MSRB Amends Pending Proposal on Additional Voluntary Submissions By Issuers and Obligated Persons to the MSRB's EMMA in Response to Securities and Exchange Commission Request

On May 21, 2010, the Municipal Securities Rulemaking Board (the “MSRB”) filed with the Securities and Exchange Commission (the “SEC”) a partial amendment (“Amendment No. 2”),[1] to the MSRB’s pending filing with the SEC relating to additional voluntary disclosures by issuers and obligated persons through the MSRB’s Electronic Municipal Market Access system (“EMMA”).[2] The pending filing, as amended by Amendment No. 2, is collectively referred to as the “proposed rule change”. The proposed rule change provides clarification, at the request of SEC staff,[3] with respect to EMMA’s continuing disclosure service relating to the ability of issuers and obligated persons to submit information in connection with certain voluntary undertakings concerning the preparation and submission of audited financial statements and annual financial information as described below.

Amendment No. 2 also requests that the SEC approve a revised effective date for the proposed rule change of a date to be announced by the MSRB in a notice published on the MSRB website, which date shall be no later than one year after SEC approval of the proposed rule change and shall be announced no later than sixty (60) days prior to the effective date. Simultaneously with the filing of Amendment No. 2, the MSRB filed with the SEC a partial amendment to the MSRB’s pending filing with the SEC relating to underwriter submissions of information about continuing disclosure undertakings to EMMA requesting the same effective date for such companion proposal (the “underwriter proposal”).[4]

SEC REQUEST FOR CLARIFYING AMENDMENT

The MSRB received a request from SEC staff on May 12, 2010 to amend the pending proposal to clarify that the voluntary generally accepted accounting principles (“GAAP”) undertaking and the voluntary annual filing undertaking, as described below, should be made in continuing disclosure agreements (or amendments thereto) so that the indicator on EMMA would reflect the existence of such a contractual obligation in a continuing disclosure agreement (the “SEC Amendment Request”).[5] After discussions with SEC staff, and based on the SEC Amendment Request, the MSRB agreed to file Amendment No. 2.

DISCUSSION OF PENDING PROPOSAL

Among other things, the pending proposal would permit issuers, obligated persons and their agents to make voluntary submissions to the EMMA continuing disclosure service of additional categories of disclosures, as well as information about their continuing disclosure undertakings. Such additional continuing disclosures and related indexing information would be displayed on the EMMA web portal and also would be included in EMMA’s continuing disclosure subscription service. Such additional items include, but are not limited to:[6]

● an issuer’s or obligated person’s undertaking to prepare audited financial statements pursuant to GAAP as established by the Governmental Accounting Standards Board (“GASB”), or pursuant to GAAP as established by the Financial Accounting Standards Board (“FASB”), as applicable to such issuer or obligated person and as further described
below (the “voluntary GAAP undertaking”);[7] and
● an issuer’s or obligated persons’ undertaking to submit annual financial information to EMMA within 120 calendar days after the end of the fiscal year or, as a transitional alternative that may be elected through December 31, 2013, within 150 calendar days after the end of the applicable fiscal year, as further described below (the “voluntary annual filing undertaking”).[8]

DISCUSSION OF CHANGES PROPOSED IN AMENDMENT NO. 2

As requested in the SEC Amendment Request, Amendment No. 2 modifies the portions of the pending proposal relating to the voluntary GAAP undertaking and the voluntary annual filing undertaking only and does not effect any other changes to the EMMA continuing disclosure service as set forth in the pending proposal, except with respect to the effective date as noted above.

Amendments to Voluntary GAAP Undertaking and Voluntary Annual Filing
Undertaking

Voluntary GAAP Undertaking. Based on the SEC Amendment Request, Amendment No. 2 clarifies that the EMMA indicator with regard to the voluntary GAAP undertaking would be indicative of an issuer’s or obligated person’s voluntary undertaking, entered into as a contractual obligation, for the benefit of bondholders, under a continuing disclosure agreement or another contract, that it will prepare its audited financial statements in accordance with GAAP, either based on GASB or FASB standards as appropriate. If the issuer or obligated person later rescinds such undertaking through an amendment to its continuing disclosure agreement or other contractual arrangement, the issuer or obligated person would be expected to remove the indicator of its voluntary GAAP undertaking on EMMA. As a result of the changes made by Amendment No. 2 to the voluntary GAAP undertaking provisions to limit its use solely to situations where such undertaking represents a contractual obligation, the statement by the MSRB in Amendment No. 1 to the effect that the making of a voluntary GAAP undertaking through EMMA by an issuer or obligated person would reflect the bona fide intent of the issuer or obligated person to perform as undertaken but would not, by itself, necessarily create a contractual obligation of such issuer or obligated person is no longer applicable. The MSRB would not review whether an entity has selected the appropriate accounting standard, would not review or confirm the conformity of submitted audited financial statements to GAAP, and would not review whether the information submitted by such entity to the EMMA continuing disclosure service regarding the voluntary GAAP undertaking accurately reflects the provisions of, or is included within, the continuing disclosure agreement or other contractual arrangement of such entity.

Voluntary Annual Filing Undertaking. Based on the SEC Amendment Request, Amendment No. 2 clarifies that the EMMA indicator with regard to the voluntary annual filing undertaking would be indicative of an issuer’s or obligated person’s voluntary undertaking, entered into as a contractual obligation, for the benefit of bondholders, under a continuing disclosure agreement or another contract, that it will submit to EMMA its annual financial information as contemplated under Exchange Act Rule 15c2-12 by no later than 120 calendar days (or 150 calendar days, in the case of the transitional 150 day undertaking option) after the end of such issuer’s or obligated person’s fiscal year. If the issuer or obligated person later modifies the timeframe for submitting the annual financial information in its continuing disclosure agreement or other contractual arrangement to a period longer than contemplated by the voluntary annual filing undertaking, the issuer or obligated person would be expected to remove the indicator of its voluntary annual filing undertaking on EMMA. Since Amendment No. 2 modifies the pending proposal to limit the applicability of the voluntary annual filing undertaking solely to situations where such undertaking represents a contractual obligation, the statement by the MSRB in Amendment No. 1 to the effect that the making of a voluntary annual filing undertaking through EMMA by an issuer or obligated person would reflect the bona fide intent of the issuer or obligated person to perform as undertaken but would not, by itself, necessarily create a contractual obligation of such issuer or obligated person is no longer applicable. In addition, as a result of Amendment No. 2, the statement in Amendment No. 1 to the effect that the MSRB would view an issuer’s or obligated person’s performance pursuant to the voluntary annual filing undertaking as distinct from any performance obligations under its continuing disclosure agreement entered into consistent with Rule 15c2-12 also is no longer applicable.

The MSRB would not review or confirm the compliance of an issuer or obligated person with its voluntary annual filing undertaking and would not review whether the information submitted by such entity to the EMMA continuing disclosure service regarding the voluntary annual filing undertaking accurately reflects the provisions of, or is included within, the continuing disclosure agreement or other contractual arrangement of such entity.

Manner of Submission. Issuers and obligated persons would indicate the existence of a voluntary GAAP undertaking or voluntary annual filing undertaking through a data input election on EMMA. Changes to or rescissions of such voluntary contractual undertakings could also be indicated through the same EMMA interface process.

Questions on the proposed rule change may be directed to Leslie Carey, Associate General Counsel, or Justin Pica, Director, Uniform Practice Policy, at (703) 797-6600. Written comments on the proposals should be submitted to the SEC.

May 21, 2010

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TEXT OF AMENDMENT TO ORIGINAL PROPOSAL[9]

MUNICIPAL SECURITIES RULEMAKING BOARD

ELECTRONIC MUNICIPAL MARKET ACCESS SYSTEM –

EMMA®

EMMA CONTINUING DISCLOSURE SERVICE

The EMMA continuing disclosure service, established as a service of EMMA, receives submissions of continuing disclosure documents, together with related information about continuing disclosures and indexing information to allow the public to readily identify and access such documents, from issuers, obligated persons and their agents pursuant to continuing disclosure undertakings entered into consistent with Exchange Act Rule 15c2-12, as well as other continuing disclosure documents concerning municipal securities, at no charge to the submitter. Submissions may be made through a choice of an Internet-based electronic submission interface or electronic computer-to-computer streaming connections. The EMMA continuing disclosure service makes continuing disclosures available to the public, at no charge, on the Internet through the EMMA portal. The EMMA continuing disclosure service also makes continuing disclosures available by subscription for a fee.

Submissions to the EMMA Continuing Disclosure Service

Designated Electronic Format for Documents . No change.

Method of Submission. No change.

Timing of Submissions. No change.

Document Types. The EMMA continuing disclosure service accepts submissions from issuers, obligated persons, and their agents of (i) the continuing disclosure documents described in Rule 15c2-12, and (ii) other continuing disclosure documents concerning municipal securities not specifically described in Rule 15c2-12.

The continuing disclosure documents described in Rule 15c2-12 consist of the following categories of documents:

● annual financial information concerning issuers or other obligated persons as described in paragraph (b)(5)(i)(A) of Rule 15c2-12, or other financial information and operating data provided by issuers or other obligated persons as described in paragraph (d)(2)(ii)(A) of Rule 15c2-12;
● financial statements for issuers or other obligated persons if not included in the annual financial information as described in paragraph (b)(5)(i)(B) of Rule 15c2-12;
● notices of certain events, if material, as described in paragraph (b)(5)(i)(C) of Rule 15c2-12; and
● notices of failures to provide annual financial information on or before the date specified in the written undertaking as described in paragraph (b)(5)(i)(D) of Rule 15c2-12.

Categories of other disclosure documents concerning municipal securities not specifically described in Rule 15c2-12 include:

● other financial or operating data disclosures, including but not limited to quarterly or monthly financial information; interim or additional financial information or operating data; budget documents; investment, debt or financial policies; consultant reports; information provided to rating agencies, credit or liquidity providers or other third parties; changes in accounting standards, fiscal year or timing of annual disclosure; contractual undertaking, for the benefit of bondholders, of an issuer or obligated person to prepare audited financial
statements pursuant to generally accepted accounting principles as established by the Governmental Accounting Standards Board (GASB) or the Financial Accounting Standards Board (FASB), as applicable; contractual undertaking, for the benefit of bondholders, of an issuer or obligated person to submit annual financial information to EMMA within 120 calendar days after the end of the applicable fiscal year (provided that the EMMA continuing disclosure service will accept the submission, through December 31, 2013, of an alternative transitional undertaking of an issuer or obligated person to submit annual financial information to EMMA within 150 calendar days after the end of the applicable fiscal year); uniform resource locator (URL) of the issuer’s or obligated person’s Internet-based investor relations or other repository of financial/operating information; and other uncategorized financial or operating data; and

● other event-based disclosures, including but not limited to amendments to continuing disclosure undertakings; changes in obligated person; notices to investors pursuant to bond documents; communications from the Internal Revenue Service; tender offer or secondary market purchase notices; notices of bid for auction rate or other securities; capital or other financing plans; litigation or enforcement action documents; documents relating to mergers, consolidations, reorganizations, insolvency or bankruptcy; changes of trustee, tender agent, remarketing agent, or other on-going party; materials relating to derivative or other similar transactions; and other uncategorized event-based disclosures.

The MSRB may combine two or more categories, may divide any category into two or more new categories or subcategories, or may form additional categories for purposes of indexing documents submitted as uncategorized financial/operating data or event-based disclosures, as appropriate, based on the types of documents received.

In addition, for the categories of continuing disclosures listed below, a submitter may provide, in lieu of or in addition to a continuing disclosure document, a statement of the information indicated below by means of a text/data input field: contractual undertaking of an issuer or obligated person to prepare audited financial statements pursuant to generally accepted accounting principles as established by GASB or FASB, as applicable; contractual undertaking of an issuer or obligated person to submit annual financial information to EMMA within 120 calendar days (or, through December 31, 2013, within 150 calendar days) after the end of the applicable fiscal year; and URL of the issuer’s or obligated person’s Internet-based investor relations or other repository of financial/operating information. Submitters also may indicate any change or rescission of [rescind] any such contractual undertaking or change or remove any such URL at any time by means of a text/data input field, and any such changes, rescissions or removals will be reflected on the EMMA portal; provided that a contractual [an] undertaking of an issuer or obligated person to submit annual financial information to EMMA within 150 calendar days after the end of the applicable fiscal year will continue to be displayed on the EMMA portal through June 30, 2014, and will automatically cease to be displayed on the EMMA portal after such date, unless the issuer or obligated person has previously changed or rescinded such contractual undertaking and has indicated such change or rescission through the text/data input field.

Information to be Submitted. No change.

Submitters. No change.

Public Availability of Continuing Disclosure Documents

No additional changes.