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A new voice in the muni lobby

The American Securities Association has thrown its hat into the ring as it plans to become increasingly involved in municipal market issues in the near future.

The ASA told The Bond Buyer that it has plans to become more involved in fixed income and infrastructure lobbying following a letter sent to the Securities and Exchange Commission Thursday on the roles of municipal advisors in private placement deals.

“We’ve opined on various fixed income issues in the past, infrastructure and other issues,” said Christopher Iacovella, ASA CEO. “If you look at our membership base, it’s basically all of the regional financial services firms and many of them have operations in both equity and fixed income. It’s just logical for us to use our voice in an area that basically has a direct impact on the businesses of our members.”

The SEC released a proposed exemptive order in October that would allow registered MAs to perform certain services to arrange private placement deals, without registering as a broker-dealer. Dealers have taken the position that such activities are de facto placement agent services, which regulators have said is the domain of dealer firms.

ASA was created in 2016 as an umbrella organization for the Bond Dealers of America and Equity Dealers of America. In 2018, EDA dissolved and ASA became its own trade organization.

The group said it plans this year to make sure the SEC’s proposal is not adopted, though many close to the issue believe some narrower version of the proposal is very likely to be approved.

In the proposal, the SEC said there were safeguards such as the antifraud provisions that would apply equally to broker-dealers and MAs.

SEC Chair Jay Clayton along with other commissioners appears likely to approve a municipal advisor exemptive order that would allow MAs to participate in some private placement activities.

The ASA wrote on Thursday that the SEC’s antifraud authority over MAs would not be effective and that unlike broker-dealers, MAs would not be subject to regulatory requirements under the broker-dealer regime.

“There will be little recourse for investors defrauded by a municipal advisor if there is no capital to protect investors from the advisor’s fraudulent activities in the municipal market,” Iacovella wrote.

Those objections closely mirror those raised by the Securities Industry and Financial Markets Association and the Bond Dealers of America, both of which have also strenuously opposed the proposed order from the start and subsequently suggested a number of ways the SEC should amend it before considering approval.

Iacovella called the SEC’s proposal an “ill-advised effort."

"What happens when things go wrong, as they inevitably do?" Iacovella wrote. "Who will investors seek recourse from if their municipal advisors declare bankruptcy, and how will the SEC explain to Congress that deregulating the municipal securities market to favor undercapitalized advisors over highly regulated broker-dealers was in the public interest?"

In a December letter to the SEC, the group said it opposed any adoption of the proposal because it would leave investors at risk and said it would set a damaging precedent that would weaken regulation of future broker-dealer activities.

Iacovella doesn’t see any room for compromise on the issue and ASA wants the order to be withdrawn. The order creates a new regulation framework that favors one market participant over another, Iacovella wrote.

“You would have an unequal environment for competition and that’s really the main thrust of both letters — the SEC in both letters is putting its finger on the scale to favor one group over another, competing for the exact same business,” Iacovella said.

ASA has also been involved with infrastructure in Washington and plans to work with lawmakers on both sides of the aisle this year. The group sent a letter to the House Ways and Means Committee last month ahead of its hearing in which it supported the use of municipal bonds to fund infrastructure.

In 2018, ASA had 10 members. It now has 16 full-time members and five associate members. Associate members do not have representation on its board. ASA represents regional financial services companies who then appoint an individual who are generally executives of those firms to sit on its board. Some of its members include Stifel, Raymond James and Baird.

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