SEC Discussion on Temporary Conditional Exemptive Order for Municipal Advisor Activities

Securities and Exchange Commission

Virtual Discussion – Temporary Conditional Exemptive Order for Municipal Advisor Activities

Tuesday, July 7, 2020

Discussion

In her opening remarks as moderator, Rebecca Olsen, Director, SEC Office of Municipal Securities, summarized the discussion agenda and introduced her fellow panelists: Kelly Shoop, SEC Division of Trading and Markets; Emily Hanson Santana, SEC Office of Municipal Securities; and Gail Marshall, Chief Compliance Office, Municipal Securities Rulemaking Board (MSRB).

Shoop began the discussion with an overview of the temporary conditional exemption from broker registration requirements for certain municipal advisor activities recently put forth by the SEC. She consistently emphasized that this is a temporary order and is intended to permit municipal advisors to perform their designated role. She presented a deck that outlined, in detail, the following items: 1) the conditions of the temporary order; 2) the definition of qualified provider; 3) the written representation requirements to the municipal advisor from the qualified provider and vice versa; as well as 4) the notification requirements outlining what the municipal advisor needs to provide to the SEC. Shoop continued that there are differences between this temporary order and the October 2019 Proposed Order before adding that while she does not view the two items as connected, the comments received in response to that proposal have informed this temporary relief. In response to a question from Olsen, Shoop stated that the SEC decided to proceed with issuing this temporary order to provide additional flexibility for smaller issuers as they face budgetary shortfalls, promote efficient access to the market, and give municipal advisors another tool when advising clients throughout this period of uncertainty.

Santana outlined that the temporary order permits municipal advisors to engage in certain additional activities only if they fulfill the outlined requirements. She emphasized that this is not intended to change their duties or regulation as municipal advisors. Santana noted that while the order is scheduled to expire on December 31, 2020, as long as the qualified provider is selected and the disclosures completed before this expiration date, the deal in question will be permitted to close after December 31, 2020.

Marshall discussed how the additional activities listed in the temporary order will be treated under MSRB rules. She stated that municipal advisors will not be engaging in placement agent activities, therefore, there should be no increase in their fees. Marshall highlighted the need for a supervisory structure to ensure that the municipal advisors who avail themselves of this temporary order stay within the conditions of the order.

Olsen, Shoop and Santana then addressed the required written notifications and representations with all emphasizing the importance of these communications. Shoop specifically noted that there is nothing in this temporary order that precludes the inclusion of a placement agent. Regarding the transactional limit outlined in the order, Santana stated that if the deal exceeds the limit of $20 million aggregate principal amount, the municipal advisor would not be able to rely on this temporary order. Santana also noted her desire for municipal advisors to be conservative on this front and that the minimum denomination being set at $100,000 makes clear that these transactions are not intended for retail investors.

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