Securities and Exchange Commission Adopts Amendments to Rule 15c2-12

August 23, 2018

On August 20, 2018 the Securities and Exchange Commission (“SEC”) adopted amendments to 17 CFR 240.15c2-12, commonly referred to as “Rule 15c2-12”, which deals with continuing disclosure obligations.

According to the SEC’s press release, the amendments “focus on material financial obligations that could impact an issuer’s liquidity, overall creditworthiness, or an existing security holder’s rights.” These amendments create new disclosure obligations for issuers who incur debt outside of the bond market, as well as narrow the definition of “financial obligation” under Rule 15c2-12.

The SEC’s amendments add two additional events for which notice must be given by an obligated party,  including brokers, dealers, or municipal securities dealers acting as an underwriter, on the Municipal Securities Rule Making Board’s EMMA system:

(1) incurrence of material financial obligation by an obligated party or entering into an agreement by an obligated party regarding covenants, default, remedies, priority rights or other similar terms, if material; and

(2) default, acceleration, termination or modification of any financial obligation of an obligated party, if any such event reflects financial difficulties for the obligated party.

Notice of these events must be given within ten (10) business days of the event’s occurrence.

The amendments also narrow the definition of the term “financial obligation” to relate solely to debt obligations and derivative instruments, rather than ordinary financial and operating liabilities. Under these amendments, the term financial obligation refers to a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) a guarantee of (i) or (ii). The definition of financial obligation does not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with Rule 15c2-12.

The amendments will become effective 60 days after published in the Federal Register, and the compliance date is 180 days after date of publication in the Federal Register. It is important to note that these amendments will only affect continuing disclosure agreements entered into on or after this compliance date.

We will keep you updated on the developments and implementation of these amendments to Rule 15c2-12.