Subject: In RE File No. S7-16-19
From: Chris Melton

Dec. 27, 2019

From: Chris Melton [redacted]
Sent: Friday, December 27, 2019 6:05 PM 
To: Olsen, Rebecca [redacted] 
Subject: In RE File No. S7-16-19
Ms. Olsen:
My name is Chris Melton.  You may remember me from my days on the Board of the Bond Dealers of America or on FINRA’s Small Firm Advisory Board (now Committee).   I am retired and my only current connection to the markets is an investor and observer.  I am writing you today because it has come to my attention that the SEC is seriously considering a request from PFM and the National Association of Municipal Advisors (an organization that represents non-broker-dealer Municipal Advisors) to grant a Municipal Advisor exemptive relief from the requirement to register as a broker-dealer when that Municipal Advisor engages in activity that falls within the definition of placement agent in the issuance of municipal securities.  If this is not the case, and the SEC intends to deny the request with prejudice, please disregard what follows.  If, however, the SEC is actually considering granting this request, I implore you to reconsider in the interests of all market participants, excepting, of course, the Municipal Advisors who in my opinion intend to use the exemptive relief to increase profitability; and deny the request.  
First, please disabuse yourself of the notion that because Municipal Advisors have a fiduciary obligation to the issuers they represent that somehow makes their testimony more credible than that of other market participants.  Municipal Advisors (both broker-dealer MAs and previously unregulated MAs) exist not because it was determined that municipal issuers needed fiduciary representation in debt issuance,  but because certain public finance bankers figured out how to annuitize their commission streams and lock out competition (very similar to Investment Advisors on the investor side).  Anyone that tells you otherwise, is at best, sadly mistaken, but more likely less than forthright.   Nevertheless, whenever the so-called independent Municipal Advisors take a position on a regulatory matter, their opinion appears to be treated as gospel truth merely for the fact that they have taken that position.  Anyone voicing an opposing opinion is treated as if they are the enemy of fair and efficient markets.  In my thirty plus years’ experience in the fixed income securities business, I have not found that to be the case.  Those with fiduciary obligations are just as interested in lining their own pockets and locking out competition as the much-maligned broker-dealers.  
When Congress included provisions for requiring the regulation of Municipal Advisors as part of the Dodd Frank Act, it was presumed by many that the requirement was enacted in response to the troubles of municipalities related to debt issuance like those experienced by Harrisburg, Pennsylvania and Jefferson County, Alabama; both of whom were represented by independent Municipal Advisors.   However, once Rule MA began to take shape, it was apparent that the previously unregulated Municipal Advisors were providing the information that the Commission was using to determine content.  What should have been a Rule designed to oversee the activity of Municipal Advisors, became a rule that devoted much of its content to what activity was now restricted to registrants, in other words Rule MA regulated broker-dealers and underwriters as much or more than Municipal Advisors.  Regulation, by nature, is somewhat anti-competitive; however, in this case the Rule directly limited the competition for business in which the intended regulated parties were engaged.  Fortunately, the Commission did at least resist PFM’s insistence that although many broker-dealers were already engaged in this activity and were already subject to regulation related to that activity, those broker-dealers should be prohibited from registration as Municipal Advisors.  However, so called independent Municipal Advisors did successfully fight tooth and nail to avoid FINRA oversight and continue to fight regulatory oversight of all manner.  They even object to obtaining CUSIPs for competitively issued municipal securities claiming it is more efficient for the underwriter to obtain CUSIPs, despite the fact that the role of underwriter is undetermined until the bid deadline.  
The same people that argued that broker-dealers should not be permitted to engage in the Municipal Advisors’ primary business arena are now arguing that not only should they be permitted to engage in traditional broker-dealer activities, but they should be allowed to engage in those activities without being subject to the same regulatory supervision as a broker-dealer.   One does not have to be a Mensa member to note the irony in that.  
I do believe that certain broker-dealer registrants are engaged in private placement activity without hiring a placement agent, and it is understandable that “independent” Municipal Advisors would want to play in that pen.  In my experience, Advisory fees are considerably larger when serving as an Advisor to an issuer in a private placement than when serving as an Advisor to an issuer in a public offering.  Anyone claiming otherwise should be required to produce ten active contracts including fee schedules to support that claim.   Many private issues do save the issuer a little money, but they make an MA wearing two hats considerably more money.  If that practice is going to be permitted, it is best to make sure both sides are regulated.  The answer to this problem is to increase oversight in this area, not to expand this activity to permit participants that are not subject to regulatory oversight related to that activity.  
Additionally, permitting unregulated parties to act as placement agents would likely result in an explosion of private placement activity, particularly among small issuers, effectively locking retail participants out of that market, a market in which retail investors have a particular interest.  As a retail investor, I can tell you that I look far more carefully at small issues that have quite likely not been rinsed through a Tier One client before seeing the market.  
As you can quite likely tell, I am incensed by the thought the SEC might grant this relief-not that my opinion carries any weight with the Commission, but this is just wrong.   I am somewhat liberated by the fact that my comments no longer have to reflect concern for an employer (I realize that if you have read some of my previous comments, you would have been surprised to learn that I considered myself to be restrained).  Please let me know where I can make public comment on this issue.  I can be reached at this e-mail address or at [redacted] if you would care to engage in discussion on this matter.    
Thanks for listening.  
Chris Melton