In August 2018, the U.S. Securities and Exchange Commission (the “SEC”) announced that it has adopted amendments to Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in an effort to enhance transparency in the municipal securities market. The SEC has stated that the commission believes the amendments will provide investors access to important information relating to obligated persons by increasing the amount of information that is publicly disclosed about material financial obligations incurred by obligated persons.


Direct placements by issuers and obligated persons as financing alternatives to public offerings of municipal securities have increased dramatically since 2009, demonstrating the need for more timely disclosure. According to the FDIC Consolidated Reports of Condition and Income filed by financial institutions, the dollar amount of commercial bank loans to state and local governments has increased from $66.5 billion as of the end of 2010 to $190.5 billion by the end of the first quarter 2018. This means the dollar amount has almost tripled since the financial crisis. Additionally, individuals held approximately $2.567 trillion of outstanding municipal securities at the end of first quarter 2018 (either directly or indirectly through mutual funds, money market funds, closed-end funds, and exchange-traded funds).

However, information pertaining to such direct placements has only been disclosed on the Municipal Securities Rulemaking Board’s (the “MSRB”) EMMA system by obligated persons and only on a voluntary basis. Therefore, the SEC indicated that investors may not have had any access or timely access to disclosure information concerning the incurrence of certain financial obligations, and, to the extent disclosure was available, that disclosure may have lacked material information about the obligations. The SEC further indicated that investors may not have had “any access or timely access” to disclosure of the occurrence of events that reflect financial difficulties. The SEC adopted the Rule 15c2-12 amendments to address this perceived lack of investor access to material information.

Amendments to Rule 15c2-12

Rule 15c2-12 of the Exchange Act requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities to reasonably determine that the issuer or obligated person has agreed to provide to the MSRB notice of certain events within 10 business days of the event’s occurrence. The amendments to Rule 15c2-12 add two new events to the listing of those requiring notice:

  • (a) the incurrence of a financial obligation of the issuer or obligated person, if material, or (b) an agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and
  • a default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.

In addition, the SEC proposed a definition of the term “financial obligation.”  As proposed, the term financial obligation means:

  • A debt obligation;
  • A derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or
  • A guarantee of (i) or (ii)

The term financial obligation does not include municipal securities as to which a final official statement has been provided to the MSRB consistent with Rule 15c2-12.

The amendments to Rule 15c2-12 do not amend any of the existing provisions of the rule and total approximately eleven lines of new text.  While the text of the amendments is short, the amendments have significant implications for obligated persons and underwriters of publicly-offered municipal securities, as well as financial institutions that enter into direct purchases, private placements, bank loans, municipal leases, and other types of financial obligations with obligated persons.

Additional Information

The compliance date for the amendments is February 27, 2019.

For the full text of the amendment, please see SEC Release No. 34-83885, “Amendments to Municipal Securities Disclosure”.

For more information on Municipal Securities, check out our previous blogs on the topic.