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SEC 3180 - Municipal bond issuers
Publication date: 30 Jun 2023
us PwC SEC Volume 3180
.1 General
Many state and local governments finance their capital needs through the issuance of long-term debt, primarily tax-exempt municipal bonds. In addition, government entities sometimes issue conduit debt securities, the proceeds of which are used by third parties. See the FASB definition of the term “conduit debt securities” in the Master Glossary of the FASB Accounting Standards Codification.
[Editor’s note: Although the third party in a conduit financing is a "borrower" and not an "issuer," the term "issuer" is used throughout this section for ease of reference.]
.2 Disclosure requirements for municipal issuers
.21 What is Exchange Act Rule 15c2-12 and where can I find it?
Exchange Act Rule 15c2‑12 sets forth requirements relating to municipal securities that are within the scope of that rule. The text of Exchange Act Rule 15c2‑12 is available on Viewpoint under SEC Reporting / SEC Rules and Regulations / Selected Exchange Act Rules.
The SEC published its views with respect to the disclosure obligations of participants in the municipal securities markets in an Interpretive SEC Release, Statement of the Commission Regarding Disclosure Obligations of Municipal Securities Issuers and Others (SEC Release 34-33741) in March 1994. The Interpretive Release complements Exchange Act Rule 15c2‑12 by providing the SEC's views pertaining to disclosure, both at the time of the initial offering and on an ongoing basis.
.22 What is an official statement prepared for municipal securities offerings and where can I find them?
An official statement is a document prepared in connection with a new issue of municipal securities which describes important terms of the bonds.Exchange Act Rule 15c2-12(f)(3) sets forth the information to be included in a final official statement.
For municipal securities offerings within the scope of Exchange Act Rule 15c2-12, that rule requires brokers, dealers or municipal securities dealers acting as an underwriter to receive and review an official statement that meets the requirements of Exchange Act Rule 15c2-12(b)(1).
Copies of official statements for most bond offerings since 1990 are available on the Electronic Municipal Market Access ("EMMA") system. See SEC 3180.25.
.23 What are the disclosure requirements subsequent to the initial issuance of municipal securities?
Exchange Act Rule 15c2-12 imposes certain requirements on brokers, dealers or municipal securities dealers acting as an underwriter in a primary offering of municipal securities that come within the scope of the rule to ensure that the issuer has entered into an agreement whereby it will implement a system of continuing disclosure that remains in effect as long as the bonds are outstanding.
See Exchange Act Rule 15c2-12(b)(5) for details surrounding the continuing disclosure.
.24 What are the annual financial and operating information reporting requirements?
The items to be included in the annual financial information as well as the associated due date will be agreed upon by the parties to the financing transaction and enumerated in the continuing disclosure agreement. There is no prescribed reporting format for submission of the annual financial and operating information, and there is no statutory due date (although the SEC recommends that the information be made available within six months after the close of the issuer's fiscal year).
[Editor’s note: If an issuer fails to file information by the agreed-upon deadline and subsequently issues an official statement for new bonds within the next 5 years, it must disclose its failure to file in the new bond official statement. See Exchange Act Rule 15c2-12(f)(3).]
.25 What is the Electronic Municipal Market Access System (EMMA)?
The Municipal Securities Rulemaking Board (MSRB) operates a website known as EMMA (www.emma.msrb.org) that provides free public access to disclosure and transaction information about municipal bond issues. Users are able to access an original offering document, continuing disclosure information, advance refunding documents, real-time trade and historical trade information, daily market information, and other educational materials about municipal bonds. Essentially, EMMA makes municipal disclosure information available to the market in a manner similar to the SEC's EDGAR system for corporate disclosures.
The registration and continuing disclosure submission process is described in the EMMA Dataport Manual for Continuing Disclosure Submissions which is available at https://www.msrb.org/Market-Transparency/Manuals.aspx.
Copies of official statements for most bond offerings since 1990 are available on the EMMA system.
.3 References to the auditor
Municipal securities offerings are not considered to be Securities Act offerings. Therefore, the "Experts" caption or “experts” language are not used to refer to the auditor in connection with a municipal bond offering (see AICPA AU-C 925.A14, par. 16). An example of an alternative form of disclosure that may be used in a municipal bond offering to describe the auditor’s role can be found in AICPA AU-C 945.A29. SEC 2300 contains additional guidance on “experts” language.
As discussed in AICPA AU-C 945.A18, although the auditor is generally not required to provide the client with a letter indicating the auditor’s agreement to the inclusion of its audit report in the official statement, the auditor may be requested to do so. In a municipal securities offering, this type of letter is typically referred to as an "inclusion letter." As discussed in SEC 2400.49, if an inclusion letter is provided by the auditor, it is generally in the form of a separate letter, addressed only to the auditor’s client. A copy of the inclusion letter is not included in the offering document. See AICPA AU-C 945.A21. The inclusion letter is typically dated as of or within a few days prior to issuance of the securities offering document. The date of the inclusion letter usually coincides with the completion of an auditor’s “keeping current” procedures and is not dated earlier than the date through which subsequent events have been evaluated.
.4 Where to find relevant guidance for municipal bond issuers
- SEC’s Municipal Securities Disclosure webpage at https://www.sec.gov/municipal/municipal-securities-disclosure.
- “Municipal Bonds—An Overview” at https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-municipal-bonds-overview
- “Investor Bulletin: The Municipal Securities Market” at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_munibondsmarket
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