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15C2-12 The Story of Evolution: A buy-side perspective
September 4, 2018
Since the Big Bang theory was developed – and I don’t mean the sitcom – people have had a lot of time to digest, understand and to argue it merits. Understanding the life of 15c2-12 is similar.
In the beginning there was the Act of 1934, the Big Bang of security regulations. This is the framework from that all security regulations were born. Just like in today’s markets, the municipal bond market seemed to take a backseat to others, including in the regulation of it. Then in 1989, Rule 15c2-12 as we know it was adopted. It was conceived with the lofty goal of increasing the quality, timing and disclosure of information in the municipal securities market.
The rule has been amended numerous times, with each step getting it closer to its current iteration. It gave birth to acronyms like NRMSIRs, SIDs, MCDC and most famously EMMA. Each step of the way making it both easier and harder for market participants to do their jobs. Being a grizzled municipal market veteran and most recently a credit analyst, these amendments and changes were a welcomed relief and they made my job easier. All it really took was a change in my routine and – Presto! – more and better information. Some of these changes, such as MCDC, caused many underwriters, FA’s and issuers a lot of work and anxiety, occasionally resulting in SEC fines.
All of these changes were in the name of more and better disclosure, too, which makes investors very happy. Unfortunately, we tend not to stay happy for too long. Once these changes are made, we in the investor community start to ask for the next best thing that we can’t do our jobs without. So, when the SEC mentions that they heard us and are willing to include some of our asks into an amendment to 15c2-12, we should be happy and comment while we can.
In my opinion, evolving market specific regulation is much, much better than seat of your pants, crisis-induced regulation like Dodd-Frank (but that’s a blog for another day!). Just look how long it took the market to fight to get munis back to being deemed liquid (albeit tier 2) under HQLA. Investors, this is the time to speak up on 15c2-12. As for issuers, the current changes to 15c2-12 isn’t the end-all, be-all for good disclosure. It’s still just the beginning.
What truly separates “great” disclosure from “okay” disclosure is how much issuers are willing to disclose voluntarily.