What is the SEC Rule 15c2-12?

Key Provisions of SEC Rule 15c2-12:

1. Primary Disclosure Requirements:
   • Issuers of municipal securities are required to provide certain disclosure documents to the public before the sale of the bonds, including an official statement that provides important information about the bond offering, such as the terms of the bonds, the issuer's financial situation, and any material risks associated with the investment.
   • These disclosures help investors make informed decisions by providing necessary information regarding the financial health and other important aspects of the issuer.
2. Continuing Disclosure Requirements:
   • Ongoing Disclosure: The rule requires municipal issuers to make continuing disclosures after the bond sale. This typically includes annual financial information, such as audited financial statements, and disclosure of certain events that could materially affect the bondholders' investment, such as defaults, changes in credit ratings, or other material events.
   • The continuing disclosures must be made available to the Municipal Securities Rulemaking Board (MSRB) through its EMMA (Electronic Municipal Market Access) system. This is the platform where investors and market participants can access these disclosures.
     
     
   
   
   
   
3. Material Event Disclosure:
   • Issuers must disclose specific material events in a timely manner, including:
     • Principal and interest payment delinquencies.
     • Changes in the bond rating.
     • Occurrences of bankruptcies or other financial difficulties.
     • Certain amendments or defeasances related to the bonds.
   • These disclosures are also required to be made through the MSRB's EMMA system.
4. Exemptions:
   • Some municipal securities, such as those issued by smaller entities or with smaller dollar amounts, may be exempt from some of these disclosure requirements. However, even those that are exempt may still be subject to some degree of ongoing reporting.
5. Role of Broker-Dealers:
   • Broker-dealers who are involved in the underwriting or trading of municipal securities are required to ensure that the issuer has made these required disclosures before they can engage in transactions involving the securities. They are also required to confirm that the issuer has agreed to continue providing the necessary ongoing disclosures.
     
     

Purpose of Rule 15c2-12:

The primary aim of SEC Rule 15c2-12 is to provide transparency and improve the availability of essential information to investors in the municipal bond market. 

It helps to level the playing field for investors by ensuring that they have access to the same information about issuers as broker-dealers and other market participants. 

This transparency is especially critical in the municipal securities market, which historically lacked the same level of disclosure required in other sectors of the financial markets.

What's Important Here?

Rule 15c2-12 ensures that both primary and ongoing disclosures are available to investors, helping them assess the financial health of municipal issuers and make informed decisions. 

It also provides regulatory oversight, requiring municipal issuers to disclose key information in a transparent manner through the MSRB's EMMA system. 

For issuers and bond underwriters, compliance with this rule is essential to ensure that they are meeting legal requirements and providing investors with the information they need.