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SEC Provides Relief for Broker-Dealers Acting as Agents for TALF

Commentary by Nihal Patel and Steven Lofchie

The SEC provided conditional exemptive relief from certain credit-arranging prohibitions under Exchange Act Section 11(d) to broker-dealers designated as agents for the Federal Reserve Board's ("FRB") 2020 Term Asset-Backed Securities Loan Facility ("TALF"). (Further coverage of the TALF program is available here (March 23, 2020 - re: relaunch) and here (May 15, 2020 - re: updated TALF term sheet).)

The Exemptive Order comes in response to a request from the Federal Reserve Bank of New York ("New York Fed"). The Order provides that a broker-dealer that is designated as an agent for TALF borrowers may, notwithstanding the requirements of Exchange Act Section 11(d)(1), facilitate TALF-related loans against securities even if the TALF agent acted as a member of the selling syndicate or group. The SEC indicated that it granted the relief on the understanding from the New York Fed that "the success of the TALF program depends on the effective participation of TALF Agents in facilitating the availability of the program to potential participants. . . ."


The exemptive relief is substantively similar to the relief granted by the SEC in connection with the first edition of TALF. See February 17, 2009 letter and August 13, 2009 letter. In form, the new relief is more formal than the previous exemptive letters, as it is a full SEC statement to be published in the Federal Register, rather than a letter from the SEC Division of Trading and Markets. In each case, however, the relief comes from the Division of Trading and Markets, acting pursuant to delegated authority.

For further detail on TALF, in addition to the Clients & Friends Memoranda cited above, an archive of a webcast given by Cadwalader attorneys on April 30, 2020 is available here.

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Section 11(d) of the Exchange Act is supposed to be a consumer protection measure. (A broader discussion of Section 11(d) can be found in the Broker-Dealer Guide.) That the SEC and the FRB are willing to do away with it, even under special circumstances, may be an indication that the provision is not really necessary under any circumstances. Section 11(d) dates to the original adoption of the Exchange Act in 1934. There was no FINRA; there were no suitability rules; there was no Regulation Best Interest. The goal that Section 11(d) was intended to accomplish is now much more powerfully fulfilled by a range of other regulatory provisions. The Section is now almost 90 years old; it is ripe for re-examination.

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