, at 2.
    \85\ See Texas MAC Letter.
---------------------------------------------------------------------------

    One commenter noted that having a single repository might cause
investors and broker-dealers unduly to rely on the

repository's contents, which it believed would create a risk of
undermining the purpose of protecting investors against fraud.\86\ This
commenter provided no reason for its view that documents supplied to
the MSRB would be less reliable than those supplied to NRMSIRs and SIDs
directly or through a ``central post office.''
---------------------------------------------------------------------------

    \86\ See SPSE Letter, at 2.
---------------------------------------------------------------------------

    While we acknowledge that today's amendments do not address all of
the information challenges of the municipal market, we nonetheless
believe that they will be a significant step forward in improving the
availability of, and access to, secondary market municipal disclosures.
As noted above, the vast majority of commenters on the proposed
amendments believed that the adoption of the rule amendments will
simplify and improve the current system. The Commission also believes
that this will be the case. With respect to comments favoring a
``central post office,'' we believe that this approach would fail to
achieve the benefits of the amendments. For example, with a central
post office, there would continue to be no single location to which
investors, particularly individuals, could turn for free access to
information regarding municipal securities. Instead, individuals or
entities that wish to obtain such information would find it necessary
first to access the central post office to find out what documents
might be available from NRMSIRs and SIDs and then to contact one or
more NRMSIRs or SIDs and pay applicable fees to obtain the document or
documents they seek. This would be a less efficient process than that
contemplated by the final amendments, in which interested persons could
directly access, view and print for free continuing disclosure
documents from one place--the MSRB's Internet site.
    Moreover, a ``central post office'' would not, to the same extent
as the Commission's amendments, simplify compliance with regulatory
requirements by Participating Underwriters, Dealers and others. This is
because they would have to first access the ``central post office'' to
determine what documents are available and then contact one or more
NRMSIRs or SIDs to obtain these documents. In fact, one commenter that
supported the proposed amendments indicated that the proposal, along
with the MSRB EMMA Proposal, ``takes the notion of a central post
office one step further by streamlining the process and removing the
necessity and inefficiency of forwarding filings to several NRMSIRs and
SIDs.'' \87\ We therefore anticipate that public access to all
continuing disclosure documents on the Internet, as provided by the
amendments, will promote market efficiency and deter fraud by improving
the availability of information to all investors.
---------------------------------------------------------------------------

    \87\ See NASACT Letter, at 1.
---------------------------------------------------------------------------

 2. MSRB as the Sole Repository
    In the Proposing Release, we sought comment concerning whether the
MSRB should be the sole repository included in Rule 15c2-12 or whether
another entity, such as a private vendor, should be the sole
repository, instead of the MSRB, and requested that commenters provide
reasons for their viewpoints. As proposed, we are revising Rule 15c2-12
to delete all references to NRMSIRs and SIDs and in their place refer
solely to the MSRB.
    Twelve commenters supported and two commenters opposed our proposal
for the MSRB to be the single repository for secondary market
disclosure.\88\ Commenters favoring the MSRB as the sole repository
expressed a belief that the Commission's oversight of the MSRB as a
self-regulatory organization (``SRO'') and the MSRB's experience with
the complexities of municipal securities and the municipal securities
markets and the MSRB's direct experience in developing and maintaining
electronic information systems for the municipal securities market
(such as its MSIL and RTRS systems) would provide significant value to
the framework of the proposed repository.\89\ The two commenters that
opposed having the MSRB as the sole repository believed that the
current system should be retained and that they and other vendors of
municipal information would be at a competitive disadvantage if the
MSRB became the sole repository.\90\
---------------------------------------------------------------------------

    \88\ See GFOA Letter, Vanguard Letter, SIFMA Letter, MSRB
Letter, Texas MAC Letter, NASACT Letter, OMAC Letter, ICI Letter,
NAHEFFA Letter, Multiple-Markets Letter, NFMA Letter, and EDGAR
Online Letter (each supporting the MSRB as the single repository).
See also SPSE Letter and DPC DATA Letter (each opposing the MSRB as
the single repository).
    \89\ See SIFMA Letter, NFMA Letter, and ICI Letter.
    \90\ See SPSE Letter, at 2, 7 and DPC DATA Letter, at 2.
---------------------------------------------------------------------------

    Comment also was solicited regarding whether the MSRB's status as
an SRO would be an advantage or disadvantage to its serving as the sole
repository. Three commenters stated a belief that having the MSRB serve
as the sole repository is reasonable because, as an SRO, it is subject
to oversight by the Commission.\91\ One of these commenters also noted
that, as a result, a rule change relevant to the continuing disclosure
service of EMMA would be subject to public comment and Commission
approval.\92\ However, a commenter that opposed the proposed amendments
suggested that naming the MSRB to be the sole repository would not be
appropriate because the MSRB would be reimbursed through mandatory fees
assessed against broker-dealers rather than users.\93\ This commenter
expressed a belief that such costs ultimately would be passed along by
broker-dealers to their customers.\94\
---------------------------------------------------------------------------

    \91\ See Vanguard Letter, SIFMA Letter, and ICI Letter.
    \92\ See SIFMA Letter, at 3.
    \93\ See SPSE Letter, at 11.
    \94\ Id.
---------------------------------------------------------------------------

    We also sought comment on whether the MSRB would be an appropriate
operator of a centralized repository for the collection and
availability of continuing disclosure information about municipal
securities, and whether there is a more appropriate location or means
through which such information could be made readily available to the
public without charge. Some commenters noted that one benefit of having
the MSRB act as sole repository would be the accessibility of
comprehensive information regarding municipal securities, including
official statements, continuing disclosure documents and pricing
information, without charge at one location.\95\ However, one commenter
suggested that, by analogy to our EDGAR system, the Commission might be
a more appropriate party to operate such a repository than the MSRB,
which represents only one segment of the market (i.e., brokers, dealers
and municipal securities dealers).\96\ In addition, one of the existing
NRMSIRs indicated its view that it is inappropriate for a quasi-
governmental entity such as the MSRB to operate a facility that would
compete with private business.\97\ Two commenters indicated an overall
preference for maintenance of the existing structure of the Rule--
pursuant to which private entities, not the MSRB, provide locations or
means through which such information is made available to the
public.\98\
---------------------------------------------------------------------------

    \95\ See, e.g., SIFMA Letter, at 2, and NASACT Letter, at 1.
    \96\ See Treasurer of the State of Connecticut Letter, at 2.
    \97\ See DPC DATA Letter, at 2. See discussion below in Section
III.A.3.
    \98\ See SPSE Letter and DPC DATA Letter.
---------------------------------------------------------------------------

    We agree with the many commenters who believed that the MSRB is the
appropriate entity to serve as the single repository. Established
pursuant to an act of Congress\99\ as an SRO for brokers,

dealers and municipal securities dealers engaged in transactions in
municipal securities, the MSRB is subject to Commission oversight, as
provided by the Exchange Act. As an SRO, the MSRB is required to file
its rules and changes to those rules with the Commission for notice and
comment under section 19(b) of the Exchange Act.\100\ Pursuant to
section 15B(b)(2)(C) of the Exchange Act, the MSRB's rules are required
to be designed, in part, ``to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, * * *
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in municipal securities, to remove
impediments to and perfect the mechanism of a free and open market in
municipal securities, and, in general, to protect investors and the
public interest.'' \101\ The MSRB's existing RTRS and MSIL systems, and
the primary offering information component of the EMMA system that has
been approved by the Commission (relating to the submission of official
statements and advance refunding documents),\102\ were subject to
notice and comment and Commission review. Similarly, the MSRB's
proposal to establish a continuing disclosure component within the EMMA
system was subject to notice and comment under section 19(b) of the
Exchange Act, as would as any future changes to the system.\103\
Further, we believe that, in addition to being subject to Commission
oversight as an SRO, the MSRB is both familiar with the complexities of
municipal securities and the municipal securities market and has
experience in developing and maintaining electronic information systems
for that market.\104\ Collectively, these factors lead us to adopt
amendments to Rule 15c2-12 to provide that the MSRB be the centralized
location for collecting (in an electronic format) and making
information about municipal securities available to the public at no
cost.
---------------------------------------------------------------------------

    \99\ 15 U.S.C. 78o-4.
    \100\ 15 U.S.C. 78s(b).
    \101\ 15 U.S.C. 78o-4(b)(2)(C).
    \102\ See Securities Exchange Act Release No. 57577, supra note
46.
    \103\ See MSRB EMMA Proposal, supra note 12.
    \104\ For example, the MSRB is experienced with operating
CDINet, the MSIL system, and the RTRS system.
---------------------------------------------------------------------------

    Although two commenters opposed the proposal for the MSRB to be the
sole repository,\105\ the Commission believes that the MSRB's status as
an SRO and experience with municipal market disclosure make it
appropriate for the MSRB to be the sole repository. Moreover, as
discussed in detail throughout the Proposing Release as well as this
release, the Commission believes that the current NRMSIR model of
disclosure needs to be improved. Many commenters agreed with this
view.\106\ Although one commenter suggested that the Commission should
be the repository,\107\ we believe that the MSRB, in light of its
experience with municipal disclosure and its status as an SRO, will be
in a better position to act as the repository more quickly and
efficiently.
---------------------------------------------------------------------------

    \105\ See SPSE Letter, at 2, DPC DATA Letter, at 3.
    \106\ See, e.g., Vanguard Letter, at 2, NASACT Letter, at 1, ICI
Letter, at 3, IAA Letter, at 1, and NFMA Letter, at 1.
    \107\ See Treasurer of the State of Connecticut Letter, at 2.
---------------------------------------------------------------------------

    As discussed below, with respect to the comment that it is
inappropriate for a quasi-governmental entity such as the MSRB to
operate a facility that would compete with private business, the
Commission believes that any competitive impact that may result from
the MSRB's status as the sole repository is justified by the benefits
that such status is expected to provide to investors, broker-dealers,
mutual funds, vendors of municipal information, municipal security
analysts, other market professionals, and the public generally.\108\
Further, as discussed in section III.A.3. below, we believe that having
the MSRB serve as the repository for the electronic submission and
availability of continuing disclosure documents could foster
competition for value-added products and services and thus it is not
anti-competitive for the MSRB to serve as the repository.
---------------------------------------------------------------------------

    \108\ See discussion above regarding the MSRB's status as an SRO
and resulting Commission oversight, infra Section III.A.3.
---------------------------------------------------------------------------

    With respect to the statement that broker-dealers would pass on
fees to their customers to support the EMMA system, the Commission
notes that the MSRB, as an SRO, would have to file any fees relating to
the use of EMMA with the Commission under section 19(b) of the Exchange
Act.\109\ The Commission further notes that broker-dealers currently
are charged fees for access to disclosure documents obtained from the
NRMSIRs that they currently may or may not pass on to their customers.
According to the MSRB, it presently anticipates no increase in fees on
brokers, dealers, and municipal securities dealers who effect
transactions in municipal securities to establish and operate the EMMA
system.\110\ The MSRB has indicated that it has funds on hand that,
together with amounts it will collect in the future under its current
fee schedule, it believes will be sufficient to establish and operate
the EMMA system.\111\
---------------------------------------------------------------------------

    \109\ 15 U.S.C. 78s(b). Under Section 15B(b)(2)(J) of the
Exchange Act, 15 U.S.C. 78o-4(b)(2)(J), among other requirements,
any fees charged by the MSRB must be reasonable.
    \110\ Telephone conversation between Earnesto Lanza, General
Counsel, MSRB, and Martha Mahan Haines, Chief of the Office of
Municipal Securities and Assistant Director, Division of Trading and
Markets, October 22, 2008.
    \111\ Id.
---------------------------------------------------------------------------

    Indeed, we anticipate that the accessibility of documents through
the repository will greatly benefit dealers in satisfying their
obligation to have a reasonable basis for investment recommendations
and other regulatory responsibilities, in addition to investors and
other market participants who seek information about municipal
securities. All commenters who addressed this issue supported this
conclusion.\112\
---------------------------------------------------------------------------

    \112\ See SIFMA Letter, at 2, ICI Letter, at 3, Dickman Letter,
Grant Letter, and Mooney Letter.
---------------------------------------------------------------------------

3. Competitive Concerns With a Single Repository
    In the Proposing Release, we discussed the competitive implications
generally of having a single repository for continuing disclosure
documents and specifically of having the MSRB serve as the sole
repository and sought commenters' views on potential competition
issues. With respect to the Exchange Act goal of promoting competition,
we note that, when we adopted Rule 15c2-12 in 1989, we strongly
supported the development of one or more central repositories for
municipal disclosure documents.\113\ We ``recognize[d] the benefits
that may accrue from the creation of competing private repositories,''
and indicated that ``the creation of central sources for municipal
offering documents is an important first step that may eventually
encourage widespread use of repositories to disseminate annual reports
and other current information about issuers to the secondary markets.''
\114\ Further, when we adopted the 1994 Amendments, we stated that the
``requirement to deliver disclosure to the NRMSIRs and the appropriate
SID also allay[ed] the anti-competitive concerns raised by the creation
of a single repository.'' \115\
---------------------------------------------------------------------------

    \113\ See 1989 Adopting Release at 54 FR 28807, supra note 18.
See also Securities Exchange Act Release No. 33742 (March 9, 1994),
59 FR 12759 (March 17, 1994) (File No. S7-5-94) (proposing release
for the 1994 Amendments) (``1994 Proposing Release'').
    \114\ See 1989 Adopting Release, supra note 18. See also 1994
Proposing Release, supra note 113.
    \115\ See 1994 Amendments, supra note 21.
---------------------------------------------------------------------------

    Since the adoption of the 1994 Amendments, there have been
significant advancements in technology

and information systems that allow market participants and investors,
both retail and institutional, easily, quickly, and inexpensively to
obtain information through electronic means. The exponential growth of
the Internet and the capacity it affords to investors, particularly
individual investors, to obtain, compile and review information has
likely helped to keep investors better informed. In addition to the
Commission's EDGAR system, which contains filings by public companies
required to file periodic reports and by mutual funds, we have
increasingly encouraged and, in some cases required, the use of the
Internet and Web sites by public reporting companies and mutual funds
to provide disclosures and communicate with investors.\116\
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    \116\ See, e.g., Securities Exchange Act Release Nos. 52056
(July 19, 2005), 70 FR 44722 (August 3, 2005) (File No. S7-38-04)
(adopting amendments to encourage and, in some cases, mandate the
use of an Internet site in securities offering); 56135 (July 26,
2007), 72 FR 42222 (August 1, 2007) (File No. S7-03-07) (adopting
amendments to the proxy rules under the Exchange Act requiring
issuers and other soliciting persons to post their proxy materials
on an Internet Web site and providing shareholders with a notice of
the Internet availability of the materials); and 58288 (August 1,
2008), 73 FR 45862 (August 7, 2008) (File No. S7-23-08)
(interpretative release providing guidance on the use of company Web
sites).
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    Our adoption of the proposed amendments, which provide for having a
single repository for the electronic collection and availability of
continuing disclosure documents, will help further the Exchange Act
objective of promoting competition because information about municipal
securities will be more widely available to market professionals,
investors, information vendors, and others as a result of the final
amendments. For example, we believe that competition among vendors can
increase because vendors can utilize this information to provide value-
added services to municipal market participants. The rule amendments
also may promote competition in the purchase and sale of municipal
securities because the greater availability of information, delivered
electronically through a single repository, may instill greater
investor confidence in the municipal securities market. Moreover, this
greater availability of information also may encourage improvement in
the completeness and timeliness of disclosures by issuers and obligated
persons and may foster interest in municipal securities by retail and
institutional customers. As a result, more investors may be attracted
to this market sector and broker-dealers may compete for their
business.
    In the Proposing Release, we acknowledged that adoption of the
proposed amendments potentially could have an adverse impact on one or
more existing NRMSIRs, especially if their business models depended on
their status as a NRMSIR. Moreover, since NRMSIRs have received
compensation for providing copies of continuing disclosure documents to
persons who request them, we noted that one or more NRMSIRs possibly
could be adversely affected by the rule amendments, if they no longer
have available to them a steady flow of funds from providing for a fee
copies of continuing disclosure documents to persons who request them.
As a result of the final amendments, a NRMSIR could find that it would
have to revise its current manner of doing business or face a
significant downturn in its business operations. Vendors of information
about municipal securities, other than NRMSIRs, also could be affected
by the final amendments because the MSRB proposes to provide
information electronically free of charge.
    In addition, because there would be just one repository, in lieu of
the four NRMSIRs, the Proposing Release noted that the proposed
amendments could reduce competition with respect to services provided
by NRMSIRs as information vendors. In addition to supplying municipal
disclosure documents upon request, NRMSIRs also provide value-added
market data services to municipal investors that incorporate continuing
disclosure information. We noted in the Proposing Release that, if
NRMSIRs are adversely affected by the proposed amendments, it is
possible that there could be a reduction in these value-added market
data services relating to municipal securities or a loss of innovation
in offering competing information services regarding municipal
securities.
    We received comment letters from two NRMSIRs that raised concerns
about the competitive effects of the proposed amendments.\117\ The
primary concerns, raised by both commenters, relate to the MSRB's role
as the sole repository of continuing disclosure documents and the
competitive effects that this would have on existing vendors of
municipal disclosure information. One commenter stated that the
Commission's proposal ``would allow the MSRB to impose restrictions on
municipal issuers and obligated persons by limiting the filings to a
single, electronic format.'' \118\ In addition, this commenter noted
that the Commission's proposal would place the MSRB ``in direct
competition with commercial vendors who have served the market as
practical implementers of Rule 15c2-12 without any subsidy for more
than a decade.'' \119\ This commenter also expressed concern that the
MSRB would unfairly discriminate against private vendors by controlling
their access to information through fee structures and dissemination of
information.\120\ The Commission acknowledges that the existing NRMSIR
system was an improvement over the disclosure regime that was in place
prior to its creation. However, we believe that there have been
significant improvements in technology that will allow for increased
access to municipal disclosure information to investors and others for
free via the Internet. This supports having the MSRB serve as the sole
repository. We continue to believe that our rule amendments being
adopted today are a significant step forward in fostering greater
availability of municipal disclosures to a broad range of market
participants, investors, and other individuals and entities, thereby
preventing fraud. Moreover, we note that a majority of commenters
recognized there were inefficiencies with respect to the current
municipal disclosure system and supported the proposed amendments.\121\
---------------------------------------------------------------------------

    \117\ See DPC DATA Letter and SPSE Letter.
    \118\ See DPC DATA Letter, at 1.
    \119\ See DPC DATA Letter, at 2.
    \120\ Id.
    \121\ See supra notes 57-64 and accompanying text.
---------------------------------------------------------------------------

    Another commenter echoed similar sentiments as the commenter above
and cited to the Commission's statements in adopting Rule 15c2-12 in
1989 and amendments to the Rule in 1994, which discussed possible anti-
competitive concerns regarding the use of a single repository.\122\
This commenter noted that eliminating the NRMSIR function would upset
the balance of its current business model and have an impact on its
ability to provide value-added products and services.\123\ The
commenter disputed that the potential burdens on competition would be
justified by the proposed amendments' adoption because, in its view,
the current issues with municipal disclosure lie in the quality and
timeliness of the information that is filed.\124\ This commenter also
urged the Commission to adopt an alternative approach.\125\ Under this
commenter's proposal, the MSRB would not be the sole repository for
municipal disclosure

information.\126\ Instead, this commenter proposed having an
unspecified entity serve as a central electronic post office for
municipal disclosure information where ``issuers and obligors would
file documents through a single electronic format'' and such entity
``would then forward the centrally-filed documents in real time to the
NRMSIRs.'' \127\ The commenter expressed no opinion regarding the
identity of the entity that should serve as the central electronic post
office or how such entity would be chosen.\128\
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    \122\ See SPSE Letter, at 5-7.
    \123\ See SPSE Letter, at 7.
    \124\ See SPSE Letter, at 7-8.
    \125\ See SPSE Letter, at 3-5.
    \126\ See SPSE Letter, at 4.
    \127\ See SPSE Letter, at 2. See discussion above in Section
III.A.1.
    \128\ Id.
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    Although two commenters questioned whether the proposed amendments
would benefit competition,\129\ the Commission continues to believe
that having a single repository will provide the benefits discussed
throughout the release and will not have a significant adverse effect
on the ability or willingness of private information vendors to compete
to create and market value-added data products. Commercial vendors will
be able to readily access the information made available by the MSRB to
re-disseminate it or use it in whatever value-added products they may
wish to provide.\130\ In fact, we believe a single repository in which
documents are submitted in an electronic format could encourage the
private information vendors to disseminate municipal securities
information by reducing the cost of entry into the information services
market. We also believe that existing vendors may need to make some
adjustments to their infrastructure, facilities, or services offered.
However, we believe that some vendors could determine that they no
longer will need to invest in the infrastructure and facilities
necessary to collect and store continuing disclosure documents, and new
entrants into the market will not need to obtain the information from
multiple locations, but rather could readily access such information
from one centralized source. Thus, we believe that all vendors should
be able to obtain easily continuing disclosure documents and should be
able to compete in providing value-added services.
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    \129\ See DPC DATA Letter, at 2, and SPSE Letter, at 6-8.
    \130\ In addition to making available such information on the
MSRB's Web site through EMMA, the MSRB has indicated that it will
make continuing disclosure documents available by subscription for a
fee to information vendors and other bulk data users on terms that
will promote the development of value-added services by subscribers
for use by market participants. See MSRB EMMA Proposal, 73 FR at
46163. The fees for this subscription service will be subject to a
proposed rule change to be filed with the Commission under Section
19(b) of the Exchange Act.
---------------------------------------------------------------------------

    We previously stated that we would specifically consider the
competitive implications of the MSRB becoming a repository.\131\ In
addition, we stated that if we were to conclude that the MSRB's status
as a repository might have adverse competitive implications, we would
consider whether we should take any action to address these
effects.\132\ As noted earlier, we recognize that competition with
respect to certain information services regarding municipal securities
that are provided by the existing NRMSIRs could decline should the MSRB
become the central repository. Two commenters suggested in their
comment letters that a decrease in competition could occur as a result
of the Commission's rulemaking.\133\ As discussed in more detail above
and in the Proposing Release, circumstances have changed since we last
considered Rule 15c2-12 amendments in 1994. For example, technology
developments have facilitated access to information and access to
municipal information typically is subject to a fee and can be
difficult for individuals to obtain. Further, the NRMSIRs did not
develop a system of linkages with each other. We continue to believe
that one of the benefits in having the MSRB as the sole repository will
be the MSRB's ability to provide a ready source of continuing
disclosure documents to other information vendors who wish to use that
information for their products. Private vendors could utilize the MSRB
in its capacity as a repository as a means to collect information from
the continuing disclosure documents to create value-added products for
their customers.\134\
---------------------------------------------------------------------------

    \131\ See Securities Exchange Act Release No. 28081 (June 1,
1990), 55 FR 23333 (June 7, 1990) (File No. SR-MSRB-89-9).
    \132\ Id.
    \133\ See DPC DATA Letter and SPSE Letter.
    \134\ The Commission notes that two commenters raised concerns
with the potential subscription fees associated with having the MSRB
as the single repository. The Commission notes that the MSRB will be
required to file a proposed rule change with the Commission pursuant
to Section 19(b) of the Exchange Act regarding any subscription fees
for a data stream that it proposes as well as any changes to those
fees.
---------------------------------------------------------------------------

    With respect to concerns that the MSRB could control private
vendors' access to information through unfair fee structures and biased
dissemination of information, we note that, as an SRO, the MSRB will
need to file its fee changes and rule proposals relating to its EMMA
system with the Commission under section 19(b) of the Exchange Act.
When the Commission publishes any such proposed rule changes,
interested parties will have the opportunity to comment and bring to
our attention any potential issues that they discern.
    We do not believe that there are competitive implications that
would uniquely apply to the MSRB in its capacity as the sole
repository. As we have noted, we believe the MSRB's status as an SRO
will provide an additional level of Commission oversight since changes
to its rules relating to continuing disclosure documents will have to
be filed for Commission consideration as a proposed rule change under
section 19(b) of the Exchange Act. Accordingly, we believe that any
competitive impact that may result from the MSRB's status as the sole
repository is justified by the benefits that such status is expected to
provide to investors, broker-dealers, mutual funds, vendors of
municipal information, municipal security analysts, other market
professionals, and the public generally.
4. Electronic Document Submission
    Because the current environment differs markedly from the time when
Rule 15c2-12 was adopted in 1989 and subsequently amended in 1994, we
believe that it is appropriate to adopt an approach that utilizes the
significant technological advances, such as the development and use of
various electronic formats, which have occurred in the intervening
years. Thus, we are adopting the proposed amendments that specify that
continuing disclosure documents must be provided to the MSRB in an
electronic format as specified by the MSRB.\135\
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    \135\ We note that the MSRB will be required to file a proposed
rule change with the Commission pursuant to Section 19(b) of the
Exchange Act regarding the electronic format that it wishes to
prescribe as well as any changes to that format. In fact, the MSRB
prescribed the format for submissions of continuing disclosure
documents in a recent filing with the Commission. See MSRB EMMA
Proposal, supra note 12.
---------------------------------------------------------------------------

    We believe that this method of submission will better enable the
information to be promptly posted by the single repository and made
available to the public without charge. Electronic submission also will
eliminate the need for manual handling of paper documents, which can be
a less efficient and more costly process. For instance, the submission
of paper documents would require the repository to manually review,
sort and store such documents. There is also a potential for a less
complete record of continuing disclosure documents at the repository if
such documents are submitted in paper to the repository and, for
instance, are misplaced or misfiled. The

Commission believes that submissions in an electronic format will not
be burdensome on issuers or other obligated persons, since many
continuing disclosure documents already are being created in an
electronic format and, as a result, are readily transmitted by
electronic means.
    We requested comment on the proposed amendments to provide
continuing disclosure documents in an electronic format, including
whether submitting continuing disclosure documents in an electronic
format would increase the efficiency of submission and availability of
continuing disclosure documents, and whether submitting the documents
in an electronic format would facilitate wider availability of the
information. Furthermore, we requested comment concerning whether the
proposed amendments should allow for the submission of paper documents
and, if so, whether any conditions should be imposed in connection with
paper submissions. Comments also were requested on whether the proposed
amendments should allow for the availability of paper copies upon
request from the central repository.
    The commenters who addressed this topic supported the proposal
that, under continuing disclosure agreements, continuing disclosure
documents must be provided in an electronic format.\136\ These
commenters generally expressed the opinion that the current disclosure
system, which relies on paper-based filings, should be updated in light
of today's use of, and advances in, technology and that the electronic
submission of documents would better enable the information to be
promptly submitted, categorized, and posted on the Internet for
investor use. In addition, one commenter noted that ``the proposed
amendments provide for necessary flexibility in changes to technology
by delegating to the MSRB the authority to determine electronic
formatting and identifying information.'' \137\ Further, one commenter
mentioned that, while some issuers, especially smaller issuers, may
have to purchase new software in order to submit electronic documents,
the overall long-term savings that an electronic-based central
repository would provide would benefit state and local governments and
authorities.\138\ However, as discussed in section III.A.6. below, two
commenters expressed the opinion that smaller issuers may need
additional time to adapt to the need to obtain documents in an
electronic format.\139\ No commenters suggested that the MSRB should
accept paper documents.
---------------------------------------------------------------------------

    \136\ See Vanguard Letter, IAA Letter, e-certus Letter, NASACT
Letter, ICI Letter, Multiple-Markets Letter, NFMA Letter, EDGAR
Online Letter, SPSE Letter and DAC Letter.
    \137\ See SIFMA Letter, at 3.
    \138\ See GFOA Letter, at 2.
    \139\ See NASACT Letter, at 2, and GFOA Letter, at 2.
---------------------------------------------------------------------------

    Two commenters \140\ urged the implementation of an interactive
data format (i.e., XBRL) for EMMA. In the Proposing Release, we noted
that the availability of audited financial statements and other
financial and statistical data in an electronic format by issuers and
obligated persons could encourage the establishment of the necessary
taxonomies and permit states and local governments and other obligated
persons to make use of XBRL in the future, should they wish to do
so.\141\ The final amendments to the Rule do not designate the
electronic format or formats that EMMA will accept; instead, they
provide that the MSRB will prescribe the format, which will be subject
to the section 19(b) rule filing process. Nevertheless, we note that
this provision allows flexibility for future implementation of improved
methods for the electronic presentation of information.
---------------------------------------------------------------------------

    \140\ See e-certus Letter, at 2, and EDGAR Online Letter, at 6.
    \141\ See Proposing Release, 73 FR at 46144 n.64.
---------------------------------------------------------------------------

    One commenter stated that the design of the electronic filing
format should be entrusted to a joint industry committee.\142\ This
commenter further noted its belief that the notice and comment process
would not be an adequate substitute for a joint industry working group
because it would not permit ongoing dialogue.\143\ While we do not
believe that a joint industry committee is the only method by which the
electronic filing format could be determined, we do believe that the
notice and comment process is necessary to allow issuers, obligated
persons and others a method for providing input in the determination of
the electronic filing format. The Commission notes that our rule
amendments do not preclude the formation of a joint industry committee
that would be able to work with the MSRB in designing the electronic
filing format. In addition, we expect that the MSRB would welcome an
ongoing dialogue with those industry participants that wish to provide
input on the electronic filing format and any other aspects of the
continuing disclosure component of the EMMA system.
---------------------------------------------------------------------------

    \142\ See SPSE Letter, at 9.
    \143\ Id.
---------------------------------------------------------------------------

5. Identifying Information
    To enable the continuing disclosure documents to be identified and
retrieved accurately, we are adopting new subparagraph (b)(5)(iv) of
Rule 15c2-12, as proposed to be amended, to require Participating
Underwriters to reasonably determine that the issuer or obligated
person has undertaken in writing to accompany continuing disclosure
documents submitted to the MSRB with identifying information as
prescribed by the MSRB. Similarly, the Commission is adopting a
conforming change to subparagraph (d)(2)(ii)(C) of the Rule, relating
to the limited undertaking set forth in Rule 15c2-12(d)(2)(ii), to
specify that continuing disclosure agreements provide that the relevant
continuing disclosure documents shall be provided to the MSRB and shall
be accompanied by identifying information as prescribed by the
MSRB.\144\
---------------------------------------------------------------------------

    \144\ The MSRB proposed certain identifying information to be
required in the MSRB EMMA Proposal, which the Commission is also
approving. See supra note 12. We note that the MSRB would be
required to file a proposed rule change with the Commission pursuant
to Section 19(b) of the Exchange Act regarding any additional
identifying information and any changes to that information that it
wishes to prescribe.
---------------------------------------------------------------------------

    We believe that providing identifying information with each
submitted document will permit the repository to sort and categorize
the document efficiently and accurately. We also anticipate that the
inclusion with each submission of the basic information needed to
accurately identify the document will facilitate the ability of
investors, market participants, and others to reliably search for and
locate relevant disclosure documents. Facilitation of the efficient
retrieval of information is designed to decrease the possibilities for
fraudulent practices. Furthermore, we expect that there will be a
minimal burden on Participating Underwriters to comply with this
requirement because the only change is that they would need to
determine reasonably that issuers and obligated persons have
contractually agreed to supply the identifying information prescribed
by the MSRB. On the other hand, there will be a significant benefit to
investors and other municipal market participants as a result of this
amendment because they will be able to more easily retrieve from the
MSRB the information that they seek. Indeed, issuers and other
obligated persons that choose to submit continuing disclosure documents
through some existing dissemination agents and document delivery
services already are supplying

identifying information with their submissions.\145\
---------------------------------------------------------------------------

    \145\ The commitment by an issuer to provide identifying
information exists only if it were included in a continuing
disclosure agreement. As a result, issuers submitting continuing
disclosure documents pursuant to the terms of undertakings that were
entered into prior to the effective date of the final amendments and
that did not require identifying information will be able to submit
documents without supplying identifying information. Nevertheless,
we encourage such issuers to include identifying information when
they or their agent submit continuing disclosure documents to the
repository. See also Section III.C., infra discussing transition
issues.
---------------------------------------------------------------------------

    The Proposing Release also requested comments regarding supplying
identifying information as prescribed by the MSRB and regarding
alternative methods that would assist investors and municipal market
participants in locating specific information about a municipal
security that is submitted under the Rule.
    Commenters generally supported requiring Participating Underwriters
to reasonably determine that the issuer or obligated person has
undertaken in writing to accompany all documents submitted to the MSRB
with identifying information as prescribed by the MSRB.\146\ In
addition, one commenter did not believe that this determination would
impose an unreasonable burden on underwriters.\147\ The need for such
information was generally perceived as essential to permit investors
and others to access continuing disclosure documents from the
MSRB.\148\ Two commenters observed that in order for the EMMA system to
sort and categorize disclosure documents efficiently and accurately,
submissions to EMMA should include specific identifying
information.\149\ Two other commenters noted that the need for
identifying information is essential.\150\ The Commission believes that
it is in the interest of issuers and obligated persons to provide
accurate indexing information. Moreover, under rule changes in this
release and the MSRB Approval Order, identifying information will be
required by Commission and MSRB rules. Several commenters suggested
specific items of identifying information that should be prescribed by
the MSRB or sought clarification about such items.\151\ Because these
comments are pertinent to the MSRB's EMMA proposal, and not to the
Commission's adoption of these amendments, they are addressed in the
Commission order approving the continuing disclosure document component
of the EMMA system.\152\
---------------------------------------------------------------------------

    \146\ See, e.g., GFAO Letter, at 2, Vanguard Letter, at 4, SIFMA
Letter, at 2, Texas MAC Letter, OMAC Letter, ICI Letter, at 5,
Multiple-Markets Letter, at 2-3, NFMA Letter, at 1, and Edgar Online
Letter, at 3.
    \147\ See SIFMA Letter, at 2.
    \148\ See, e.g., Vanguard Letter, at 4, Texas MAC Letter, NFMA
Letter, at 2, and ICI Letter, at 5.
    \149\ See Vanguard Letter, at 4, and NFMA Letter, at 1.
    \150\ See Texas MAC Letter and OMAC Letter.
    \151\ See, e.g., Edgar Online Letter, at 3, DAC Letter, at 6,
Multiple-Markets Letter, at 3, NFMA Letter, at 2, and NAHEFFA
Letter, at 2.
    \152\ See MSRB Approval Order, supra note 12.
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6. Exemptive Provision
    We are amending Rule 15c2-12(d)(2)(ii), as proposed, which provides
for a limited exemption from the requirements of paragraph (b)(5) of
the Rule, as long as the conditions specified in paragraph (d)(2) are
met. The exemption in Rule 15c2-12(d)(2) provides that paragraph (b)(5)
of the Rule, which relates to the submission of continuing disclosure
documents pursuant to continuing disclosure agreements, does not apply
to a primary offering if three conditions are met. These conditions
are: (i) The issuer or the obligated person has less than or equal to
$10 million of debt outstanding; \153\ (ii) the issuer or obligated
person has undertaken in a written agreement or contract (``limited
undertaking'') to provide: (A) upon request to any person or at least
annually to the appropriate SID, if any, financial information or
operating data regarding each obligated person for which financial
information or operating data is presented in the final official
statement, which financial information and operating data shall
include, at a minimum, that financial information and operating data
which is customarily prepared by such obligated person and is publicly
available,\154\ and (B) to each NRMSIR or to the MSRB, and to the
appropriate SID, if any, material event notices; \155\ and (iii) the
final official statement identifies by name, address and telephone
numbers the persons from which the foregoing information, data and
notices can be obtained.\156\ The rule amendments revise the limited
undertaking set forth in 15c2-12(d)(2)(ii)(A) and (B) by deleting
references to NRMSIRs and SIDs, and by solely referencing the
MSRB.\157\ Accordingly, under the amendment to Rule 15c2-12(d)(2)(ii),
a Participating Underwriter will be exempt from its obligations under
paragraph (b)(5) of the Rule if an issuer or obligated person has
agreed in its limited undertaking to provide annual financial
information, operating data and material event notices to the MSRB in
an electronic format as prescribed by the MSRB, and the exemption's
other conditions are met.
---------------------------------------------------------------------------

    \153\ 17 CFR 240.15c2-12(d)(2)(i).
    \154\ 17 CFR 240.15c2-12(d)(2)(ii)(A).
    \155\ 17 CFR 240.15c2-12(d)(2)(ii)(B).
    \156\ Although this provision provides an exemption for
Participating Underwriters in a primary offering of municipal
securities, as long as its conditions are satisfied, it is commonly
referred to as the ``small issuer exemption.''
    \157\ See Section III.A.7. infra for a discussion of the
deletion from the Rule of references to SIDs.
---------------------------------------------------------------------------

    One commenter stated that the practical effect of the proposed
amendments would be the repeal of the small issuer exemption.\158\ The
commenter stated that, while small issuers receive few requests for
continuing disclosure documents from investors, many of these issuers
are subject to public disclosure laws and make financial information
and operating data publicly available that exceeds that which would be
included in an official statement or required of other issuers pursuant
to a continuing disclosure agreement under Rule 15c2-12(b)(5). The
commenter believed that the practical effect of this proposal would be
to cause small issuers to incur increased costs associated with filing
such information electronically because they believed that the
information may be considerably more extensive than that submitted by
other issuers. The commenter suggested that the Commission either
retain the small issuer exemption in its current form or delete
paragraph (d)(2) of Rule 15c2-12 altogether.
---------------------------------------------------------------------------

    \158\ See NABL Letter, at 2.
---------------------------------------------------------------------------

    We recognize that one effect of the amendments will be that some
small issuers will submit annual financial information and operating
data to the MSRB when currently they do not regularly submit such
disclosures to any repository. We do not believe that electronically
formatting information a small issuer already has and makes publicly
available will be a significant burden. Further, we do not believe that
the final amendments would result in small issuers providing the
voluminous filings the commenter suggests. This amendment does not
affect the nature of a Participating Underwriter's obligation to
reasonably determine that a small issuer has undertaken to deliver
continuing disclosure documents to fulfill the conditions of the
exemption; rather, it affects what the Participating Underwriter needs
to determine regarding the undertaking with respect to the location
where such documents are to be sent. Specifically, the final amendments
do not revise the provision limiting the commitment to provide annual
financial or operating data only if such information is customarily

prepared by such obligated person and is publicly available.
Furthermore, if a small issuer customarily prepares and makes publicly
available information that is more extensive than that provided in the
final official statement, the Participating Underwriter may rely on an
undertaking that is limited to providing the information that would
comprise annual financial information for non-exempt offerings.\159\
---------------------------------------------------------------------------

    \159\ See response to question 18 in letter to John S.
Overdorff, Chair, and Gerald J. Laporte, Vice-Chair, of the
Securities Law and Disclosure Committee of NABL, from Robert L.D.
Colby, Deputy Director, Division of Market Regulation, dated June
23, 1995, 1995 SEC No-Act. LEXIS 563.
---------------------------------------------------------------------------

    Under our amendments, a condition of the exemption available to
Participating Underwriters now will require the undertaking to provide
that annual financial information or operating data, if customarily
prepared and publicly available, will be submitted to the MSRB, rather
than being supplied only upon request to any person or at least
annually to the appropriate SID, if any.\160\ Participating
Underwriters seeking an exemption from subparagraph (b)(5) would no
longer need to reasonably determine that small issuers will provide
annual financial information or operating data to any person, upon
request, pursuant to the small issuer's undertaking. If such requests
are received, small issuers will be able to refer investors or others
to the MSRB to obtain the information. Nevertheless, we recognize that
today some small issuers that reside in a state without a SID and that
historically receive no requests from investors or others for such
annual financial information are not obligated by their continuing
disclosure agreement to provide this information to each NRMSIR, the
MSRB, or any other entity.\161\ In contrast, as a condition of the
exemption, the final amendments will provide that a Participating
Underwriter must reasonably determine that a small issuer undertakes to
provide annual financial information, to the extent the issuer prepares
it and makes it publicly available, to the MSRB in an electronic
format.
---------------------------------------------------------------------------

    \160\ See Section V.B., infra for a discussion of the costs
small issuers may incur in connection with submitting continuing
disclosure documents to the MSRB.
    \161\ We understand that, in some cases, state laws may provide
for the public availability or distribution of such information.
However, these requirements vary widely.
---------------------------------------------------------------------------

    At this time, we believe that our proposed amendment of the small
issuer exemption is preferable to the commenter's alternative
suggestion to eliminate the small issuer exemption altogether.\162\ We
note that the final amendments do not alter the provision that
specifies that the undertaking by small issuers to provide annual
financial information or operating data need be satisfied only to the
extent that such information is customarily prepared by the obligated
person and is publicly available.\163\ We understand that most small
governmental issuers prepare and make publicly available annual
financial statements or other financial and operating data as a matter
of course. For such issuers, we recognize that the difference between
our amendment to the exemption and elimination of the exemption
entirely, as a practical matter, may be minimal. However, we note that
small obligated persons, such as private conduit borrowers, also
benefit from the small issuer exemption. Such obligated persons and
some small issuers may not customarily prepare financial and operating
data for public availability. We believe that it is preferable to take
a measured approach and observe the actual impact of the final
amendments before considering elimination of the small issuer exemption
entirely. Accordingly, the Commission has determined not to eliminate
at this time the small issuer exemption as the commenter
suggested.\164\
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    \162\ See NABL Letter, at 2.
    \163\ 17 CFR 15c2-12(d)(2)(ii)(A).
    \164\ It is possible that this provision could provide a
disincentive to an obligated person to prepare the information and
make it publicly available. As noted above, we understand that most
small governmental issuers routinely prepare and make publicly
available annual financial statements or other financial and
operating data, although some small obligated persons, such as
private conduit borrowers, may not prepare this information and make
it publicly available. We will monitor the extent to which the
exemption as currently crafted fosters a disincentive to preparing
annual financial information and operating data and making it
publicly available and will consider whether any further amendment
to the small issuer exemption is warranted.
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    We believe that the exemptive provision of the amended Rule--that
paragraph (b)(5) of the Rule will not apply under the revised
conditions described above--is justified despite the increased burden
on some small issuers by the amended Rule's objective that this
information be more widely available to investors, market
professionals, and others. The availability of this information should
help brokers to fulfill their obligations and investors to make better
informed investment decisions regarding municipal securities, thereby
helping to deter fraud in the municipal securities market.
7. SIDs
    We are amending subparagraphs (A) through (D) of Rule 15c2-
12(b)(5)(i), as proposed to be amended, to delete references to SIDs,
in addition to references to each NRMSIR. Thus, Participating
Underwriters no longer will need to reasonably determine that issuers
or obligated persons have agreed in continuing disclosure agreements to
provide continuing disclosure documents to the appropriate SID, if any.
We also are revising paragraph (d)(2) of the Rule, which provides for
an exemption from paragraph (b)(5) of the Rule if specified conditions
are met.\165\ The final amendments revise the limited undertaking set
forth in Rule 15c2-12(d)(2)(ii) by deleting references to each NRMSIR
and the appropriate SID, if any, and solely referencing the MSRB and
specifying that the financial information, operating data, and material
event notices are to be provided to the MSRB in an electronic format
and accompanied by identifying information as prescribed by the MSRB.
As noted above, under paragraph (d)(2) of the Rule, Participating
Underwriters will be exempt from their obligation under paragraph
(b)(5) of the Rule if the issuer or obligated person has agreed in its
limited undertaking to provide financial information, operating data,
and material event notices to the MSRB in an electronic format and
accompanied by identifying information as prescribed by the MSRB, and
if the provision's other conditions are met.
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    \165\ See Section III.A.6. supra for a discussion of the
exemptive provision contained in Rule 15c2-12(d)(2).
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    We requested comment on the proposal to omit references to the SIDs
in the Rule. In particular, comment was requested concerning the impact
of removing the references to the SIDs in the Rule, including the
impact of this proposal on the obligations of Participating
Underwriters, issuers and obligated persons. We also requested comment
on the effect of the proposed amendment on SIDs and on their role in
the collection and disclosure of continuing disclosure documents.
    Five commenters addressed the proposed removal of references to
SIDs from the Rule.\166\ Four of the commenters stated that the MSRB
should provide a data feed to SIDs of documents related to issuers in
their states so that those issuers that may be required by their states
to send continuing disclosure documents to a SID need not provide them
to both the

MSRB and a SID.\167\ They believed that this approach would be more
efficient for both issuers and SIDs and result in more complete and
consistent data availability of information from the MSRB and SIDs.
Furthermore, two of these commenters expressly indicated that there
should be no charge to SIDs to receive such a data feed.\168\ One
commenter supported the proposal to remove references to SIDs from the
Rule, noting that there are just three SIDs and that the ease of public
access to the MSRB's EMMA system renders specific reference to SIDs,
unnecessary.\169\
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    \166\ See GFOA Letter, SIFMA Letter, Texas MAC Letter, OMAC
Letter, and Multiple-Markets Letter.
    \167\ See GFOA Letter, at 3, Texas MAC Letter, OMAC Letter, and
Multiple-Markets Letter, at 2.
    \168\ See GFOA Letter, at 3, and Multiple-Markets Letter, at 3.
    \169\ See SIFMA Letter, at 3.
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    Because we are amending the Rule to provide for a single repository
for the electronic collection and availability of continuing disclosure
documents that, in our view, will efficiently and effectively improve
disclosure in the municipal securities market, we believe that it is no
longer necessary to specifically require in the Rule that Participating
Underwriters reasonably determine that issuers and obligated persons
have contractually agreed to provide continuing disclosure documents to
the SIDs or that the provision that provides an exemption from this
requirement refer to SIDs. Nevertheless, the amendments will not affect
the legal obligation of issuers and obligated persons to provide
continuing disclosure documents, along with any other submissions, to
the appropriate SID, if any, as required under the appropriate state
law. In addition, the amendments will have no effect on the obligations
of issuers and obligated persons under outstanding continuing
disclosure agreements entered into prior to the effective date of the
amendments to the Rule to submit continuing disclosure documents to the
appropriate SID, if any, as stated in their existing continuing
disclosure agreements, nor on their obligation to make any other
submissions that may be required under the appropriate state law. We
agree with the opinions of those commenters who underscored the
importance for the document collections of the MSRB and SIDs to be
consistent to avoid uneven access to information that otherwise might
result. However, the commenters' suggestions relating to data feeds,
including free access to such feeds, relate to the operation of the
MSRB's continuing disclosure component of the EMMA system, rather than
to the instant rulemaking and therefore are addressed in connection
with the MSRB Approval Order.\170\
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    \170\ As noted above, the MSRB is required to file any new fees
or changes to its fees with the Commission under Section 19(b) of
the Exchange Act.
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8. Other Amendments
    We are adopting a change to Rule 15c2-12(b)(4)(ii), as proposed,
which currently refers to a NRMSIR with respect to the time period in
which the Participating Underwriter must send the final official
statement to any potential customer. Specifically, under Rule 15c2-
12(b)(4), from the time the final official statement becomes available
until the earlier of: (1) Ninety days from the end of the underwriting
period; or (2) the time when the official statement is available to any
person from a NRMSIR, but in no case less than twenty-five days
following the end of the underwriting period, the Participating
Underwriter in a primary offering is required to send to any potential
customer, upon request, the final official statement. We are amending
the language in Rule 15c2-12(b)(4)(ii), as proposed, to refer to the
MSRB instead of to a NRMSIR. Accordingly, Participating Underwriters
will have the time period from when the final official statement
becomes available until the earlier of: (1) Ninety days from the end of
the underwriting period; or (2) the time when the official statement is
available to any person from the MSRB, but in no case less than twenty-
five days following the end of the underwriting period, to send the
final official statement to a potential customer, upon request.
    In addition, we are adopting similar changes to Rule 15c2-12(f)(3)
and (f)(9), as proposed, which define the terms ``final official
statement'' and ``annual financial information,'' respectively. Rule
15c2-12(f)(3) defines the term ``final official statement'' to mean a
document or set of documents prepared by an issuer of municipal
securities or its representatives that is complete as of the date
delivered to the Participating Underwriter and that sets forth
information concerning, among other things, financial information or
operating data concerning such issuers of municipal securities and
those other entities, enterprises, funds, accounts, and other persons
material to an evaluation of the offering. Rule 15c2-12(f)(9) defines
the term ``annual financial information'' to mean financial information
or operating data, provided at least annually, of the type included in
the final official statement with respect to an obligated person, or in
the case where no financial information or operating data was provided
in the final official statement with respect to such obligated person,
of the type included in the final official statement with respect to
those obligated persons that meet the objective criteria applied to
select the persons for which financial information or operating data
will be provided on an annual basis. Both definitions allow for
financial information or operating data to be set forth in the document
or set of documents, or be included by specific reference to documents
previously provided to each NRMSIR, and to a SID, if any, or filed with
the Commission. We are amending Rule 15c2-12(f)(3) and (f)(9), as
proposed, to replace references to each NRMSIR and the appropriate SID,
if any, with references to the MSRB's Internet Web site. Accordingly,
the amendments to paragraphs (f)(3) and (f)(9) of the Rule will allow
issuers to reference financial information or operating data set forth
in specified documents available to the public from the MSRB's Internet
Web site (or filed with the Commission) as part of the final official
statements and annual financial information, instead of referencing
specific documents previously provided to each NRMSIR and SID.
    We received one comment letter that addressed the proposed
amendment to the definition of ``final official statement.'' \171\ The
commenter expressed technical concerns regarding the first sentence of
paragraph (f)(3), noting that issuers obligated by undertakings made
before the effective date of the final amendments would not have
entered into a ``written contract or agreement specified in paragraph
(b)(5)(i)'' (because paragraph (b)(5)(i) currently requires different
terms of the continuing disclosure undertaking). However, we have not
made the change suggested in the comment letter because we do not
believe that it is necessary. We believe that the amendment as adopted
makes clear that, in reporting any instances in the previous five years
in which each person specified pursuant to paragraph (b)(5)(ii) of the
Rule failed to comply, in all material respects, with any previous
undertakings in a written contract or agreement specified in paragraph
(b)(5)(i) of the Rule, a final official statement must include any such
failures over such period with respect to both written contracts or
agreements entered into in conformance with paragraph (b)(5)(i) of the
Rule prior to the effective date of the amendments and written
contracts or agreements

entered into in conformance with paragraph (b)(5)(i) of the Rule as
amended.
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    \171\ See NABL Letter, at 2-3.
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B. Other Comments

    Two commenters \172\ questioned the Commission's authority to adopt
the proposed amendments in light of the provisions of section 15B(d) of
the Exchange Act, commonly referred to as the ``Tower Amendment.''
\173\ One of the commenters stated its belief that the Tower Amendment
prohibits federal regulation of state issuers; the proposed amendments
place ``de facto regulatory power in the hands of a federal regulatory
body;'' and ``the body in whose hands regulatory power is placed is a
group constituted of those who stand to profit from underwriting of
state-issued securities.'' \174\ The other commenter stated that the
proposed amendments, in combination, with the MSRB's EMMA Proposal, go
further than the 1994 Amendments into the area protected by the Tower
Amendment, because they establish, as the sole repository, a single
Commission-supervised body, the MSRB, that is also subject to the Tower
Amendment.\175\ In addition, this commenter stated a belief that
because the proposed amendments and the MSRB's related rule filing
``are akin to a joint initiative between the SEC and the MSRB,'' they
should be subject to the limits of both provisions of Section 15B(d).
Because the commenter questions whether the Commission's and MSRB's
proposals would in fact improve the availability of municipal
securities disclosure, it believed that it is ``even harder to link the
[proposed amendments and related MSRB rule filing] to preventing fraud,
which is the basis for the Commission's authority.'' \176\
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    \172\ See SPSE Letter, at 12-15, and DPC DATA Letter, at 1.
    \173\ The so-called ``Tower Amendment,'' added Section 15B(d),
15 U.S.C. 78o-4(d) to the Exchange Act. It 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 or
municipal securities dealer 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 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.'' 15 U.S.C. 78o-4(d).
    \174\ See DPC DATA Letter, at 1.
    \175\ See SPSE Letter, at 14.
    \176\ See SPSE Letter, at 14.
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    Three commenters that supported the proposed amendments expressed
their concern about any actions that would allow the Commission to
impose disclosure requirements on issuers.\177\ One of these
commenters, however, expressly noted that ``the proposal's sole purpose
of having the MSRB operate a system to accept and post disclosure
documents does not violate the Tower Amendment.'' \178\
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    \177\ See GFOA Letter, at 1, NASACT Letter, at 2, and NAHEFFA
Letter, at 2.
    \178\ See GFOA Letter, at 3.
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    As we have noted in the past,\179\ with the passage of the
Securities Acts Amendments of 1975 (``1975 Amendments''), Congress
provided for a limited regulatory scheme for municipal securities.\180\
Prior to the passage of the 1975 Amendments, municipal issuers were
exempt from the registration and continuous reporting provisions of
both the Securities Act of 1933 \181\ and the Exchange Act. While
municipal issuers continued to be exempt from all but the antifraud
provisions of the federal securities laws, the 1975 Amendments required
the registration of municipal securities brokers and dealers,\182\ and
established the MSRB,\183\ granting it the authority to promulgate
rules governing the sale of municipal securities effected by brokers,
dealers and municipal securities dealers.
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    \179\ See 1994 Proposing Release, supra note 113.
    \180\ The Securities Acts Amendments of 1975, Pub. L. 94-29, 89
Stat. 97 (June 4, 1975).
    \181\ 15 U.S.C. 77a et seq.
    \182\ 15 U.S.C. 78o-4(a)(1).
    \183\ 15 U.S.C. 78o-4(b)(1).
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    While narrowly tailoring the authority of the MSRB to require that
disclosure documents be provided to investors, Congress was careful to
preserve the authority of the Commission under section 15(c)(2) of the
Exchange Act.\184\ Section 15B(d)(2) expressly indicates that
``[n]othing in this paragraph shall be construed to impair or limit the
power of the Commission under any provision of this title.'' \185\
Thus, while prohibiting the Commission from requiring municipal issuers
to file reports or documents prior to issuing securities in section
15B(d)(1),\186\ Congress expanded the Commission's authority to adopt
rules reasonably designed to prevent fraud. The Commission does not
believe the amendments to Rule 15c2-12 are inconsistent with the
limitations in Exchange Act section 15B(d). As discussed in detail
throughout this release, as well as the Proposing Release, the
Commission believes that the amendments to Rule 15c2-12 are consistent
with its Congressional mandate to, among other things, adopt rules
reasonably designed to prevent fraud in the municipal securities
market.\187\ It is important for investors, market professionals,
analysts, and others to have access to complete and timely descriptive
information about municipal securities and municipal securities
issuers. The proposed amendments are expected to improve access to
information about municipal securities for those who effect
transactions in the municipal markets. Better access to the disclosure
is designed to allow them to compare that information against any other
information disseminated with respect to municipal securities. In
furtherance of the fundamental purpose of Rule 15c2-12, this
accessibility should allow these market participants to more easily
detect potentially fraudulent information. Finally, we do not believe
that this Commission rulemaking implicates section 15B(d)(2), which
applies only to the MSRB. Indeed, this rulemaking comports with section
15B(d)(2)'s explicit reservation of the Commission's authority under
the Exchange Act to, among other things, promulgate regulations
reasonably designed to prevent fraud, thereby protecting investors and
preserving the integrity of the market for municipal securities.