SIFMA says court should allow news articles as evidence against MA exemption

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The U.S. Court of Appeals in Washington, D.C. should consider intervening news articles that go against claims by the Securities and Exchange Commission that a temporary exemptive order for municipal advisors was necessary, according to the Securities Industry and Financial Markets Association.

Late Thursday, SIFMA filed a motion with the court , asking it to allow three news articles into the record or by taking judicial notice of them. Those articles contradict the SEC’s reasoning for a temporary conditional exemption that allows non-dealer MAs to facilitate certain private placements of municipal bonds, SIFMA said.

“The articles were adverse because they undermined the commission’s finding of a market disruption in June 2020,” SIFMA wrote. “And their omission was at least negligent: the commission’s 2020 order cited news reports in support of its finding of a market disruption, but omitted reference to subsequent news reports, from the same sources, that any disruption had resolved — even though the reports were available to the commission before it issued the 2020 order.”

This is part of an ongoing lawsuit SIFMA filed in August.

The SEC introduced a temporary conditional exemption in June to allow municipal advisors to facilitiate some private placement deals.

SIFMA says the parties agree that judicial notice of those articles can be granted without any remand — i.e. sending the lawsuit back to a lower court.

At the end of November, SIFMA accused the SEC of relying on news articles, including in The Bond Buyer, that detailed market disruption, but ignored those same news sources indicating that the disruption had ended before June when the SEC issued the TCE.

A week ago, the SEC filed a motion saying the court should oppose SIFMA’s original motion to add news articles to the administrative record. The SEC said that SIFMA’s motion from November was premised on the mistaken notion that the commission’s only rationale for adopting the 2020 order was the order’s opening reference to the description from the growing COVID-19 crisis that hit the market in March 2020.

The SEC argued the TCE was based on increased unbudgeted costs by municipalities coupled with revenue uncertainty because of the pandemic.

“In the first place, even if the commission had been correct that these other miscellaneous findings were relevant to supporting the exemption, the articles would still be adverse, because they would still undermine one important component of the commission’s reasoning (the existence of a market disruption),” SIFMA said Thursday.

The SEC’s other reasons for implementing the TCE besides market conditions promulagate the exemption, SIFMA said. Those claims of municiaplites’ increased costs and reduced revenue demonstrate the need for issuers to raise money through issuance, SIFMA said.

“Nothing in the 2020 order other than the commission’s finding of a market disruption suggests that municipalities were having, or were likely to have, any difficulty issuing securities, either through the primary market or through alternative channels, in the absence of an exemption for municipal advisors from the statutory requirement to register as broker-dealers when engaging in certain private placements,” SIFMA argued.

The SEC did not cite any relevant market data, aside from referencing press statements, SIFMA said.

The TCE is set to expire on Dec. 31, 2020. Dealer firms have maintained that placement activity is in their realm, and those wishing to engage in that business should properly register as a broker-dealer.

Earlier this month, the SEC released a data disclosure report that showed the number of issuers using the TCE from Oct. 1 to Nov. 30., indicating an increase from previous months to 101 issuances. In the last reporting period from Aug. 1 to Sept. 30, there were 35 issuers using the TCE.

Sources attributed that rise to a bump in overall issuance.

The SEC and SIFMA declined to comment on the lawsuit.

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