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Financial Services Law Insights and Observations

SEC temporarily allows municipalities to sell securities to banks

Federal Issues Covid-19 SEC Securities

Federal Issues

On June 16, the SEC released a temporary exemptive order, which provides a temporary conditional exemption for registered municipal advisors to sell municipal securities to banks, their wholly-owned subsidiaries engaged in commercial lending and financing activities, and credit unions. Specifically, the order, which is intended to “address disruption in the municipal securities market” due to Covid-19, provides municipal advisors a temporary exemption from broker registration under Section 15 of the Securities Exchange Act of 1934. The order notes that most municipal issuers facing “significant budget shortfalls” do not meet the eligibility criteria for the Federal Reserve Board’s Municipal Liquidity Facility, and therefore, the temporary exemption will help to “facilitate more timely and efficient access to bank financing alternatives by municipal issuers.” The order details the permitted activities allowed under the temporary exemption, along with written representations the municipal advisor must obtain. Additionally, the order restricts the aggregate principal amount of a municipal security to $20 million. The temporary exemption expires on December 31.