EMMA Gets Ready For New Rule

The Bond Buyer - - Front Page - By Kyle Glazier

WASH­ING­TON – Is­suers will be able to make the new dis­clo­sures re­quired un­der the Se­cu­ri­ties and Ex­change Com­mis­sion’s re­vised Rule 15c212 on EMMA start­ing on the re­vised rule’s Feb. 27, 2019, com­pli­ance date.

The Mu­nic­i­pal Se­cu­ri­ties Rule­mak­ing Board made that an­nounce­ment Tues­day, con­firm­ing that EMMA will be pre­pared to fa­cil­i­tate the dis­clo­sure of two new event no­tices in ad­di­tion to the ex­ist­ing con­tin­u­ing dis­clo­sure obli­ga­tions un­der 15c2-12.

The SEC an­nounced in Au­gust that it was amend­ing the rule to ef­fec­tively re­quire is­suers to dis­close the in­cur­rence of bank loans as well as other types of debt that could po­ten­tially im­pair bond­hold­ers. It also will ef­fec­tively re­quire is­suers to dis­close neg­a­tive de­vel­op­ments as­so­ci­ated with that debt.

The SEC lacks the au­thor-

ity to di­rectly reg­u­late is­suers ex­cept through the an­tifraud pro­vi­sions in the se­cu­ri­ties laws, so the rule re­quires un­der­writ­ers of new is­sues of $1 mil­lion or more to “rea­son­ably de­ter­mine” that the is­suer has en­tered into a writ­ten agree­ment to pro­vide such dis­clo­sures to bond­hold­ers.

“An ef­fec­tive mu­nic­i­pal se­cu­ri­ties mar­ket is en­hanced by ro­bust and com­plete dis­clo­sure by mu­nic­i­pal bond is­suers,” said MSRB Pres­i­dent and CEO Lyn­nette Kelly. “We are com­mit­ted to sup­port­ing the is­suer com­mu­nity and its abil­ity to com­ply with on­go­ing dis­clo­sure re­quire­ments.”

The new dis­clo­sure re­quire­ments will ap­ply if a mu­nic­i­pal­ity is­sues a bond on or af­ter Feb. 27, 2019, for which it en­ters into a new con­tin­u­ing dis­clo­sure agree­ment.

The ad­di­tion of the new dis­clo­sures re­ceived a warm wel­come from many an­a­lysts who had long com­plained of the opaque mu­nic­i­pal bank loan sec­tor, which at­tracted is­suers be­cause banks were able to of­fer money at com­pet­i­tive in­ter­est rates with­out the costs and reg­u­la­tory re­quire­ments in­volved in a pub­lic of­fer­ing of se­cu­ri­ties. The MSRB pro­vided is­suers with the means to vol­un­tar­ily dis­close such in­for­ma­tion, and some did, but the new 15c2-12 will re­quire it.

But some se­cu­ri­ties lawyers have warned that com­pli­ance with the new re­quire­ments will re­quire sig­nif­i­cant anal­y­sis of is­suers’ obli­ga­tions and may lead to “over dis­clo­sure” at the re­quest of un­der­writ­ers who do not wish to rely on is­suers’ own de­ter­mi­na­tions of what fi­nan­cial obli­ga­tions are “ma­te­rial” to in­vestors and there­fore cap­tured un­der the rule.

The Supreme Court has in­ter­preted ma­te­ri­al­ity to mean in­for­ma­tion that a rea­son­able in­vestor would likely con­sider im­por­tant when mak­ing an in­vest­ment de­ci­sion. Some mar­ket par­tic­i­pants want all debt to be dis­closed with­out re­gard to ma­te­ri­al­ity.

Mar­ket groups wel­comed the MSRB’s an­nounce­ment of EMMA’s readi­ness.

“Up­grad­ing the EMMA plat­form to ac­cept new is­suer dis­clo­sures will help en­sure that the im­ple­men­ta­tion of the rule is as smooth as pos­si­ble,” said Les­lie Nor­wood, a man­ag­ing di­rec­tor, as­so­ciate gen­eral coun­sel, and co-head of mu­nis at the Se­cu­ri­ties In­dus­try and Fi­nan­cial Mar­kets As­so­ci­a­tion.

Bill Oliver, the me­dia and in­dus­try li­ai­son at the Na­tional Fed­er­a­tion of Mu­nic­i­pal An­a­lysts, also wel­comed the news and rec­om­mended that is­suers fol­low NFMA’s June 2015 best prac­tice guide­lines for bank loan dis­clo­sure.

Rep­re­sen­ta­tives of the MSRB, along with the SEC, Na­tional As­so­ci­a­tion of Bond Lawyers and Govern­ment Fi­nance Of­fi­cers As­so­ci­a­tion will be host­ing a free we­bi­nar about the 15c2-12 changes on Jan. 17.

MSRB’s Lyn­nette Kelly ex­pressed a com­mit­ment to dis­clo­sure re◽uire­ments

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