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The Securities and Exchange Commission (the SEC) on July 31,
2012 issued a comprehensive report with recommendations to improve
the municipal securities market and enhance disclosure provided to
investors. The report follows an extensive review of the municipal
securities market that began in 2010 and involved field hearings,
meetings between the SEC and market participants and public
comments. Although the report does not change existing law, the
report recommends certain legislative changes, potential rulemaking
by the SEC or the Municipal Securities Rulemaking Board (MSRB), and
enhancements to best practices.
In the report, the SEC recognizes the current limits to its
statutory authority and identifies at least five significant
proposals that would require authorization from Congress. First,
the SEC proposes it be authorized to require municipal issuers to
prepare disclosure pursuant to certain minimum disclosure
standards. However, this would not entail registration or pre-sale
filings of disclosure documents with the SEC. Second, the SEC
recommends proposed amendments to the municipal securities
exemptions (e.g., Section 3(a)(2) under the Securities Act of 1933,
as amended) for conduit borrowers that are not municipal entities.
This proposal is not intended to alter the continuing availability
of other registration exemptions such as those for small offerings
(e.g., intrastate offering exemption and Regulation A's
exemption for public offerings not exceeding $5 million in any
12-month period), private offerings and nonprofits. Third, the SEC
recommends it be authorized to establish the form and content of
financial statements for municipal issuers, to recognize the
financial reporting standards of a designated private sector body
as generally accepted for purposes of the federal securities laws,
and to require municipal securities issuers to have their financial
statements audited. Fourth, the SEC proposes the creation of a safe
harbor from private liability for forward-looking statements of
municipal issuers who meet certain requirements. Fifth, the SEC
seeks authorization for a mechanism (most likely through indenture
trustees) to enforce compliance by issuers and obligated persons
with their continuing disclosure undertakings pursuant to SEC Rule
15c2-12 pursuant to the Securities Exchange Act of 1934, as amended
(Rule 15c2-12).
Within the scope of current regulatory authority, the SEC noted
that it could consider: issuing updated interpretive guidance
regarding disclosure obligations (the SEC's last major guidance
dates back to 1994), amending Rule 15c2-12 and/or continuing to
work with the MSRB to strengthen its rules and further enhance the
MSRB's Electronic Municipal Market Access system (EMMA is the
municipal analogue to the corporate sector's EDGAR).
The report also discusses certain disclosure issues, such as
relating to the content and timing of financial information,
disclosures related to pensions and other post-employment benefits
(OPEB), exposure to derivatives and conflicts of interest.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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