Regulatory Initiatives Take Center Stage: For States and Localities, Actions by the Municipal Securities Rulemaking Board, the Securities and Exchange Commission, and the Office of Management and Budget Have Taken Center Stage

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As Congress and the Obama administration continue to focus their attentions on legislative matters such as health care and regulatory reform, for states and localities, actions by several regulatory agencies--the Municipal Securities Rulemaking Board, the Securities and Exchange Commission, and the Office of Management and Budget, in particular--have taken center stage.


The Securities and Exchange Commission (SEC) and the Municipal Securities Rulemaking Board (MSRB) proposed new mandatory and voluntary rules concerning municipal securities disclosure standards. These proposed rules directly affect municipal bond issuers. The proposals were announced at a July 15 SEC hearing where SEC Chairman Mary Schapiro and other commissioners reiterated their interest in additional SEC oversight of the municipal bond market. This included calls from nearly all the commissioners for Congress to provide the SEC with more control over municipal securities, as well as issuers of municipal securities. While the rules proposed in July do not expand the SEC's authority, nor has legislation been formally discussed or introduced to do so, Chairman Schapiro has testified before Congress numerous times this year that the SEC will seek more authority in this market.

The current SEC proposed rules would amend Rule 15c2-12 and expand the requirements that need to be included in an issuer's continuing disclosure agreement. The proposed new requirements include:

* Applying disclosure rules contained within SEC Rule 15c2-12 to variable rate demand obligations.

* Requiring the disclosure of events that affect a bond's tax exemption, such as an Internal Revenue Service (IRS) proposed or final decision on whether or not the tax-exempt status of the bond is at risk.

* Requiring material event notices to be submitted within 10 business days after the event. Currently, material event notices must be submitted "in a timely manner".

* Adding to the number of listed "material events" to include tender offers; bankruptcy; insolvency, receivership or similar proceedings; mergers, consolidations, or acquisitions; the sale of all or substantively all of the assets of the obligated person or their termination; anal the appointment of a successor or additional trustee or the change of the name of a trustee.

* Requiring disclosure of information in certain areas--including rating changes, failure to pay principal and interest, and other areas that reflect financial difficulties--even if the information is not found to be "material".

Comments to the SEC on the proposed changes to Rule 15c2-12 are due September 8, 2009.

The MSRB proposed and reiterated applicable municipal bond disclosure rules to the broker/dealer community. This includes allowing issuers or their representatives to submit preliminary offering documents to the Electronic Municipal Market Access (EMMA) system. Additionally, the rules propose new indicators that would be applied when an issuer makes certain voluntary disclosure filings with EMMA. These indicators include:

* Filing annual financial statements prepared pursuant to generally accepted accounting principles (GAAP), as established by the Governmental Accounting Standards Board (GASB).

* Receiving the GFOA's Certificate of Achievement for Excellence in Financial Reporting in connection with the preparation of a comprehensive annual financial report (CAFR).

* Providing a link to an issuer's Web site, where investor relations or financial/operation information is posted.

* Submitting annual financial information within 120 calendar days after the end of the entity's fiscal year.

The proposed changes were published in the Federal Register on July 22, 2009, with comments due August 12, 2009. The comments submitted on behalf of the GFOA reflect significant concerns with the voluntary MSRB indicator for submitting annual filings within 120 days following the end of the government's fiscal year. …