WASHINGTON -- Rep. Steve Stivers, R-Ohio, is urging the Securities and Exchange Commission to clarify that its municipal advisor registration rule will permit dealers to provide tailored advice to issuers about municipal bonds and then underwrite those bond issues later.
Stivers, a member of the House Financial Services Committee, who had sponsored a bill to curb the scope of the SEC rule on investment banks that was approved by the House but not taken up by the Senate, made the plea in a two-page letter he sent to SEC Chairman Mary Jo White on Monday.
The SEC approved the rule in September and it is slated to take effect on Jan. 13.
“I respectfully urge you to make it clear that a dealer providing particularized ideas, analysis, information, proposals or other communications that might otherwise be deemed “advice” under the rule would not be precluded from underwriting a bond transaction that might arise from that communication if the dealer complies with all requirements of [Municipal Securities Rulemaking Board] Rules G-17 and G-23,” Stivers said. “Such an interpretation is consistent with the Dodd-Frank statute and would allow states and localities to continue to communicate freely with all market participants and achieve the most efficient bond financing for their constituents.”
MSRB Rule G-17 says dealers must deal fairly with other muni market participants and G-23 prevents a dealer from serving as both financial advisor and underwriter for the same muni bond issue.
The SEC’s MA registration rule defines “advice” as “a recommendation that is particularized to the specific needs, objectives or circumstances of a municipal entity [issuer] or obligated person [borrower] with respect to municipal financial products or the issuance of municipal securities -- including with respect to the structure, timing, terms and other similar matters concerning such financial products or issues, based on all the facts and circumstances,” Stivers pointed out.
““This definition would capture communications that routinely take place between state and local officials and broker-dealers who serve as bond underwriters,” he said.
The rule contains some exemptions from the definition of an MA, including a dealer that is formally engaged to provide underwriting services. But Stivers said underwriting engagement are typically not formalized until bonds are about to be sold. Under another exemption a dealer would not be an MA if the issuer has retained an independent municipal advisor or the dealer is responding to a request for proposals. But Stivers said many issuers do not hire MAs or do so after a transaction has been conceived and that an RFP is often not issued until a transaction has been conceived.
