Preliminary Recommendation Regarding Timeliness of Financial Disclosures in the 

Municipal Securities Market

The Municipal Securities Transparency Subcommittee (“Subcommittee”) of the Fixed Income 

Market Structure Advisory Committee (“FIMSAC”) was formed to consider the impact of 

transparency, both pre-trade and post-trade, on the municipal securities markets. As a result of 

such consideration, this Subcommittee determines whether to make policy recommendations to 

enhance the liquidity, transparency and efficiency of the municipal bond markets. 

The Subcommittee has studied and is interested in availability of financial information about 

municipalities. While the Subcommittee has determined that the breadth of financial related 

information made available to the market by municipal issuers and obligated persons (together, 

“municipal issuers”) is relatively comprehensive, the timeliness associated with the receipt of 

such information varies widely. For example, although the median municipal issuer prepared its

audited financial statements for Fiscal Year 2018 within 156 days of the fiscal year end,

1 MSRB 

data for 2016 shows that municipal issuers that provided audited financial statements within 12 

months of the end of their fiscal year made such filings within 200 calendar days after the end of 

the applicable fiscal period. Furthermore, MSRB data shows that the average municipal issuer 

provided its annual financial information within 12 months of the end of its fiscal year provided 

such annual information 188 days after the end of the applicable fiscal period.

2 If a municipal

issuer does not provide interim financial disclosures and it files its annual financial disclosures 

within the averages referenced above, the financials available to investors could be over 500 

days old as the next submission date approaches. 

The Subcommittee is also aware that some municipalities, for example, are known to not have 

made financial statements publicly available for more than 400 days following the end of a fiscal 

year. Late disclosures only exacerbate the problem discussed previously.

As background, the Securities Act and the Exchange Act were enacted with broad exemptions 

for municipal securities from all their provisions, except the antifraud provisions of Securities 

Act Section 17(a), Exchange Act Section 10(b), and Exchange Act Rule 10b-5. In other words, 

the federal securities laws do not expressly authorize the Commission to prescribe the timing and 

content of municipal disclosures. In the absence of a statutory scheme for municipal securities 

registration and reporting, the Commission’s investor protection efforts in the municipal 

securities market have been accomplished primarily through regulation of broker-dealers, 

including through Exchange Act Rule 15c2-12 (the “Rule”), regulation of municipal advisors, 

Commission interpretations, enforcement of the antifraud provisions of the federal securities 

laws, and Commission oversight of the MSRB.

The Rule was initially adopted in 1989 pursuant to the Commission’s authority to adopt rules 

reasonably designed to prevent fraud (Exchange Act Sections 15B(d)(2) and 15(c)(2)) and has 

been amended four times since. Importantly, the Rule regulates the conduct of a registered 

broker-dealer when acting as an underwriter in a qualifying initial offering of municipal 

 

1 https://www.merrittresearch.com/footnotes/chronically-late-municipal-bond-audits-further-delayed-fy-2018

2 http://www.msrb.org/msrb1/pdfs/MSRB-CD-Timing-of-Annual-Financial-Disclosures-2016.pdf
securities. It establishes standards for the procurement and dissemination of disclosure 

documents by underwriters as a means of enhancing the accuracy and timeliness of disclosure to 

municipal securities investors. It is also designed to assist underwriters in meeting their 

responsibilities under the antifraud provisions of the federal securities laws by requiring them to 

review municipal issuer disclosure documents before commencing sales to investors. The 

practical importance of this is that the regulatory obligations under Rule 15c2-12 pertain to

underwriters, while municipal issuer obligations (other than the obligation not to commit fraud) 

exist as a matter of contract under a continuing disclosure agreement.

If a municipal issuer provides financial information in an offering document for an offering that 

is subject to the full scope of the Rule, such municipal issuer would then be obligated, pursuant 

to its continuing disclosure agreement, to provide annual financial information to the MSRB that 

is of the same type as those provided in the final official statement relating to the relevant 

municipal securities. If not part of the municipal issuer’s annual financial information, the 

municipal issuer is only required to provide audited financial statements when and if they are 

available. The Rule also is flexible with respect to when municipal issuers must submit their 

annual information filings to the MSRB but requires each continuing disclosure agreement to 

specify the date on which the annual financial information for the preceding fiscal year will be 

provided. If the municipal issuer fails to provide its annual financial information by the specified 

date, it must file a “failure to file” notice with the MSRB. However, there is no effective 

enforcement mechanism for those municipal issuers that are not raising additional funds in the 

primary market. 

Under the Rule, municipal issuers with outstanding public debt subject to the Rule’s provisions 

must provide certain ongoing (non-annual) disclosures—known as material event notices. These

events are enumerated within the Rule and must be included in any continuing disclosure 

agreement subject to the full scope of the Rule. These notices must be filed with the MSRB 

within 10 business days of the occurrence of the event. Other interim (non-annual) disclosures 

made by municipal issuers of municipal securities are done voluntarily; over the years, the 

Commission has encouraged this practice.

From a historical perspective, and in the absence of explicit authority for the Commission to 

prescribe the timing and content of disclosures relating to municipal securities – including 

financial information – the Commission, in its 2012 Report on the Municipal Securities (the 

“SEC Report”), made a series of recommendations for possible tailored legislative approaches 

that could provide the Commission authority to establish improved disclosures and practices in 

the municipal securities market. These recommendations included authorizing the Commission 

to require that municipal issuers prepare and disseminate official statements and disclosure 

during the outstanding term of the securities, including setting timeframes, frequency for such 

dissemination and minimum disclosure requirements, including financial statements and other 

financial and operating information, and providing tools to enforce such requirements. 

Additionally, the SEC also recommended as part of the SEC Report, that the Commission be 

authorized to establish the form and content of financial statements for municipal issuers who 

issue municipal securities, including the authority to recognize the standards of a designated 

private-sector body (e.g., those from the Governmental Accounting Standards Board) as 
generally accepted for purposes of the federal securities laws, and provide the Commission with 

attendant authority over such private-sector body. A final, but important recommendation in this 

area, was to authorize the Commission, as it deems appropriate, to require municipal issuers to 

have their financial statements audited, whether by an independent auditor or a state auditor. 

It is also important to recognize what the Commission did not recommend or intend. The SEC 

Report contains no recommendation to require pre-offering review or otherwise alter the Tower 

Amendment. In addition, the Commission did not recommend, and was not seeking, to replicate 

the corporate disclosure system or to require SEC review of municipal disclosure documents. 

Nor did the SEC seek to establish detailed line item disclosure requirements such as those 

applicable to corporate issuers. 

Recommendation

As such and given this background the Subcommittee makes the following recommendations:

- That the SEC be given additional statutory authority to provide a mechanism for the SEC 

to enforce compliance with continuing disclosure agreements and other obligations of 

municipal issuers to protect municipal securities bondholders. This would give the SEC 

the ability to enforce compliance with continuing disclosure agreements agreed upon by 

the municipal issuer and the underwriter at the time of sale and provide important 

protections for bondholders.

- That the SEC be given additional statutory authority to provide a safe harbor from private 

liability for forward-looking statements for municipal issuers that satisfy certain 

conditions, including, but not limited to, appropriate risk disclosure relating to such 

forward-looking statements, and if projections are provided disclosure of significant 

assumptions underlying such projections and the financials are provided in good faith.

- The SEC should explore ways through which it could make disclosure deadlines for 

annual financial information and audited financial statements more certain and 

predictable. The Subcommittee is particularly concerned about language in many 

continuing disclosure agreements that states the municipal issuer will provide annual 

financial information by a specified date and audited financial statements “when and if 

available”. The Subcommittee believes that municipal issuers should commit to a date 

without the contingency language. The Subcommittee would also like the SEC to look at 

continuing disclosure agreements that contain language that could make the disclosure 

date change year to year. For example, an agreement that states the municipal issuer will 

provide annual financials “within one month of the September Board or Finance 

Committee meeting.” This recommendation is meant to give investors more certainty 

around when the municipal issuer has agreed to provide annual financials.

- The Subcommittee recognizes the concerns about disclosure in the municipal market by 

many market professionals. However, the Subcommittee also recognizes that any 

substantial changes to disclosure requirements could have a significant impact on 

municipal issuers’ ability to raise capital in the public market and could also impact 

investors. The Subcommittee recommends the SEC seek wide ranging public comment 
about the concerns raised by market participants and the potential need for the SEC to 

establish a disclosure framework including timeframe obligations for municipal issuers. 

For example, the timeframe obligations could be tailored or tiered based on criteria such 

as the nature and size of the municipal issuer, the amount of its outstanding securities and 

the number of sub-entities that report up to the municipal issuer. After reviewing 

comments, the SEC can determine if it would be appropriate for the SEC to seek 

legislation to give the Commission additional (but still limited) authority over municipal 

disclosures.

- The Subcommittee is aware that there is currently not a significant differentiation in 

terms of yield from investors for municipal issuers that file in 120 or 170 days etc. or for 

those that provide robust interim financials or little to no interim financials. However, 

market dynamics can change, and municipal issuers should be aware that the market 

could demand higher yields from municipal issuers with longer disclosure time and less 

robust disclosures in general. Therefore, the Subcommittee recommends the SEC

explore ways through which it can raise awareness of the potential consequences of

providing less timely and less robust disclosure information.