SEC Grants Broker-Dealer Registration Exemption to Muni Advisors
The SEC granted a temporary conditional exemption to allow municipal advisors to solicit a certain set of "banks, wholly-owned subsidiaries of banks, and credit unions" (a/k/a "Qualified Providers") for "direct placements" by municipal issuers. The SEC stated that the exemption is intended to help smaller municipal issuers raise money in light of the COVID-19 pandemic.
Registered municipal advisors who rely on the exemption must (i) make written representations to protect potential investors by notifying them of the regulatory obligations the municipal advisor will undertake in connection with a transaction, (ii) obtain written representations from a bank investor with regard to investor eligibility and transfer restriction conditions under the exemption and (iii) notify the SEC of reliance on the exemption.
The exemption will expire on December 31, 2020.
Commentary
Though it is phrased as coming in response to the pandemic, this temporary exemption could raise regulatory status questions from market participants; the SEC could have called the exemption "certain municipal advisors deemed not to be broker-dealers." The SEC notes that it previously sought comment on an exemption from "broker" status under Exchange Act Section 15(a)(2) for direct placements of municipals. This exemption adopts, temporarily, a number of aspects of that previously contemplated-but-not-adopted (and much commented upon) exemption, which itself was criticized by some - including one member of Congress - for not being treated as APA-style rulemaking.