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Opening Statement on Proposed Amendment to Rule 15c2-12

Acting Chairman Michael S. Piwowar

March 1, 2017

We now turn to the recommendation from the Office of Municipal Securities to propose rule amendments that would improve public access to information about certain financial obligations incurred by issuers of municipal securities and obligated persons outside the public offering process.  To promote efficient pricing of a municipal issuer’s outstanding securities, investors and other market participants should have access to current information about a municipal issuer’s financial condition and the creation of risks that impact existing security holders.  By facilitating timely access to important information about a municipal issuer’s financial obligations, today’s proposal seeks to equip investors making investment decisions and market participants undertaking credit analyses with continuing disclosures to better assess a municipal issuer’s overall indebtedness and creditworthiness. 

This proposal would amend a key aspect of our regulatory framework applicable to municipal securities disclosure.  Rule 15c2-12 currently imposes certain requirements on brokers, dealers, and municipal securities dealers.  When acting as underwriters in primary offerings of municipal securities subject to the rule, they must reasonably determine, among other things, that the municipal issuer has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of certain events. 

In the years since the Commission last amended Rule 15c2-12, municipal issuers have increasingly used financing alternatives to public offerings of municipal securities.  For example, the dollar amount of bank loans to state and local governments has more than doubled since the 2008 financial crisis, increasing from approximately $66.5 billion in 2010 to approximately $153.3 billion in 2015.[1] 

Incurring bank loans and other financial obligations could substantially impact a municipal issuer’s overall indebtedness, creditworthiness, and liquidity, thereby affecting the value of its municipal securities held by investors.  In addition, the incurrence of these financial obligations could further negatively affect existing security holders if the municipal issuer agrees to provide the counterparty with better terms or superior rights to existing security holders.  The value of municipal securities held by investors also could be impacted by the occurrence of certain events under the terms of the financial obligations that reflect financial difficulties, such as a default.  Currently, investors may not have any access or timely access to disclosure about municipal issuer’s bank loans and other financial obligations and an information asymmetry may exist between the counterparty to the financial obligation on the one hand and investors in the municipal issuer’s outstanding municipal securities on the other hand.

Today’s proposal is intended to reduce this information asymmetry among market participants and to increase transparency to the municipal securities market by improving investor and market participant access to timely information relating to a municipal issuer’s financial obligations.  As the staff will detail shortly, the proposed amendments would add two new events to the list of events in Rule 15c2-12 for which notice is to be provided to the MSRB within ten business days of the event’s occurrence. 

These event notices would facilitate timely access by investors and other market participants to important information about municipal issuers’ financial obligations.  With this information, investors should be able to make more informed investment decisions and other market participants should be able to produce more informed credit analyses, thereby enhancing investor protection.  By facilitating timely access to information about the municipal issuer’s credit profile and financial condition, the proposed amendments should promote the timely incorporation of this important information into the pricing of municipal securities and enhance the efficiency of the municipal securities market.  Today’s proposal is an important step in the Commission’s ongoing efforts to improve transparency in the municipal securities market. 

Before I ask Jessica Kane, Director of the Office of Municipal Securities, to discuss the staff recommendation, I would like to thank Jessica and her Deputy Director, Rebecca Olsen, for their leadership on this rulemaking.  I would also like to thank Scott Bauguess, Vanessa Countryman, and Hari Phatak for their leadership of the effort by the Division of Economic and Risk Analysis. 

I am also grateful to the rulemaking team for all their hard work, in particular:

  • Ed Fierro, Hillary Phelps, Mary Simpkins, and William Miller from the Office of Municipal Securities
  • Adam Yonce and Qiao Kapadia from the Division of Economic and Risk Analysis

Many thanks to Sanket Bulsara, Meridith Mitchell, Lori Price, Robert Teply, Leila Bham, and Janice Mitnick from the Office of General Counsel.

In addition, I would like to thank many other staff throughout the agency for their contributions to this project, including Jeff Minton, Giles Cohen, Robert Sledge, and Duc Dang from the Office of the Chief Accountant; David Frederickson, Amy Starr, and Cindy Oh from the Division of Corporation Finance; LeeAnn Gaunt, Mark Zehner, and Creighton Papier from the Division of Enforcement; and Caite McGuire and Alicia Goldin from the Division of Trading and Markets. 

Finally, I would like to express gratitude to Commissioner Stein and all our counsels for their engagement and comments on this recommendation.

Now, I will turn the meeting over to Jessica Kane for the Office’s recommendation.

[1] The dollar amount of commercial bank loans to state and local governments is computed using Call Report data, available at The dollar amount is the sum of item RCON2107, “OBLIGATIONS (OTHER THAN SECURITIES AND LEASES) OF STATES AND POLITICAL SUBDIVISIONS IN THE U.S,” across all the depository institutions for the stated time period. See Federal Reserve Board, Micro Data Reference Manual (July 1, 2016) (“MDRM”), available at (includes detailed variable definition).

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