The Securities Industry and Financial Markets Association plans to make clear to the next Securities and Exchange Commission chair that a temporary exemption for muni advisors should not be extended.
The current SEC Chair Jay Clayton is leaving at the end of this year before his term is set to expire in June 2021. SIFMA is in the process of suing the SEC to block a temporary conditional exemption that allows non-dealer municipal advisors to facilitate certain private placements of municipal bonds. SIFMA first announced its legal challenge
“The commission has in our view, never laid out the policy or economic rationale,” said SIFMA President and CEO Kenneth E. Bentsen, Jr. during SIFMA’s State of the Industry briefing Tuesday, while discussing other muni topics. “We would hope that goes away. We will make our views quite clear to Chairman Clayton’s successor.”
The SEC’s response to SIFMA is due at the end of this month. Sources have said SEC Commissioner Hester Peirce would take Clayton’s place until a new chair is confirmed.
In June, the SEC issued the TCE, which is set to expire on Dec. 31, 2020. When it was announced, Clayton argued that many issuers faced declining revenue or delays in collecting it, and faced increased nonbudgeted costs as a result of COVID-19.
SIFMA said the TCE should be struck down because the SEC did not solicit stakeholder’s input and was “arbitrary and capricious.”
The issue is sensitive because dealer firms have always maintained that placement activity is their realm, and that anyone wishing to engage in that business should properly register as a broker-dealer.
The SEC also proposed a similar exemptive order in 2019, but said it would not move forward with it. The SEC reached out for comment on that order. SIFMA is concerned the SEC will consider extending, reinstituting or revising the TCE.
Also on Tuesday, Bentsen said muni bond provisions are mostly likely to be included in an infrastructure bill in a bipartisan fashion, noting that President-elect Joe Biden’s focus will first be on pandemic-related relief.
“Municipal bonds play a key role in infrastructure already and could be a key component of any infrastructure legislation that the new administration and Congress may seek to do as they’ve indicated,” Bentsen said.
The House has passed a number of municipal bond provisions in its major infrastructure bill, including direct-pay bonds, expanding the volume cap of private activity bonds and bringing back tax-exempt advance refunding.
Increasing the $15 billion cap for PABS, $14.7 billion of it which has already been used, has garnered bipartisan support.
A group of bipartisan lawmakers introduced the Building United States Infrastructure and Leveraging Development Act in 2019, which would raise the federal PAB cap for surface transportation and freight improvement by $5.8 billion. An identical bill is in the Senate, introduced by Sens. Cornyn, R-Texas and Mark Warner, D-Va.
The Senate’s Lifting Our Communities through Advance Liquidity for Infrastructure, which would bring back tax-exempt advance refunding also has bipartisan support.
This all comes as the deadline looms for an omnibus bill to pass, which could include a COVID-19 relief bill, by the end of this week.
Hilltop Securities predicts that Dec. 11 deadline will be pushed back by a week to give lawmakers more time.
“One of the reasons lawmakers may be trying to buy themselves time is because talks seem to be heating up as it relates to a potential fifth phase of COVID-19 relief,” said Tom Kozlik, head of Hilltop’s municipal strategy and credit.
“Funding for state and local governments and liability insurance continue to be the leading roadblocks to a fifth phase of COVID-19 relief,” Kozlik added. “Policy differences remain. Only time will tell if the next 10 or so days is enough to bring lawmakers closer together on topics that they have seemingly been trying to work through for months.”
