[Federal Register Volume 75, Number 105 (Wednesday, June 2, 2010)]
[Notices]
[Pages 30876-30887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13155]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62183, File No. SR-MSRB-2009-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 Thereto, Relating to Additional Voluntary Submissions by 
Issuers to the MSRB's Electronic Municipal Market Access System 
(EMMA[supreg])

May 26, 2010.

I. Introduction

    On July 14, 2009, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to additional voluntary 
submissions by issuers to the MSRB's Electronic Municipal Market Access 
System (``EMMA''). The proposed rule change was published for comment 
in the Federal Register on July 22, 2009.\3\ The Commission received 27 
comment

[[Page 30877]]

letters about the proposed rule change.\4\ On December 18, 2009, the 
MSRB filed with the Commission, pursuant to Section 19(b)(1) of the 
Exchange Act \5\ and Rule 19b-4 thereunder,\6\ Amendment No. 1 to the 
proposed rule change. Amendment No. 1 to the proposed rule change was 
published for comment in the Federal Register on January 5, 2010.\7\ 
The Commission received three comment letters concerning Amendment No. 
1.\8\ On May 21, 2010, the MSRB filed with the Commission, pursuant to 
Section 19(b)(1) of the Exchange Act \9\ and Rule 19b-4 thereunder,\10\ 
Amendment No. 2 to the proposed rule change, which clarified an aspect 
of the proposed rule change relating to an issuer's undertaking and 
requested an additional three months to develop, test, and implement 
the proposal. The text of Amendment No. 2 is available on the MSRB's 
Web site (http://www.msrb.org), at the MSRB's principal office, and for 
Web site viewing and printing in the Commission's Public Reference 
Room. This order provides notice of Amendment No. 2 and approves the 
proposed rule change as modified by Amendment Nos. 1 and 2 on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60315 (July 15, 
2009), 74 FR 36294 (``Original Notice'') (the ``original proposed 
rule change'').
    \4\ Copies of the comment letters received by the Commission are 
available on the Commission's Internet Web site, located at http://www.sec.gov/comments/sr-msrb-2009-10/msrb200910.shtml and for Web 
site viewing and printing in the Commission's Public Reference Room 
at its Washington, DC headquarters.
    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 61237 (December 23, 
2009), 75 FR 485 (January 5, 2010) (``Amendment No. 1 Notice'').
    \8\ Exhibit A contains the citation key for all comment letters 
received on the proposed rule change and on Amendment No. 1.
    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 17 CFR 240.19b-4.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 to the Proposed Rule Change

Preliminary Official Statements and Other Primary Market Documents

    The proposed rule change would amend the EMMA primary market 
disclosure service to permit issuers and their designated agents to 
make voluntary submissions to the primary market disclosure service of 
official statements, preliminary official statements and related pre-
sale documents, and advance refunding documents (collectively, 
``primary market documents'').\11\ Pre-sale documents other than a 
preliminary official statement (including but not limited to notices of 
sale or supplemental disclosures) would be accepted only if accompanied 
or preceded by the preliminary official statement.\12\ An issuer 
seeking to make submissions of primary market documents to the EMMA 
primary market disclosure service would use the same accounts 
established with respect to submissions of continuing disclosure 
documents to the EMMA continuing disclosure service, subject to 
additional verification procedures to affirmatively establish the 
account holder's authority to act on behalf of the issuer in connection 
with such primary market disclosure submissions.
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    \11\ Obligated persons would be permitted to submit primary 
market documents through the EMMA primary market disclosure service 
only if designated as an agent by the issuer.
    \12\ The MSRB believes that posting of such pre-sale documents 
without the related disclosure information provided in a preliminary 
official statement would be inconsistent with the core disclosure 
purposes of EMMA.
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    Submissions of primary market documents by issuers and their 
designated agents would be accepted on a voluntary basis if, at the 
time of submission, they are accompanied by information necessary to 
accurately identify: (i) The category of document being submitted; (ii) 
the issues or specific securities to which such document is related; 
and (iii) in the case of an advance refunding document, the specific 
securities being refunded pursuant thereto. The primary market 
documents and related indexing information would be displayed on the 
EMMA Web portal and also would be included in EMMA's primary market 
disclosure subscription service.

Additional Continuing Disclosure Submissions and Undertakings

    The proposed rule change also would amend the EMMA continuing 
disclosure service to permit issuers, obligated persons and their 
agents to make voluntary submissions to the 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 \13\ 
are:
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    \13\ In Amendment No. 1, the MSRB proposes to modify the 
original proposed rule change by eliminating one item of additional 
voluntary submissions relating to the award of the Certificate of 
Achievement for Excellence in Financial Reporting awarded by the 
Government Finance Officers Association (``GFOA'') in connection 
with the preparation of a Comprehensive Annual Financial Report 
(``CAFR'') of an issuer. The MSRB notes that CAFRs are already 
frequently submitted to EMMA by issuers, and in most cases the 
issuers include the GFOA certificate in the submitted CAFR. 
According to the MSRB, EMMA already effectively serves as a venue 
through which CAFRs and GFOA certificates are made available to 
investors.
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    <bullet> An issuer's or obligated person's undertaking to prepare 
audited financial statements pursuant to generally accepted accounting 
principles (``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''); \14\
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    \14\ In response to the comments received on the original 
proposed rule change, the MSRB in Amendment No. 1 proposes to modify 
the original proposed rule change by permitting issuers and 
obligated persons to elect either the GASB standard or the FASB 
standard for GAAP, as appropriate. The original proposed rule change 
contemplated the use of the GASB standard only.
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    <bullet> 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''); \15\ and
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    \15\ In response to the comments received on the original 
proposed rule change, the MSRB in Amendment No. 1 proposes to modify 
the original proposed rule change by permitting issuers and 
obligated persons to elect to undertake to submit annual financial 
information either within 120 days or 150 days after the end of the 
fiscal year. The original proposed rule change contemplated a 120-
day timeframe only.
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    <bullet> Uniform resource locator (URL) of the issuer's or 
obligated person's Internet-based investor relations or other 
repository of financial/operating information.
    Voluntary GAAP Undertaking. The voluntary GAAP undertaking would 
consist of a voluntary undertaking by an issuer or obligated person, 
either at the time of a primary offering or at any time thereafter, 
that the issuer or obligated person will prepare its audited financial 
statements in accordance with GAAP. The MSRB contemplates that State or 
local governments or any other entities to which GASB standards are 
applicable would apply GAAP as established by GASB and that any other 
entities to which FASB standards are applicable would apply GAAP as 
established by FASB.
    The voluntary GAAP undertaking would assist investors and other 
market participants in understanding how audited financial statements 
were prepared. The fact that an issuer or obligated person has entered 
into a voluntary GAAP undertaking, and the

[[Page 30878]]

standard under which audited financial statements are to be prepared, 
would be prominently disclosed on the EMMA Web portal as a distinctive 
characteristic of the securities to which such undertaking applies.
    In Amendment No. 2, the MSRB proposes to clarify 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. Amendment No. 2 clarifies that the voluntary EMMA GAAP 
indicator solely could be used in situations where the issuer has 
entered into an undertaking via a contractual obligation. While this is 
consistent with a number of statements in Amendment No. 1, there was a 
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. 
This statement may have caused some confusion with regard to the 
issuer's need to undertake, in a continuing disclosure agreement or 
separate contract, that it will prepare its audited financial 
statements in accordance with GAAP, either based on GASB or FASB 
standards as appropriate in order to use the voluntary EMMA GAAP 
indicator.
    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. The voluntary annual filing 
undertaking would consist of a voluntary undertaking by an issuer or 
obligated person, either at the time of a primary offering or at any 
time thereafter, that the issuer or obligated person, as appropriate, 
would submit to EMMA its annual financial information as contemplated 
by Rule 15c2-12 under the Act by no later than 120 calendar days after 
the end of such issuer's or obligated person's fiscal year (the ``120-
day undertaking'').\16\ Alternatively, to and including December 31, 
2013, the EMMA continuing disclosure service would provide the option 
for an issuer or obligated person to indicate its undertaking to submit 
to EMMA its annual financial information by no later than 150 calendar 
days after the end of such issuer's or obligated person's fiscal year 
(the ``transitional 150-day undertaking'').\17\ An issuer or obligated 
person that has made a transitional 150-day undertaking could convert 
such election to a 120-day undertaking at any time. On and after 
January 1, 2014, the transitional 150-day undertaking option would no 
longer be available for selection.
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    \16\ According to the MSRB, under the Exchange Act, smaller 
public reporting companies, as non-accelerated filers, generally are 
required to file their annual reports on Form 10-K with the 
Commission within 90 days after the end of their fiscal year. The 
MSRB States that the longer 120-day period included in the voluntary 
annual filing undertaking of the proposed rule change is designed to 
accommodate additional steps that State and local governments often 
must take--under state law, pursuant to their own requirements, or 
otherwise--in completing the work necessary to prepare their annual 
financial information as contemplated under Exchange Act Rule 15c2-
12.
    \17\ The MSRB states that the option to elect, through December 
31, 2013, a transitional 150-day undertaking acknowledges that the 
120-day undertaking may not be immediately achievable by most 
issuers and obligated persons, and is designed to provide a means by 
which to recognize issuers and obligated persons that are taking 
steps toward ultimately making their annual financial information 
available within 120 days of fiscal year end in the future.
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    The voluntary annual filing undertaking would assist investors and 
other market participants in understanding when the annual financial 
information is expected to be available in the future. The fact that an 
issuer or obligated person has entered into a voluntary annual filing 
undertaking would be prominently disclosed on the EMMA Web portal as a 
distinctive characteristic of the securities to which such undertaking 
applies. A transitional 150-day undertaking would continue to be 
displayed on the EMMA Web portal through June 30, 2014, and would 
automatically cease to be displayed on the EMMA Web portal after such 
date, unless the issuer or obligated person has previously changed or 
rescinded such undertaking.
    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 
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. While Amendment No. 1 in several places 
clearly stated the MSRB's view that such an undertaking would be 
contained in a continuing disclosure agreement or a separate 
contract,\18\ one statement in Amendment No. 1 may have caused some 
confusion.\19\ Amendment No. 2 thus clarifies that the voluntary EMMA 
indicator could be used solely in situations where an issuer had made 
such an undertaking as a contractual obligation (whether in a 
continuing disclosure agreement or in a separate contract).
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    \18\ See, e.g., Amendment No. 1 Notice at 486.
    \19\ ``The MSRB contemplates 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.'' See 
Amendment No. 1 Notice at 486.
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    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.
    Investor Relation URL Posting. The proposed rule change would 
permit issuers or obligated persons to post the URLs for their 
Internet-based investor relations or other repository of

[[Page 30879]]

financial/operating information, which would provide investors with an 
additional avenue for obtaining further financial, operating or other 
investment-related information about such issuer or obligated person.
    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.\20\
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    \20\ The Commission notes that continuing disclosure 
undertakings pursuant to Rule 15c2-12 under the Exchange Act cannot 
be unilaterally rescinded or amended by either the issuer, an 
obligated person, or by any other party. See Securities Exchange Act 
Release No. 34961 (November 10, 1994), 59 FR 59560 (November 17, 
1994); Letter from Robert L.D. Colby, Deputy Director, Division of 
Trading and Markets, Commission, to Securities Law and Disclosure 
Committee, National Association of Bond Lawyers, dated June 23, 1995 
(Question 2).
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Effective Date of Proposed Rule Change

    The MSRB originally requested an effective date for the proposed 
rule change of a date to be announced by the MSRB in a notice published 
on the MSRB Web site, which date shall be no later than nine months 
after Commission approval of the proposed rule change and shall be 
announced no later than sixty (60) days prior to the effective 
date.\21\ In Amendment No. 2, the MSRB requested that the Commission 
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 Web site, 
which date shall be no later than one year after Commission approval of 
the proposed rule change and shall be announced no later than sixty 
(60) days prior to the effective date.
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    \21\ See Original Notice.
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III. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB's responses to the comment 
letters and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB \22\ and, in particular, the 
requirements of Section 15B(b)(2)(C) of the Exchange Act \23\ and the 
rules and regulations thereunder. Section 15B(b)(2)(C) of the Exchange 
Act requires, among other things, that the MSRB's rules be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in municipal securities, to remove impediments to and perfect the 
mechanism of a free and open market in municipal securities, and, in 
general, to protect investors and the public interest.\24\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the Exchange Act in that it serves to remove 
impediments to and help perfect the mechanisms of a free and open 
market in municipal securities and would serve to promote the statutory 
mandate of the MSRB to protect investors and the public interest. 
Voluntary dissemination of preliminary official statements through 
EMMA, particularly if made available prior to the sale of a primary 
offering to the underwriters, would provide timely access by investors 
and other market participants to key information useful in making an 
investment decision in a manner that is consistent with the Exchange 
Act. The voluntary GAAP undertaking would assist investors' 
understanding of how such information was prepared and may provide them 
with the knowledge that the financial statements were prepared 
according to generally accepted accounting principles. The voluntary 
annual filing undertaking would assist investors' understanding 
regarding when such information is expected to be available in the 
future and may encourage greater timeliness in the preparation and 
dissemination of municipal financial information. A URL provided by an 
issuer or obligated person would provide investors with an additional 
avenue for obtaining further financial, operating or other investment-
related information about the issuer or obligated person.
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    \22\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78o-4(b)(2)(C).
    \24\ Id.
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General Summary of Comment Letters

    The Commission received 27 comment letters responding to the 
Original Notice and three comment letters responding to the Amendment 
No. 1 Notice. Two comment letters concerned procedural issues with the 
filing.\25\ Most of the remaining 25 comment letters responding to the 
Original Notice generally supported the proposed rule change, except 
that most commenters believed that the 120-day voluntary annual filing 
undertaking would be too burdensome or not feasible.\26\ Several 
commenters, including a commenter representative of buyers of municipal 
securities, strongly supported the voluntary annual filing 
undertaking.\27\ Most commenters supported the proposals to submit 
voluntary information to EMMA, the voluntary GAAP undertaking and the 
issuer's ability to post links to other sources of disclosure 
information,\28\ although some commenters raised concerns about various 
aspects of the proposals, suggested alternatives, or requested 
clarifications.\29\ As noted above, Amendment No. 1 proposed to add a 
transitional alternative of a 150-day voluntary filing deadline through 
December 31, 2013, to provide a means by which to recognize issuers and 
obligated persons for taking steps toward voluntarily making their 
annual financial information available within 120 days of their fiscal 
year end. The three commenters who responded to the Amendment No. 1 
Notice believed that the voluntary 150-day transitional alternative 
also was too burdensome and not achievable.\30\ On May 21, 2010, the 
MSRB submitted Amendment No. 2 to the proposed rule change. The comment 
letters received regarding the Original Notice and the Amendment No. 1 
Notice, as set forth in Amendment Nos. 1 and 2, as well as the MSRB's 
response to the comment letters, as set forth in Amendment Nos. 1 and 
2, are more fully discussed below.
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    \25\ The MSRB Letter indicated that it was filing an extension 
of time for the Commission to act. One commenter requested an 
extension of the comment period (Virginia GFOA Letter I).
    \26\ See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA 
Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, 
Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield 
Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower 
Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter.
    \27\ See ICI Letter, SIFMA Letter, Hinsdale Letter.
    \28\ See, e.g. VGFOA Letter II, Inland Letter, Brookfield 
Letter, OMFOA Letter, Rock Hill Letter.
    \29\ See, e.g. SIFMA Letter, NABL Letter, GFOA Letter II, 
Consortium Letter, NAST Letter.
    \30\ See GFOA Letter III, Connecticut Letter II, NAIPFA Letter.
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Preliminary Official Statements and Other Primary Market Documents

    The proposal would amend the EMMA primary market disclosure service 
to permit issuers and their designated agents to make voluntary 
submissions to the primary market disclosure service of official 
statements, preliminary official statements and related pre-sale 
documents, and advance refunding documents. Pre-sale documents other 
than a preliminary

[[Page 30880]]

official statement (including but not limited to notices of sale or 
supplemental disclosures) would be accepted only if accompanied or 
preceded by the preliminary official statement.
    Most commenters who addressed the matter specifically supported the 
amendment of the EMMA primary market disclosure service to allow 
voluntary submissions.\31\ One commenter welcomed the expansion of the 
EMMA system to allow the voluntary submission of primary market 
documents because the expansion would allow issuers that offer their 
bonds through a competitive bidding process to be able to utilize the 
same distribution channels as issuers with offerings made on a 
negotiated basis.\32\ This commenter also suggested that the usefulness 
of the EMMA system would be enhanced by the ability to make and 
retrieve submissions identified in a manner other than by CUSIP 
numbers, such as by issuer.\33\
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    \31\ See Virginia GFOA Letter II, Connecticut Letter I, ICI 
Letter, Brookfield Letter, OMFOA Letter, Rock Hill Letter, NAST 
Letter, NAIPFA Letter.
    \32\ See Connecticut Letter I.
    \33\ Id.
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    Only one commenter raised concerns about this aspect of the 
proposal.\34\ This commenter recommended that the submitters of primary 
disclosure documents continue to be restricted to underwriters and 
their agents except for submission of pre-sale documents prepared in 
connection with competitively sold municipal securities, in order to 
avoid the submission of duplicate or contradictory filings by 
underwriters and issuers or obligated persons.\35\
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    \34\ See NABL Letter.
    \35\ Id.
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    The MSRB addressed these comments in Amendment No. 1. The MSRB 
stated that it believes that there is considerable value in providing a 
means for centralized access to preliminary official statements at or 
prior to the time of the trade and in sufficient time for an investor 
to make use of the information in coming to an investment decision.\36\ 
The MSRB indicated that it expects to provide search capabilities 
tailored to the types of indexing information that would be available 
for preliminary official statements, including issuer name, issue 
description, State, and appropriate date ranges, among other 
things.\37\ Submissions made by issuers would be noted as such on the 
EMMA Web portal.\38\ The MSRB believed that postings of preliminary 
official statements by issuers should be available for any new issue, 
not just those sold on a competitive basis, and the EMMA primary market 
submission process would be designed to discourage duplicative 
submissions by issuers and underwriters.\39\ The Commission agrees that 
it is appropriate that postings of preliminary official statements by 
issuers be available for offerings sold on a negotiated as well as 
competitive basis, and believes that the MSRB has adequately addressed 
the commenters' concerns and suggestions about duplicative filings and 
indexing.
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    \36\ See Amendment No. 1.
    \37\ Id.
    \38\ Id.
    \39\ Id.
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Additional Continuing Disclosure Submissions and Undertakings

    One commenter believed that all four of the proposed additional 
categories to the EMMA continuing disclosure service (the GASB-GAAP 
undertaking, the annual filing undertaking, the originally proposed 
GFOA-CAFR Certificate undertaking and the URL of the issuer's or 
obligated person's Internet-based investor relations or other 
repository of financial/operating information) were unnecessary because 
this feature of EMMA already contains a catch-all category that is 
broad enough to include any of the proposed categories.\40\ Several 
commenters expressed concern that the undertakings created by the 
proposal could lead to mistaken impressions by investors regarding the 
soundness or quality of the disclosures that either are or are not 
highlighted by these categories \41\ and one commenter expressed 
concern that by prominently highlighting certain voluntary 
undertakings, the MSRB could be construed to have recommended the 
creditworthiness of the municipal securities.\42\ The MSRB indicated in 
Amendment No. 1 and in Amendment No. 2 that it will include 
explanations of the nature of both the voluntary annual filing 
undertaking and the voluntary GAAP undertaking on the EMMA Web portal. 
The Commission believes that users of the EMMA system will benefit from 
the additional disclosures provided by these undertakings and that 
concerns that the additional disclosures provided on EMMA could lead to 
erroneous impressions can be monitored by the Commission through its 
oversight of the MSRB.
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    \40\ See NABL Letter.
    \41\ See NABL Letter, NAHEFFA Letter, Connecticut Letter I.
    \42\ See NABL Letter.
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Voluntary Annual Filing Undertaking

    The original proposed rule change would amend the EMMA continuing 
disclosure service to permit issuers and obligated persons to 
undertake, on a voluntary basis, to submit annual financial information 
to EMMA within 120 calendar days after the end of the fiscal year. This 
provision would consist of a voluntary undertaking by an issuer or 
obligated person, either at the time of a primary offering or at any 
time thereafter, that the issuer or obligated person, as appropriate, 
would submit to EMMA its annual financial information as contemplated 
under Rule 15c2-12 (including audited financials, when and if 
available) by no later than 120 calendar days after the end of such 
issuer's or obligated person's fiscal year.
    Most commenters, the majority of whom were representative of 
issuers or obligated persons, believed that the 120-day deadline for 
voluntary annual financial filings was too burdensome, arbitrary, 
unnecessary, harmful or not feasible,\43\ and many believed a majority 
of issuers could not meet this deadline.\44\ One commenter stated that 
often governments now struggle to meet the 180-day filing deadline to 
meet the requirements of the GFOA's Certificate of Achievement Program, 
which promotes the preparation of comprehensive annual financial 
reports (CAFRs) that go beyond the requirements of GAAP.\45\ This 
commenter believed that promoting a 120-day deadline might reasonably 
be expected to persuade any number of issuers to abandon a CAFR 
altogether in favor of a plain set of basic financial statements, 
which, in its view, would likely be harmful to the quality of financial 
reporting.\46\
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    \43\ See Michigan Letter, NAHEFFA Letter, Tennessee Letter, GFOA 
Letter I, Virginia GFOA Letter II, GFOA Letter II, Inland Letter, 
Rutherford Letter, Greendale Letter, Utah GFOA Letter, Brookfield 
Letter, Portland Letter, OMFOA Letter, Consortium Letter, Lower 
Merion Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter.
    \44\ See Tennessee Letter, GFOA Letter I, GFOA Letter II, Inland 
Letter, Rutherford Letter, Portland Letter, OMFOA Letter, Consortium 
Letter.
    \45\ See GFOA Letter II.
    \46\ Id.
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    Many commenters noted that external factors can inhibit the ability 
of issuers to complete annual financial reporting within 120 days, such 
as the need to obtain financial data from multiple component units, the 
need for outside governmental or governing body reviews of financial 
statements, required investment valuations by third parties, receipts 
and adjusting entries occurring after the close of the fiscal year, 
conflicts with State law and a limited

[[Page 30881]]

number of auditing firms well qualified to complete governmental 
audits.\47\
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    \47\ See NAHEFFA Letter, Virginia GFOA Letter II, GFOA Letter 
II, Inland Letter, Utah GFOA Letter, Portland Letter, OMFOA Letter, 
Consortium Letter, Rock Hill Letter, NAST Letter, Rio Rancho Letter, 
GFOA Letter III, Connecticut Letter II.
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    Commenters also noted that many issuers have limited resources to 
prepare financial statements.\48\ Many commenters believed that the 
voluntary timeframe would increase costs and impose significant 
financial and personnel burdens while providing questionable 
benefits.\49\ Several commenters observed that small issuers may not be 
able to meet this timeframe and that small issuers often are given low 
priority by their auditors as compared to larger clients.\50\ Other 
commenters also noted the variances among issuers,\51\ including one 
commenter who stated that there could be unintended adverse 
consequences with respect to a ``one-size-fits-all'' 120-day 
deadline.\52\
---------------------------------------------------------------------------

    \48\ See Inland Letter, Greendale Letter, Utah GFOA Letter.
    \49\ See Virginia GFOA Letter II, GFOA Letter II, Portland 
Letter, OMFOA Letter.
    \50\ See Brookfield Letter, Greendale Letter, Inland Letter, 
OMFOA Letter, Portland Letter, Rock Hill Letter, and Consortium 
Letter.
    \51\ See GFOA Letter II, NAHEFFA Letter.
    \52\ See GFOA Letter II.
---------------------------------------------------------------------------

    Several commenters expressed concern that pressure to meet the 
voluntary deadline could cause professional staff and their auditors to 
produce less accurate information that would reduce the quality of 
financial reporting and auditing standards \53\ and would lead to 
greater reliance on estimated financial data.\54\ Other commenters 
expressed concern that the 120-day deadline would encourage governments 
to engage the services of auditing firms that are not well qualified in 
governmental accounting and auditing standards.\55\
---------------------------------------------------------------------------

    \53\ See Inland Letter, Lower Merion Letter, Consortium Letter.
    \54\ See GFOA Letter II, OMFOA Letter, Consortium Letter.
    \55\ See GFOA Letter I, Consortium Letter.
---------------------------------------------------------------------------

    Several commenters distinguished the municipal market from the 
corporate market; indicated that State and local governments surpass 
their private sector counterparts in financial reporting transparency; 
or stated that financial reporting goals applicable to the corporate 
market should not apply to the municipal market.\56\ One commenter 
stated that governments should not be under the same pressure to 
provide instantaneous and quarterly financial information because 
governments do not exist to make profits.\57\ This commenter also 
believed that there is no demand for quicker completion of governmental 
audits in the marketplace.\58\
---------------------------------------------------------------------------

    \56\ See Rock Hill Letter, Consortium Letter, Inland Letter, 
GFOA Letter II.
    \57\ See Rock Hill Letter.
    \58\ Id.
---------------------------------------------------------------------------

    A number of commenters addressed whether 120 days would be an 
appropriate number of days for the voluntary timeframe.\59\ Some 
commenters suggested that the 120-day timeframe be deleted 
altogether.\60\ Others noted that the 120-day standard would conflict 
with the 180-day standard used by GFOA in connection with its CAFR 
program,\61\ and some commenters stated that the 180-day standard is a 
more appropriate timeframe.\62\ Others suggested that additional 
studies be performed before a timeframe is selected.\63\ One commenter 
cited difficulties in simultaneously meeting GFOA's CAFR timeframe and 
State law requirements.\64\ Two commenters recommended that issuers 
certify that they are making filings in compliance with their 
continuing disclosure agreements, without a specific deadline.\65\
---------------------------------------------------------------------------

    \59\ See Utah GFOA Letter, Portland Letter, OMFOA Letter, 
Tennessee Letter, Virginia GFOA Letter II, Inland Letter, OMFOA 
Letter, Consortium Letter, NAST Letter, Michigan Letter, Inland 
Letter, Rutherford Letter.
    \60\ See Utah GFOA Letter, Portland Letter, OMFOA Letter.
    \61\ See Tennessee Letter, Virginia GFOA Letter II, Inland 
Letter, OMFOA Letter, Consortium Letter, NAST Letter.
    \62\ See Michigan Letter, Inland Letter, Rutherford Letter, Utah 
GFOA Letter, Portland Letter.
    \63\ See Tennessee Letter, Virginia GFOA Letter II.
    \64\ See Virginia GFOA Letter II.
    \65\ See GFOA Letter II, NAHEFFA Letter.
---------------------------------------------------------------------------

    Another commenter was concerned that issuers might engage in 
deceptive practices by highlighting an undertaking, but then failing to 
comply with it.\66\ This commenter noted that there appears to be 
nothing to preclude the issuer from effectively advertising the 
undertaking on EMMA irrespective of actual compliance.\67\ Others were 
concerned that a decision not to make an undertaking would create 
prejudicial and unjustified marketplace distinctions or ``a figurative 
black eye in the mind of investors.'' \68\
---------------------------------------------------------------------------

    \66\ See NAHEFFA Letter.
    \67\ Id.
    \68\ See NAHEFFA Letter, Inland Letter.
---------------------------------------------------------------------------

    A number of commenters expressed concern that the voluntary annual 
filing undertaking likely would become a de facto standard that issuers 
would feel compelled to meet, or that the voluntary standard would set 
the stage for mandating over time the proposed 120-day schedule.\69\
---------------------------------------------------------------------------

    \69\ See Brookfield Letter, Connecticut Letter I, Inland Letter, 
Consortium Letter, NAHEFFA Letter, NAST Letter, Connecticut Letter 
II, NAIPFA Letter.
---------------------------------------------------------------------------

    A few commenters supported the 120-day deadline or enhanced 
disclosure about the timeliness of issuer financial reporting.\70\ One 
commenter, the only commenter primarily representative of buyers of 
municipal securities, was particularly supportive of the proposed 
disclosure regarding an issuer's decision to undertake submitting 
annual financial information to EMMA within 120 calendar days after the 
end of the fiscal year, and also recommended the establishment of a 
meaningful, mandatory timeframe for filing financial reports.\71\ This 
commenter noted that disclosure of annual financial information 
currently can take anywhere from three months to twelve months, or even 
longer, and that the financial status of an issuer can change 
materially during the course of a year--a fact that it observed has 
been highlighted by the recent credit crisis.\72\ This commenter 
recognized that establishing a specific timeframe for filing financial 
reports after the end of the fiscal year would necessitate a 
significant shift in current practices employed by municipal issuers, 
but believed that such a change is not only warranted but also long 
overdue.
---------------------------------------------------------------------------

    \70\ See ICI Letter, SIFMA Letter, Hinsdale Letter.
    \71\ See ICI Letter.
    \72\ Id.
---------------------------------------------------------------------------

    Another commenter stated that ``the proposed 120 day period for 
submitting annual financial information is a good start toward meeting 
the objective of making financial statements of governments timely and 
useful in the public securities market.'' \73\ A third commenter that 
supported this part of the proposal remarked that municipal securities 
issuers should have the same mandatory reporting requirement for timely 
financials as public corporations.\74\
---------------------------------------------------------------------------

    \73\ See Hinsdale Letter.
    \74\ See E-Certus Letter.
---------------------------------------------------------------------------

    In light of the commenters' widespread concerns regarding the 
attainability of the 120-day timeframe, the MSRB in Amendment No. 1 
provided a transitional option for issuers and obligated persons to 
elect a 150-day undertaking as an alternative to the 120-day 
undertaking. This alternative election is intended to provide issuers 
and obligated persons seeking to make the voluntary annual filing 
undertaking, but that are not currently able to meet a 120-day 
timeframe, with a reasonable opportunity to overcome existing

[[Page 30882]]

barriers to more rapid dissemination of financial information in an 
orderly and cost-effective manner.
    The MSRB accordingly modified the original proposed rule change to 
allow the election, through December 31, 2013, of a transitional 150-
day alternative, which election would be displayed on the EMMA Web 
portal through June 30, 2014, unless the issuer or obligated person 
changed or rescinded such undertaking. On and after January 1, 2014, 
the transitional 150-day undertaking option no longer would be 
available. An issuer or obligated person that made a transitional 150-
day undertaking could convert such election to a 120-day undertaking at 
any time. An issuer or obligated person that believed that it is able 
to meet the 120-day timeframe could make the 120-day undertaking 
immediately upon the effectiveness of the proposed rule change. The 
fact that an issuer or obligated person entered into such an 
undertaking, including the timeframe elected, would be prominently 
disclosed on the EMMA Web portal as a distinctive characteristic of the 
securities to which such undertaking applies. The EMMA Web portal would 
not include information regarding the availability or existence of the 
voluntary annual filing undertaking in those cases where an issuer or 
obligated person did not make a voluntary annual filing undertaking.
    The MSRB reiterated in Amendment No. 1 that the voluntary annual 
filing undertaking would in fact be voluntary. The MSRB would include 
an explanation of the nature of the voluntary annual filing undertaking 
on the EMMA Web portal. In particular, the MSRB would disclose that the 
voluntary annual filing undertaking is voluntary; is solely indicative 
of the timing by which the annual financial information is intended to 
be made available; and is not indicative of the accuracy or 
completeness of the annual financial information or of the financial 
health of the issuer or obligated person. Further, the MSRB would 
disclose that a decision by an issuer or obligated person not to make 
such an undertaking would not raise a negative inference with regard to 
the accuracy or completeness of the issuer's or obligated person's 
annual financial information or of the financial health of the issuer 
or obligated person.
    As previously noted, the Commission received three comment letters 
in response to the Amendment No. 1 Notice.\75\ The three commenters 
responding to the Amendment No. 1 Notice believed that the voluntary 
150-day transitional alternative also was too burdensome and not 
achievable.\76\ Two of the commenters reiterated and expanded upon 
comments they had made previously with respect to the original proposed 
rule change.\77\ The third commenter stated that the established GASB 
and FASB requirements for preparing the audited statements are a 
significant impediment to developing statements in less than 180 
days.\78\
---------------------------------------------------------------------------

    \75\ See Exhibit A.
    \76\ See GFOA Letter III, Connecticut Letter II, NAIPFA Letter.
    \77\ See GFOA Letter III, Connecticut Letter II.
    \78\ See NAIPFA Letter.
---------------------------------------------------------------------------

    The MSRB addressed the issues raised by the comment letters on the 
original proposed rule change in Amendment No. 1, and addressed the 
comments on the original proposed rule change as well as the comments 
on the Amendment No. 1 Notice in Amendment No. 2.
    In Amendment No. 2, the MSRB stated that the determination to 
establish 120 days as the timeframe in the original proposed rule 
change was not arbitrary.\79\ The MSRB indicated that, under the 
Federal securities laws, smaller public reporting companies, as non-
accelerated filers, generally are required to file their annual reports 
on Form 10-K with the Commission within 90 days after the end of their 
fiscal year.\80\
---------------------------------------------------------------------------

    \79\ See Amendment No. 2.
    \80\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, after consulting with Commission staff, it 
believed that providing issuers and obligated persons with 120 days to 
voluntarily submit annual financial information for purposes of the 
undertaking would provide an ample timeframe to accommodate the 
additional steps that State and local governments often must take--
under State law, pursuant to their own requirements, or otherwise--in 
completing the work necessary to prepare their annual financial 
information as contemplated under Rule 15c2-12.\81\ The MSRB noted that 
the alternative 150-day timeframe was added in Amendment No. 1 to 
provide additional time for undertaking such steps during a 
transitional period in response to concerns that, as State and local 
governments currently prepare their financial information, the 
additional 30 days beyond the Form 10-K timeframe for non-accelerated 
filers would not be sufficient for many municipal issuers.\82\ The MSRB 
stated that the timeframe provided for under the proposed rule change, 
as amended, is appropriate and was arrived at on a rational basis.\83\
---------------------------------------------------------------------------

    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    According to the MSRB, issuers that seek to make their financial 
information available under the voluntary annual filing undertaking 
also would be bringing the timing of their disclosures into closer 
conformity with the timeframes that investors in the registered 
securities market have come to rely upon.\84\ The MSRB noted that 
recent experiences of issuers who have begun to issue Build America 
Bonds that are marketed at least in part to investors who typically did 
not purchase municipal securities suggest that important benefits both 
to investors and issuers may be realized from moving toward a more 
universal disclosure timeframe.\85\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id.
---------------------------------------------------------------------------

    The MSRB in Amendment No. 2 also recognized the voluntary nature of 
the annual filing undertaking in responding to concerns that the 
undertaking would be impracticable or impossible and does not take into 
account variances in the size and complexities of issuers. The MSRB 
stated that it is aware that the nature of municipal issuers varies 
widely and that these significant differences may in fact make it more 
difficult for some types of issuers, or issuers in certain States, or 
issuers facing certain sets of facts and circumstances, to make and 
comply with the voluntary undertaking. In this regard, the MSRB noted 
that some issuers may be separate and distinct units in governmental 
structures that require information from third parties to complete 
their audited financial statements, and such third parties may operate 
under timeframes that differ from the issuers' own fiscal year cycles, 
thereby creating additional barriers to meeting the timeframe of the 
voluntary undertaking.
    Given this complex variety of issuer types, the MSRB believed that 
a single consistent voluntary submission timeframe available to all 
issuers provides an appropriately uniform initial target under the 
voluntary annual filing undertaking. The MSRB did not attempt to parse 
the essential structure of the marketplace to develop numerous separate 
timeframes based on very limited information. After a period of 
experience with the uniform timeframe of the undertaking, the MSRB 
advised that it could revisit the question of whether multiple 
timeframes for different types of issuers would be appropriate.

[[Page 30883]]

    In Amendment No. 2, the MSRB also addressed concerns of some 
commenters that the existence of the annual filing undertaking could 
create negative perceptions of issuers that do not make the voluntary 
undertaking and thereby create a two-tiered market.\86\ The MSRB stated 
that, in its view, the decision by an issuer not to submit annual 
financial information under the voluntary annual filing undertaking 
would not, by itself, cause an inappropriate negative perception of 
such issuer.\87\ According to the MSRB, the EMMA portal would provide 
clear disclosure of the purpose of the voluntary undertaking and that 
the undertaking should not be viewed as indicative of the accuracy or 
completeness of financial information or of the financial health of the 
issuer.\88\ Thus, the MSRB noted, the voluntary undertaking as 
disclosed on the EMMA portal would be an accurate representation of an 
issuer's affirmative undertaking as to the timing of its disclosure, 
and nothing more.\89\ The MSRB stated that no indicator would be 
provided for issuers that choose not to make the voluntary 
undertaking.\90\
---------------------------------------------------------------------------

    \86\ See Amendment No. 2.
    \87\ Id.
    \88\ Id.
    \89\ Id.
    \90\ Id.
---------------------------------------------------------------------------

    The MSRB did not believe that there is any significant risk of a 
tiered market perception developing in the near future based solely on 
the voluntary undertaking.\91\ The MSRB indicated that it would make 
the appropriate EMMA portal disclosures regarding the limited nature of 
the undertaking to help minimize the possibility that market 
participants would place undue emphasis on a single factor when making 
an investment decision.\92\ The MSRB opined that the marketplace would 
correctly view the voluntary undertaking as an initial step in a 
process toward more rapid dissemination of disclosure information to 
the public.\93\
---------------------------------------------------------------------------

    \91\ Id.
    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB did not believe that the voluntary annual filing 
undertaking would create an excessive burden on issuers or that issuers 
would reduce the quality of disclosures in order to meet the 
timeframe.\94\ The MSRB remarked that the existence of this optional 
undertaking is not intended to create an inference that issuers should 
sacrifice the quality of the information provided in their annual 
filings in order to meet a specific timeframe, and it did not believe 
that the undertaking would have such a negative effect.\95\
---------------------------------------------------------------------------

    \94\ Id.
    \95\ Id.
---------------------------------------------------------------------------

    In discussing financial disclosure standards for municipal 
securities, the MSRB noted that in the past, any de facto standards 
have been the result of slow evolution in the market through natural 
economic forces or the result of collaboration among the various 
interested parties, such as with the evolving de facto standard for 
quarterly information provided by many hospital borrowers arising from 
the collaborative work of issuers, obligated persons and investors in 
recent years.\96\ The MSRB believed that the single consistent 
voluntary submission timeframe under the voluntary annual filing 
undertaking, available to all issuers with the full knowledge that only 
some issuers would be able to make the voluntary undertaking at the 
current time, would serve to provide an appropriately uniform initial 
target for those market participants seeking to work toward more timely 
availability of financial information in the marketplace.\97\
---------------------------------------------------------------------------

    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

    In response to some commenters' recommendation that EMMA should 
allow issuers to specify a specific date by which annual financial 
information is expected to be submitted and should indicate whether the 
issuer was in compliance with such deadline, the MSRB noted that it has 
filed a separate proposed rule change with the Commission that 
addresses these concerns.\98\ The MSRB remarked that that filing would 
require underwriters, in connection with new issues that they 
underwrite, to provide to EMMA information regarding the deadline for 
submitting annual financial information by issuers to EMMA pursuant to 
their continuing disclosure agreements.\99\ The MSRB noted that this 
deadline would be displayed on the EMMA portal in close proximity to 
information showing the timing of actual submissions made by issuers of 
their annual financial information, thus achieving the objectives set 
out by the commenters.\100\ According to the MSRB, information 
regarding the voluntary undertaking also would be displayed in close 
proximity to information showing the timing of actual submissions made 
by issuers, thus providing a method for investors to check on the 
issuer's performance in connection with the undertaking.\101\ The 
Commission notes that it has approved the MSRB's filing to allow these 
displays on EMMA at the same time it is approving the instant proposed 
rule change, and believes that the enhancements to EMMA relating to 
underwriters' requirements will address the commenters' recommendations 
concerning issuers' compliance with existing undertakings regarding 
submission of financial information.\102\
---------------------------------------------------------------------------

    \98\ Id. See Securities Exchange Act Release Nos. 60314 (July 
15, 2009), 74 FR 36300 (July 22, 2009) and 61238 (December 23, 
2009), 75 FR 492 (January 5, 2010) (File No. SR-MSRB-2009-09).
    \99\ See Amendment No. 2.
    \100\ Id.
    \101\ Id.
    \102\ See Securities Exchange Act Release No. 62182 (May 26, 
2010) (SR-MSRB-2009-09).
---------------------------------------------------------------------------

    In response to some commenters' suggestion that the timeframe be 
180 days, the MSRB noted that the timeframe set forth in the voluntary 
undertaking should be shorter than other timeframes currently in use, 
such as the GFOA CAFR certificate program's 180-day timeframe, and that 
the transitional 150-day timeframe included in Amendment No. 1 would 
provide a mid-point between the original 120-day timeframe of the 
voluntary undertaking and the GFOA's 180-day timeframe.\103\
---------------------------------------------------------------------------

    \103\ See Amendment No. 2.
---------------------------------------------------------------------------

    The Commission believes that the MSRB has adequately addressed the 
concerns of commenters with respect to the voluntary annual filing 
undertaking. Importantly, the Commission notes that this undertaking is 
voluntary and will provide investors, as well as broker-dealers, 
analysts and other market professionals, with financial information 
about municipal securities within a timeframe voluntarily agreed to by 
the issuer. The Commission is sensitive to the great variety of 
municipal issuers and obligated persons and the many fiscal and other 
pressures that they face, but is also sensitive to the concerns of 
investors and other participants in our capital markets, who need 
timely information to make informed decisions. The Commission believes 
that investors, broker-dealers, analysts and other users of the EMMA 
system will greatly benefit from the ability to easily identify those 
issuers and obligated persons that have committed to providing 
financial information by a specific deadline. The 120- and 150-day 
timeframes are voluntary and will assist investors in making investment 
decisions and in monitoring their securities portfolios; will reward 
those issuers and obligated persons that are able to achieve greater 
timeliness in financial reporting; and may encourage greater timeliness 
by other issuers and obligated persons over time as they work to 
surmount the obstacles that currently prevent them from preparing and 
disseminating financial information within the

[[Page 30884]]

proposed timeframes and without sacrificing the quality of their 
reporting.

Voluntary GAAP Undertaking

    The original proposed rule change would amend the EMMA continuing 
disclosure service to permit issuers and obligated persons to 
undertake, on a voluntary basis, to prepare audited financial 
statements pursuant to GAAP as established by GASB. This would consist 
of a voluntary undertaking by an issuer or obligated person (in the 
case of an obligated person that is a State or local governmental 
entity), either at the time of a primary offering or at any time 
thereafter, that the issuer or obligated person would prepare its 
audited financial statements in accordance with GAAP as established by 
GASB.
    Commenters generally supported the voluntary ``GAAP as established 
by GASB'' undertaking, although several commenters noted that certain 
issuers do not use GASB accounting standards and suggested alternative 
recommendations.\104\ Two commenters recommended that the proposal not 
include the accounting standard setting body (indicating only 
compliance with GAAP),\105\ and one commenter recommended the inclusion 
of the accounting standard setting body, GASB or any other standard 
setting body, in order for the reader of the financial statements to 
distinguish which standards are being followed.\106\ Another commenter 
expressed concern that an issuer that does not elect a voluntary GAAP 
undertaking would be stigmatized as less creditworthy even where it 
follows other standards, including statutory standards, and noted that 
financial statements are accompanied by a statement of the accounting 
principles applied.\107\ In Amendment No. 1, the MSRB agreed with 
commenters that many obligated persons may be subject to FASB standards 
rather than GASB standards.\108\ The MSRB therefore modified the 
voluntary GAAP undertaking to permit the submitter to select either the 
GASB or FASB standards for GAAP.
---------------------------------------------------------------------------

    \104\ See NAHEFFA Letter, GFOA Letter II, Connecticut Letter I.
    \105\ See GFOA Letter II, Consortium Letter.
    \106\ See NAST Letter.
    \107\ See NABL Letter.
    \108\ See Amendment No. 1.
---------------------------------------------------------------------------

    As noted above, the Commission received three comment letters in 
response to the Amendment No. 1 Notice. One of these commenters 
suggested the allowance of modified GAAP.\109\ This commenter 
questioned the usefulness of the GASB GAAP undertaking and stated that 
use of GASB GAAP may not always be clear; because it prepares its 
information on a modified GAAP basis, it would probably not be able to 
make this undertaking.\110\ The second commenter did not support the 
amended proposal to have a field that references ``a particular 
standard-setting body'' and noted that ``it is redundant for the MSRB 
to also include the body in which GAAP standards are established.'' 
\111\ The third commenter agreed with the provision to have issuers and 
obligated persons designate whether their audited financials are 
prepared pursuant to GAAP but not the use of GASB standards because 
some issuers may be required to use other GAAP standards.\112\
---------------------------------------------------------------------------

    \109\ See Connecticut Letter II.
    \110\ See Connecticut Letter I, Connecticut Letter II.
    \111\ See GFOA Letter III.
    \112\ See NAIPFA Letter.
---------------------------------------------------------------------------

    The MSRB stated that permitting investors to understand the 
standards applied to the preparation of an issuer's or obligated 
person's financial statements would be valuable.\113\ The MSRB 
indicated that the fact that an issuer or obligated person has entered 
into a voluntary GAAP undertaking, including whether the financial 
statements are to be prepared pursuant to GASB or FASB standards, would 
be prominently disclosed on the EMMA Web portal as a distinctive 
characteristic of the securities to which such undertaking 
applies.\114\ The MSRB noted that it would include an explanation of 
the nature of the voluntary GAAP undertaking on the EMMA Web 
portal.\115\ In particular, the MSRB would disclose that the voluntary 
GAAP undertaking is voluntary; is solely indicative of the accounting 
standards that the issuer or obligated person intends to use in 
preparing its financial statements; and is not indicative of the 
accuracy or completeness of the financial statements or of the 
financial health of the issuer or obligated person.\116\ Further, the 
MSRB advised that it would disclose that a decision by an issuer or 
obligated person not to make such an undertaking does not raise a 
negative inference in regard to the accuracy or completeness of its 
financial statements or of the financial health of the issuer or 
obligated person.\117\ According to the MSRB, each of the undertakings 
pursuant to the proposal, including the voluntary GAAP undertaking, 
would permit a free text input field permitting issuers and obligated 
persons to include additional information relating to each such item 
that they may deem appropriate with respect thereto for public 
dissemination.\118\ The MSRB believed that this feature should provide 
such issuers and obligated persons with adequate opportunity to 
disclose appropriate information to investors.\119\
---------------------------------------------------------------------------

    \113\ See Amendment No. 2.
    \114\ Id.
    \115\ See Amendment No. 1.
    \116\ Id.
    \117\ Id.
    \118\ See Amendment No. 2.
    \119\ Id.
---------------------------------------------------------------------------

    The Commission believes that the proposed voluntary GAAP 
undertaking will assist investors and other users of the EMMA system in 
determining how financial statements are prepared. The uniformity 
provided by audited financial statements that are prepared by issuers 
and obligated persons pursuant to GAAP in accordance with GASB or FASB 
standards will reduce the need by investors to reconcile the use of 
disparate accounting principles. The features of the EMMA continuing 
disclosure service permitting issuers and obligated persons to include 
additional information should address commenters' concerns about 
special situations that require clarification.

Investor Relation URL Posting

    The proposal would amend the EMMA continuing disclosure service to 
permit issuers and obligated persons to post the URLs for their 
Internet-based investor relations or other repository of financial/
operating information. The URL of an issuer's or obligated person's 
investor relations or other repository of financial/operating 
information would be entered through a text/data input field on EMMA 
and no document would be required to be submitted to EMMA.
    Commenters generally supported the proposal to permit issuers and 
obligated persons to provide a hyperlink to their investor relations or 
similar Web page.\120\ One commenter thought that this field would 
provide investors with valuable information and would likely be the 
most useful voluntary field proposed by the MSRB.\121\ Another 
commenter noted that this hyperlink may be more useful to the general 
public than CUSIP-based EMMA filings for general financial information 
that is not issue-specific.\122\
---------------------------------------------------------------------------

    \120\ See, e.g., Connecticut Letter I, GFOA Letter III.
    \121\ See GFOA Letter III.
    \122\ See Connecticut Letter I.
---------------------------------------------------------------------------

    One commenter requested that issuers be given an ability to correct 
or withdraw URLs to ensure that links are accurate, recommended the 
allowance of multiple links, and requested guidance on the 
responsibilities of issuers with regard to the posting of

[[Page 30885]]

hyperlinks on EMMA.\123\ Another commenter asked about the role and 
obligations of dealers if the proposal is adopted; expressed liability 
concerns regarding the use of a URL in municipal securities offering 
documents and EMMA submissions during the underwriting period of a 
primary offering; and suggested a limit on the use of the URL during 
the underwriting period of a primary offering.\124\
---------------------------------------------------------------------------

    \123\ See GFOA Letter II, GFOA Letter III.
    \124\ See SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB noted that issuers and obligated persons would be able to 
make appropriate changes to the URLs posted through EMMA.\125\ The 
hyperlinks would be posted in a manner designed to segregate access to 
the URL from postings of official statements for new issues.\126\ The 
MSRB intends to provide flexibility to issuers and obligated persons 
regarding the posting of appropriate links, including multiple links, 
and would provide the ability to correct or withdraw URLs to ensure 
that links are accurate.\127\
---------------------------------------------------------------------------

    \125\ See Amendment No. 1.
    \126\ Id.
    \127\ See Amendment No. 2.
---------------------------------------------------------------------------

    The Commission believes that a URL provided by an issuer or 
obligated person would provide investors, broker-dealers, analysts and 
others with an important additional means to obtain further financial 
operating or other investment-related information about such issuer or 
obligated person.

Elimination of Proposed GFOA-CAFR Certificate

    The original proposed rule change would have amended the EMMA 
continuing disclosure service to permit issuers to submit the 
Certificate of Achievement for Excellence in Financial Reporting 
awarded by GFOA in connection with the preparation of its CAFR.
    In Amendment No. 1, the MSRB stated that it determined not to 
proceed with this element of the proposal. The MSRB noted that CAFRs 
already are frequently submitted to EMMA by issuers as the audited 
financial statements element of their annual financial information 
filings, and in most cases the issuers include the GFOA certificate in 
the submitted CAFR.\128\ The MSRB stated that as part of its routine 
EMMA update and maintenance process, it expected to modify the input 
process for all continuing disclosure submissions to permit issuers and 
obligated persons to input specific document titles and/or 
subcategories, which would permit submitters of CAFRs to indicate that 
their submitted audited financial statements are CAFRs.\129\ According 
to the MSRB, this document title/subcategory would be displayed on the 
EMMA Web portal.\130\
---------------------------------------------------------------------------

    \128\ See Amendment No. 1.
    \129\ Id.
    \130\ Id.
---------------------------------------------------------------------------

    GFOA, in commenting on the Amendment No. 1 Notice, recommended that 
this voluntary field be included within EMMA, noting that such a field 
is useful to investors as it tells them which governments have 
exceptional reporting standards.\131\ In Amendment No. 2, the MSRB 
stated that the current channels for disseminating CAFRs and the 
related GFOA certificate are adequate but that it may consider further 
action in this area in the future.\132\ The Commission believes that 
the MSRB's decision to eliminate the GFOA certificate field is 
reasonable given that GFOA certificates are typically submitted to EMMA 
with CAFRs.
---------------------------------------------------------------------------

    \131\ See GFOA Letter III.
    \132\ See Amendment No. 2.
---------------------------------------------------------------------------

Other General Comments

    One commenter recommended that the Commission defer action on the 
MSRB's proposal to add additional voluntary submissions by issuers 
until after the proposed Rule 15c2-12 amendments are considered and 
adopted in order to accommodate an orderly integration of revised Rule 
15c2-12 submissions and EMMA voluntary submissions.\133\ The Commission 
notes that the amendments to Rule 15c2-12 are being adopted at the same 
time that it approves the instant proposed rule change.\134\
---------------------------------------------------------------------------

    \133\ See NABL Letter.
    \134\ See Press Release 2010-85 (May 26, 2010).
---------------------------------------------------------------------------

    One commenter on the Amendment No. 1 Notice provided a series of 
comments and suggestions relating to various elements of the 
proposal.\135\ These included a suggested edit in the facility language 
for the EMMA primary market disclosure service regarding issuers being 
able to designate an agent for purposes of making primary market 
submissions; support for voluntary submission of information on swaps, 
swaptions and variable rate debt; and encouragement for the MSRB to 
pursue submission of ratings from rating agencies. In Amendment No. 2, 
the MSRB indicated that, with regard to the suggestion regarding 
facility language, the proposed EMMA revisions contained in Amendment 
No. 1 appropriately ensure that an issuer can designate an agent and 
remarked that the filing indicates that the term ``designating 
underwriter'' has been changed to ``designating party'' specifically to 
permit an issuer to make such designation.\136\ In addition, in 
Amendment No. 2 the MSRB noted that it currently is in the early stages 
of developing a process to receive electronic feeds of municipal 
securities credit rating information from Nationally Recognized 
Statistical Rating Organizations for purposes of displaying on the EMMA 
portal.\137\
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    \135\ See NAIPFA Letter.
    \136\ See Amendment No. 2.
    \137\ Id. The Commission notes that, on May 20, 2010, the MSRB 
filed a proposed rule change relating to the posting of credit 
rating information on its EMMA system.
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    Another commenter recommended that the Commission maintain close 
oversight of EMMA and revisit this matter in two to three years to 
determine whether the MSRB system is meeting expectations and whether 
the needs of all market participants are being addressed.\138\ The 
Commission notes that, because the MSRB is a self-regulatory 
organization (``SRO''), the Commission has, and exercises, oversight 
authority over the MSRB. The MSRB must file proposed rule changes with 
the Commission under Section 19(b) of the Exchange Act, including any 
changes to the EMMA system and any fees relating to the EMMA system. In 
addition, the MSRB is subject to the recordkeeping requirements of 
17(a) of the Exchange Act \139\ and is subject to the Commission's 
examination authority under Section 17(b) of the Exchange Act.\140\ 
Through the Commission's recordkeeping requirements and examination and 
rule filing processes, the Commission oversees the MSRB and will be 
able to ascertain whether the MSRB is implementing EMMA appropriately 
and meeting EMMA's stated objectives, as well as whether it is 
complying with its legal obligations under the Exchange Act.
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    \138\ See Connecticut Letter I.
    \139\ 15 U.S.C. 78q(a).
    \140\ 15 U.S.C. 78q(b).
---------------------------------------------------------------------------

    With regard to all other issues raised by the commenters, the 
Commission believes that the MSRB has adequately addressed the 
commenters' concerns.

IV. Order Granting Accelerated Approval of Proposed Rule Change

    Pursuant to Section 19(b)(2) of the Act,\141\ the Commission may 
not approve any proposed rule change, or amendment thereto, prior to 
the 30th day after the date of publication of notice of the filing 
thereof, unless the Commission finds good cause for so doing and 
publishes its reasons for so

[[Page 30886]]

finding. The Commission hereby finds good cause for approving the 
proposed rule change, as modified by Amendment Nos. 1 and 2, before the 
30th day after the date of publication of notice of filing thereof in 
the Federal Register. The Commission notes that the original proposed 
rule change and Amendment No. 1 were published in the Federal Register 
on July 15, 2009 \142\ and January 5, 2010,\143\ respectively. The 
Commission does not believe that Amendment No. 2 significantly alters 
the proposal. In Amendment No. 2, the MSRB requested an additional 
three months to develop, test, and implement the proposal and clarified 
that, consistent with statements in Amendment No. 1, the voluntary 
undertakings to be submitted to the MSRB's EMMA continuing disclosure 
service must be entered into as contractual undertakings for the 
benefit of bondholders. The Commission believes that these revisions 
are consistent with the proposal's purpose and raise no new significant 
issues. Accordingly, pursuant to Section 19(b)(2) of the Act,\144\ the 
Commission finds good cause to approve the proposed rule change, as 
amended, on an accelerated basis.
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    \141\ 15 U.S.C. 78s(b)(2).
    \142\ See Release No. 34-60315, supra note 3.
    \143\ See Release No. 34-61237, supra note 7.
    \144\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Exchange Act. Comments may 
be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2"><span class="__cf_email__" data-cfemail="a6d4d3cac38bc5c9cbcbc3c8d2d5e6d5c3c588c1c9d0">[email protected]</span></a>. Please include 
File Number SR-MSRB-2009-10 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2009-10. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the MSRB. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MSRB-2009-10 and should be 
submitted on or before June 23, 2010.

VII. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Exchange Act and the 
rules and regulations thereunder applicable to the MSRB \145\ and, in 
particular, the requirements of Section 15B(b)(2)(C) of the Exchange 
Act \146\ and the rules and regulations thereunder. The proposal will 
become effective on a date to be announced by the MSRB in a notice 
published on the MSRB Web site, which date shall be no later than one 
year after Commission approval of the proposed rule change and shall be 
announced no later than sixty (60) days prior to the effective date.
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    \145\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \146\ 15 U.S.C. 78o-4(b)(2)(C).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\147\ that the proposed rule change (SR-MSRB-2009-10), as 
amended, be, and it hereby is, approved.
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    \147\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\148\
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    \148\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.

Exhibit A

Key to Comment Letters Cited in Approval Order Relating to 
Additional Voluntary Submissions by Issuers to the MSRB's 
Electronic Municipal Market Access System (EMMA[supreg])

File No. SR-MSRB-2009-10

Comments Relating to Original Proposed Rule Change

    1. Ernesto A. Lanza, General Counsel, MSRB, dated August 6, 2009 
(``MSRB Letter'').
    2. Robert J. Kleine, Michigan State Treasurer, dated August 10, 
2009 (``Michigan Letter'').
    3. Memorandum from the Office of the Chairman regarding a 
meeting with representatives of Division of Investment Management, 
Division of Trading and Markets, and the Government Finance Officers 
Association, dated August 11, 2009 (``August 11th Memorandum'').
    4. Robert Donovan, Executive Director, Rhode Island Health and 
Educational Building Corporation, Chair, National Association of 
Health and Educational Facilities Finance Authorities (``NAHEFFA'') 
Advocacy Committee, dated August 12, 2009 (``NAHEFFA Letter'').
    5. Jan I. Sylvis, Chief of Accounts, State of Tennessee, dated 
August 12, 2009 (``Tennessee Letter'').
    6. Leon J. Bijou, Managing Director and Associate General 
Counsel, Securities Industry and Financial Markets Association 
(``SIFMA''), dated August 12, 2009 (``SIFMA Letter'').
    7. Susan Gaffney, Director, Federal Liaison Center, Government 
Finance Officers Association (``GFOA''), dated August 12, 2009 
(``GFOA Letter I'').
    8. John Wallingford, Executive Board Member, Virginia Government 
Finance Officers Association (``Virginia GFOA''), dated August 12, 
2009 (``Virginia GFOA Letter I'').
    9. William A. Holby, President, The National Association of Bond 
Lawyers (``NABL''), dated August 13, 2009 (``NABL Letter'').
    10. Marycarol C. White, CPA, CPFO, President, Virginia 
Government Finance Officers' Association (``Virginia GFOA''), dated 
August 14, 2009 (``Virginia GFOA Letter II'').
    11. Jeffrey L. Esser, Executive Director and CEO, The Government 
Finance Officers Association (``GFOA''), dated August 17, 2009 
(``GFOA Letter II'').
    12. Dean Martin, Chief Financial Officer, Inland Empire 
Utilities Agency, dated August 18, 2009 (``Inland Letter'').
    13. Lisa Nolen, CPA, CGFM, Rutherford County Finance Director, 
Murfreesboro, Tennessee, dated August 19, 2009 (``Rutherford 
Letter'').

[[Page 30887]]

    14. Kathryn Kasza, CMTW, Clerk-Treasurer, Village of Greendale, 
Greendale, Wisconsin, dated August 19, 2009 (``Greendale Letter'').
    15. Denise L. Nappier, Connecticut State Treasurer, dated August 
20, 2009 (``Connecticut Letter I'').
    16. Heather Traeger, Associate Counsel, Investment Company 
Institute (``ICI''), dated August 21, 2009 (``ICI Letter'').
    17. David Muir, President, Utah Government Finance Officers 
Association (``Utah GFOA''), Finance Director, Cottonwood Heights 
City, dated August 25, 2009 (``Utah GFOA Letter'').
    18. Robert Scott, CPA, CPFO, Director of Finance, City of 
Brookfield, Wisconsin, dated August 30, 2009 (``Brookfield 
Letter'').
    19. Kenneth L. Rust, Chief Administrative Officer, and Eric H. 
Johansen, Debt Manager, City of Portland, Oregon, dated September 1, 
2009 (``Portland Letter'').
    20. Bernice Bagnall, President, Oregon Municipal Finance 
Officers Association (``OMFOA''), Tualatin Valley Water District, 
dated September 2, 2009 (``OMFOA Letter'').
    21. Gerry Fink, Village of Hinsdale, Illinois, dated September 
3, 2009 (``Hinsdale Letter'').
    22. Beth Kellar, International City/County Management 
Association; Steve Traylor, National Association of Counties; 
Cornelia Chebinou, National Association of State Auditors, 
Comptrollers and Treasurers; Lars Etzkorn, National League of 
Cities; Larry Jones, U.S. Conference of Mayors; Amy Hille, American 
Public Power Association; and Rick Farrell, Council on 
Infrastructure Financing Authorities; dated September 3, 2009 
(``Consortium Letter'').
    23. Richard C. Kristof, Director of Financial Services, City of 
Rio Rancho, Rio Rancho, New Mexico, dated September 3, 2009 (``Rio 
Rancho Letter'').
    24. Eileen Bradley, Assistant Director of Finance, Township of 
Lower Merion, dated September 4, 2009 (``Lower Merion Letter'').
    25. R.T. McNamar, President, E-Certus, Inc., dated September 8, 
2009 (``E-Certus Letter'').
    26. David B. Vehaun, Assistant City Manager, City of Rock Hill, 
South Carolina, dated September 23, 2009 (``Rock Hill Letter'').
    27. Jeb Spaulding, President, National Association of State 
Treasurers (``NAST''), Treasurer, State of Vermont, dated September 
25, 2009 (``NAST Letter'').

Comments Relating to Amendment No. 1

    1. Jeffrey L. Esser, Executive Director and CEO, Government 
Finance Officers Association, dated January 25, 2010 (``GFOA Letter 
III'').
    2. Denise L. Nappier, Connecticut State Treasurer, dated January 
27, 2010 (``Connecticut Letter II'').
    3. Steven Apfelbacher, President, National Association of 
Independent Public Finance Advisors (``NAIPFA''), dated February 5, 
2010 (``NAIPFA Letter'').

[FR Doc. 2010-13155 Filed 6-1-10; 8:45 am]
BILLING CODE 8010-01-P


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