Investors need accurate and complete information to make informed decisions about investments in municipal securities. In a primary offering of municipal securities, information is typically available in the form of an “official statement” or other offering document. After the initial issuance, when bonds are trading in the secondary market, investors rely on continuing disclosure information to help them make informed investment decisions. These disclosures are made by the state or local governments that issue the municipal securities or, in some cases, by other private or public entities, known as obligors or obligated persons, that may access the bond market through the issuance of municipal securities.
U.S. Securities and Exchange Commission (SEC) Rule 15c2-12 requires that underwriters of most new issues of municipal securities, before bidding on, purchasing, or selling the new issue in the primary market, obtain and review the issuer's official statement and reasonably determine that the issuer has committed to provide continuing disclosures to investors. This is a brief overview of disclosure obligations and market participants should review the current text of Rule 15c2-12 for applicable exemptions, definitions and other applicable requirements. Even for new issues exempt from Rule 15c2-12, issuers frequently prepare official statements for use by underwriters in the marketing of such issues and sometimes agree to provide continuing disclosures thereafter.
Primary Offering Disclosure
In a primary offering of municipal securities, the official statement is the vehicle through which the issuer or other obligor formally communicates with the market. The official statement provides information about the issuer, the securities and the project to be financed, including financial information and operating data concerning the issuer or any other obligor, among other things. It is the main document investors should be able to rely on in making investment determinations.
The underwriter of any new issue is required under MSRB Rule G-32 to submit an electronic version of the official statement, whether prepared under Rule 15c2-12 or provided by the issuer voluntarily, to the MSRB’s Electronic Municipal Market Access (EMMA®) website on a timely basis for free access by investors and the general public. Frequently, until a final official statement is available, a “preliminary official statement” is prepared by the issuer and distributed in advance of the offering by the underwriter to potential investors.
Continuing Disclosure
Continuing disclosure consists of important information about municipal securities that is prepared by the issuer or other obligor after the initial issuance. This information generally reflects the financial health or operating condition of the issuer/obligor as it changes over time, or the occurrence of specific events after issuance that may have an impact on the ability of the issuer/obligor to repay principal and interest on the security, the value of the security if it is bought or sold prior to its maturity, the timing of repayment of principal, and any number of other key features of the security.
Read about financial and operating disclosures.
Read about event disclosures.
Obligations of Conduit Issuers
When a state or local government issues municipal securities as a conduit issuer on behalf of a third party or conduit borrower, the party responsible for paying the obligations on the municipal securities (the obligor – typically the conduit borrower) will normally be outlined in the official statement and continuing disclosure agreement and is responsible for providing continuing disclosure information.
Continuing Disclosures and EMMA
MSRB’s EMMA website is the official repository for municipal securities data and disclosure documents. Issuers, obligors and their agents are required under their continuing disclosure agreements to post continuing disclosures on EMMA to provide bondholders, potential investors and other market participants with key information useful in assessing their current holdings or in making investment decisions.
