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SEC Rule 15c2-12

U.S. Securities and Exchange Commission (SEC) headquarters in Washington, D.C. Source: SEC via Flickr
U.S. Securities and Exchange Commission (SEC) headquarters in Washington, D.C. Source: SEC via Flickr

Rule promulgated under the 1934 Act and adopted by the SEC in 1989 to establish standards for the procurement and dissemination of disclosure documents by Underwriters as a means of enhancing the accuracy and timeliness of disclosure to municipal Securities investors.

Rule 15c2-12 directly regulates Underwriters’, but not Issuers’, conduct in connection with the initial offering and sale of municipal Securities.  Rule 15c2-12 “was designed to establish standards for the procurement and dissemination by Underwriters of offering documents as a means of enhancing the accuracy and timeliness of disclosure to investors in municipal securities” and to “assist underwriters in meeting their responsibilities under the general antifraud provisions of the federal securities laws.” To reiterate, Rule 15c2-12 does not regulate municipal Issuers. The obligations of municipal Issuers to provide ongoing disclosure is imposed by the Continuing Disclosure Undertaking or Agreement that Rule 15c2-12 requires the Underwriter to obtain. Thus, Rule 15c2-12 effectively controls Issuer access to the public markets even though it technically does not directly apply to Issuers.


Current Requirements

Under Rule 15c2-12, when participating in a primary Public Offering, subject to certain exceptions discussed below, an Underwriter must: (1) obtain and review an Official Statement that, except for certain specified information, is “deemed final” by an Issuer prior to making a bid for, or purchase, offer or sale of, municipal Securities; (2) in Negotiated Sales, provide the most recent Preliminary Official Statement (if one exists) upon request by a potential customer; (3) contract to receive within 7 business days of the date of sale or in time to accompany a request for payment from any customer, sufficient copies of the final Official Statement to comply with the following requirement; and (4) deliver copies of the final Official Statement upon request by a potential customer for a specified time period.

Additionally, before an Underwriter may purchase or sell municipal Securities in such an offering, Rule 15c2-12 requires that the Underwriter “reasonably determine” that the Issuer or an “obligated person” has undertaken in writing, for the benefit of the Securities holders, to provide certain ongoing disclosure information to the MSRB.  These undertakings are commonly referred to as the Continuing Disclosure Undertaking or Agreement (CDA).  In the CDA, the Issuer or obligated person must agree to provide annual financial information and operating data (including audited financial statements, when and if available) and timely notice of the occurrence of certain listed events to the MSRB through its EMMA portal.

The final Official Statement that must be reviewed by the Underwriter is required to include (1) terms of the proposed Issue of Securities; (2) financial information or operating data concerning all persons that are material to an evaluation of the offering, among other information; and (3) a description of the Continuing Disclosure Undertaking or Agreement and of any instances in the previous five years in which the obligated person for which annual updates will be reported failed to comply, in all material respects, with the obligations in any previous Continuing Disclosure Undertaking or Agreement.

There are several types of transactions that are exempt from Rule 15c2-12. It applies only to an initial (i.e., primary) Public Offering of municipal Securities with an aggregate Principal amount of $1 million or more.  Primary Public Offerings are exempt from Rule 15c2-12 if the Securities offered are in Minimum Denominations of $100,000 and (1) have a maturity of nine months or less; or (2) are sold to no more than 35 persons, each of whom the Underwriter reasonably believes (a) has such knowledge and experience that it is capable of evaluating the merits and risks of investing in the Securities and (b) is not purchasing the Securities for more than one account or with a view to distribution. Additionally, primary Public Offerings involving obligated persons that will have less than $10 million in outstanding Principal amount of Securities are exempt from the continuing disclosure requirement of Rule 15c2-12 if the Issuer or an obligated person undertakes for the benefit of Securities holders to provide to the MSRB (1) at least annually the financial information and operating data, if any, that the obligated person customarily prepares and is publicly available; and (2) the same event notices that would be required if the offering were not exempt. Finally, offerings of Securities that mature within 18 months are exempt from the requirements to provide annual financial information and audited financial statements.

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See Also

Electronic Municipal Market Access (“EMMA”)

A website, operated by the MSRB, designated by the SEC as the official source for municipal securities data (including disclosures made pursuant to a continuing disclosure undertaking) and offering documents.

Disclosure Counsel

An attorney or firm of attorneys engaged to assist with understanding and satisfying disclosure responsibilities of an Issuer, both in connection with primary offerings of bonds and in determining whether (and if so, how) to provide secondary market disclosure.

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