Issuers of municipal securities should be aware of new disclosure requirements in SEC Rule 15c2-12, effective on securities issues on or after February 27, 2019. GFOA recommends issuers consult counsel prior to the effective date to determine how these changes may impact debt portfolios and debt management policies and procedures.
The Continuing Disclosure Agreements will include affirmation by governments for debt issues on or after February 27, 2019 to:
Technology has fundamentally changed the way information is communicated and the manner in which municipal bond investors expect to receive information. Use of technology allows governments to efficiently communicate with municipal market participants and more effectively ensure compliance with disclosure requirements. Many governments use their websites to provide disclosure information electronically, including Preliminary Official Statements (POS), audited financial statements, feasibility reports, continuing disclosure filings and other important financial and budgetary information. Issuer websites are commonly used to post Independent Registered Municipal Advisor letters, for issuers who choose to utilize the Independent Registered Municipal Advisor (IRMA) exemption to the Securities and Exchange Commissions Municipal Advisor Rule. Issuer websites have also been used in addition to, or in lieu of, traditional press releases to communicate important events.
The use of issuer websites, electronic distribution of Preliminary and Final Official Statements, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access platform (EMMA) have become important tools in promoting transparency, liquidity and efficiency in the credit markets. Guidance to governments on how to best incorporate web-based technology into their normal disclosure practices is important as delivery of electronic information becomes the norm.
GFOA recommends that bond issuers use technology – including both their own websites and additional features of the EMMA platform – to disseminate information to the municipal securities market regarding their debt, financial condition and other related information. As of July 1, 2009, electronic posting of annual continuing disclosure information associated with a bond issue is required to be submitted via the MSRB’s Electronic Municipal Market Access (EMMA) system. In addition to making bond sale documents, required disclosure, archived information and periodic financial information available to the market, websites can be an integral part of an effective investor relations program, (see GFOA Best Practice: Maintaining an Investor Relations Program).
If choosing to publish information on their own website, issuers are encouraged to also make a voluntary submission to EMMA with a hyperlink to the specific pages on your website that contains this information in order to assist investors and the public with finding your financial and disclosure information.
Making disclosure information more accessible will help improve the efficiency of the municipal market and can possibly lower borrowing costs by improving access to information relevant to determining the credit quality of an issuer's bonds. Advantages to issuers in using web-based technology for disseminating disclosure information include:
- An efficient, low-cost medium for communicating timely information to investors.
- Simultaneous release of disclosure information to the entire market, thus avoiding inappropriate preferential treatment of investors.
- Retaining control of the content and timing of the formal release of information, assuring accuracy and completeness of information.
- Availablity of the most current information, which can be provided to the market and updated as circumstances warrant.
- Utility of websites in addition to or, depending on the circumstances, in lieu of, press releases to notify investors of significant events.
- Acceleration and broadening the distribution of timely disclosure information to the market.
- Enhancing an issuer's reputation in the credit markets and the strengthening of investor confidence in an issuer.
- The consistent and ready availability of complete and timely disclosure information, which can make issuer bond offerings more attractive to investors.
- Reduction of investor inquiries and improvement in the satisfaction of investor requests resulting in more accessible and less costly disclosure.
A government may also consider using electronic means to post interim unaudited and/or operating financial information that otherwise routinely prepared by your entity, to help investors and the public understand the finances of your government between annual filings. (See GFOA Best Practice: Understanding your Continuing Disclosure Responsibilities).
Issuers should evaluate cost considerations associated with providing disclosure information via an issuer-controlled website, such as the administrative time, effort and expense necessary to design, deploy and maintain a website used for disclosure. Typically, a government’s website is developed to provide a wide variety of information for very different purposes. As such, it may be valuable to identify an area of the issuer’s website exclusively dedicated to information specifically designed for investors. In any case, issuers should evaluate the costs and benefits of using their website for disclosure based on their own unique circumstances.
If an issuer-controlled website is used for disclosure purposes (in addition to EMMA), the government should consider the following issues related to design, deployment and monitoring of disclosure:
- Information that is solely intended for investors should be segregated from other information and clearly identified as being intended for investors.
- A formal process for reviewing and approving any information posted on the website should be required to ensure the accuracy, consistency and completeness of the information. Issuers should design internal controls to ensure that the information posted on the website is accurate, complete, consistent and current.
- Outdated reports and other stale information (such as prior years CAFRs or audited financial statements and final Official Statements) should be clearly identified as for historical reference only. Historical information should be segregated from current information in a "Library" or "Archive" section of the website.
- Issuers should review the SEC’s Interpretive Release on Use of Electronic Media. Any information that is posted on the portion of a government’s website dedicated to investors should be reviewed by counsel.
- Issuers choosing to publish their rating agency reports on their issuer-controlled website should ensure that posting is consistent with rating agency policies (i.e., permission may be required). Additionally, old reports should be removed at the time that new rating reports are published.
- If a government chooses to post unaudited interim financial information, the posting should clearly state that the information is unaudited and the government may wish to include additional disclaimer language regarding use of unaudited information.
- The security of an issuer's website should be evaluated to protect it from manipulation by external or unauthorized persons.
- Documents on the website used in connection with a sale of bonds (e.g., POSs, audited financial statements and feasibility reports) should be identical to versions distributed in hard copy. In addition, information on an issuer’s website intended for use in a bond sale should be clearly identified as such, and segregated from other information.
- Issuers should consider the need to involve other departments and professionals to ensure that all necessary parties are involved in developing and deploying disclosure information on the website.
- Issuers should consider ease of use and accessibility in designing a website for investors and be specific when referencing or addressing a specific place on the issuer's website intended for investors. Issuers should also include a contact person to answer questions related to information on the website.
- Issuers should post their continuing disclosure filings on their disclosure website in addition to submitting the postings via EMMA as required.
- Issuers should consider the possibility of increased exposure to liability under the securities laws when evaluating the cost/benefit of using a website for disclosure. However, in nearly all circumstances, appropriate disclaimers and procedures can adequately protect an issuer against undue regulatory risk.
- Issuers should not use social media to communicate investor-related information that is not also included on the centralized investor information area of the issuer’s website. In the absence of accurate and timely official disclosure, financial information communicated via social media could be considered of material importance to investors.
- Posting of information related to regulatory actions (including documents related to the SEC MCDC Initiative or the IRS VCAP program) is not recommended, unless specifically required as part of a CDA or other legal obligation.
- Interpretive Release on Use of Electronic Media, Securities and Exchange Commission, Release No. 34-42728, April 30, 2000.
- “Making Good Disclosure - The Role and Responsibilities of State and Local Officials under Federal Securities Laws,” Robert Dean Pope, GFOA, 2000.
- “Providing Information to the Secondary Market Regarding Municipal Securities,” National Association of Bond Lawyers, September 20, 2000.
- Disclosure Roles of Counsel, John McNally, Project Coordinator, ABA/National Association of Bond Lawyers, 2009.
- GFOA Best Practice: Understanding Your Continuing Disclosure Responsibilities, 2015
- GFOA Best Practice: Maintaining an Investor Relations Program, 2010
- GFOA Best Practice: Post-Issuance Policies and Procedures, 2017.
- GFOA Best Practice: Primary Market Disclosure, 2017.
- SEC Rule 15c2-12
- MSRB’s Electronic Municipal Market Access (EMMA)