SEC disclosure rule 15c2-12 needs revamp: SIFMA

The Securities Industry and Financial Markets Association is urging the Securities and Exchange Commission to consider revamping disclosure rule guidelines and says the commission underestimates the burden the rule puts on underwriters.

SIFMA outlined its concerns over SEC Rule 15c2-12 on Monday. The Jan. 7 letter is in response to the SEC's November request for comments on the existing collection of information provided for in 15c2-12.

The rule, controversial among some market participants, requires underwriters to ensure the state and local governments issuing bonds provide ongoing disclosure to the Municipal Securities Rulemaking Board.

The SEC's November request seeks feedback on whether the proposed collection of information is necessary for the "proper performance of the functions" of the SEC, as well as the accuracy of the commission's estimates of the burden the rule puts on market participants; ways to enhance the quality of the information; and ways to minimize the burden. Comments were due by Jan. 7. The agency said it plans to submit the existing collection of information to the Office of Management and Budget for extension and approval.

SIFMA, in its response, urges the SEC to review its existing guidance to the rule in light of market changes since the last round of changes, noting that the commission's last "interpretative release" to the rule came more than 30 years ago.

Since then, cities and states have widely created websites in which they maintain, and regularly update, the same financial disclosures required by the SEC. The development of "automated collection techniques or other forms of information technology can be used to reduce the burden on filers and increase the certainty that filings are made," SIFMA said, noting that the MSRB, for example, collects and disseminates ratings actions, decreasing the need for issuers to do the same.

"Such common-sense updates could reduce the burdens of the rule on broker-dealers without undermining the rule's effectiveness," the association said.

The SEC estimates in its notice that market participants ? including 28,000 issuers, 205 broker-dealers, and the MSRB ? will spend a total of 786,220 hours per year complying with Rule 15c2-12 over the next three years. Issuers will spend more than $19 million over the next three years to comply with the rule, the SEC estimates.

The commission's estimate that broker-dealers annual compliance burden totals 101,454 hours.

That's a "gross underestimation" of the actual time it takes underwriters to comply with the rule, SIFMA said. The estimate "fails to account for the range, size, and complexity of issuers and issuances of bonds by creating a single unreasonably low estimate of burden hours for all broker-dealers acting, or seeking to act, as participating underwriters," the association said.

The commission fails to account for the fact that bonds can be sold to underwriters in either a negotiated or competitive bid sale or in a private placement, "and nonwinning bidders and co-managing syndicate members may also collect information pursuant to the rule, all of which the commission conflates for the purposes of its estimates," SIFMA said.

The rule also creates a separate burden for broker-dealers making recommendations to buy or sell bonds on the secondary market that the SEC does not recognize, SIFMA said.

The group also urged the SEC to update the rule's limited-offering exemption to reduce the information collection requirements, noting that recent enforcement actions seem "to have imposed an additional implicit requirement that broker-dealers document compliance with the limited offering exemption of the rule."