At a recent conference held by The Bond Buyer focused on California’s public finance sector, Dave Sanchez, the director of the Securities and Exchange Commission’s (SEC) Office of Municipal Securities, underscored the need for attention to new-issue pricing in the municipal securities market. During this forum, he elaborated on how the SEC’s exam priorities for 2025 highlight significant expectations for municipal advisors and broker-dealers in maintaining responsible pricing structures. This critical call to action emphasizes the importance of fair dealing and market integrity, reminding participants that adherence to established rules is paramount.
Sanchez articulated that pricing responsibilities are anchored in Securities and Exchange Commission regulations, specifically MSRB Rules G-17 and G-42. Highlighting the inherent responsibilities, he insisted that if municipal advisors choose not to evaluate the pricing and structure of deals, they are obligated to expressly communicate this lack of evaluation to clients. This revelation serves as a reminder that regulatory compliance is not simply an option, but a necessity within the precincts of municipal securities, illuminating the regulatory landscape that governs market operations.
One striking statistic discussed was the observed average underpricing of 25 to 35 basis points which, according to Sanchez, could be detrimental to issuers and potentially destabilize the market. This phenomenon raises serious concerns about the operational efficiency and integrity of municipal securities markets. Sanchez’s analogy of preparing one’s home before a guest’s arrival aptly illustrates the SEC’s stance—preemptive measures and awareness are crucial in maintaining the health of market activities.
To equip market participants with the necessary tools to navigate this evolving terrain, Sanchez mentioned pivotal resources such as Solve’s DIVER Scale Viewer and Scale Writer, which provide robust data analysis capabilities. These tools allow stakeholders to access pertinent information on comparable deals effectively and monitor market performance closely. While reference data is available through the MSRB’s EMMA platform, Sanchez contended that advanced tools enhance the depth of analysis surrounding both new issues and secondary market performance, enabling a more comprehensive evaluation of municipal bonds.
Another aspect of Sanchez’s discourse centered on the method of sale, referencing a February 2023 presentation by the Council of Development Finance Agencies (CDFA). Here, he highlighted the critical need to assess the impacts of competitive versus negotiated sales. Confidently noting that negotiated transactions often yield less favorable pricing, this assertion sparked further discussions among attendees, sparking inquiry into best practices in capital market transactions.
Sanchez’s presentation served as a vital reminder of the underlying principles and responsibilities inherent in municipal market dealings. As the SEC closely scrutinizes pricing dynamics and regulatory compliance, it is evident that all market participants must elevate their standards and practices to safeguard fairness and efficiency. The evolving landscape of municipal securities demands awareness, preparation, and adherence to stringent regulatory measures, as only through collective commitment can the integrity of these crucial financial markets be ensured.