Dave Sanchez, director of the Securities and Exchange Commission's Office of Municipal Securities, let attendees at The Bond Buyer California Public Finance conference know that new-issue pricing was, as set forth in the 2025 exam priorities, well, a priority.
The focus: municipal advisors — part of your regulatory responsibilities and duties (if you don't agree to evaluate pricing and/or structure, you must expressly disclose it to the client) and broker-dealers (fair dealing).
Zeroing in on pricing responsibilities of market participants (MSRB Rules G-17 and G-42), Sanchez reminded attendees that the focus is not based on a new rule ("… conscious decision to speak to this because the rules are not new") and was the subject to Municipal Securities Rulemaking Board guidance in 2022 for both underwriters and MAs.
He also cited an average 25-35 basis-point underpricing that may be negatively impacting issuers and the "fair, orderly and efficient" operation of markets. Referring to the exam priorities, he let session participants know the SEC was letting the market know that they are looking at this — akin to knowing a guest is coming over and to get the house in order in advance of their arrival. His comments had a familiar ring — although less subtle than pre-MCDC comments by the SEC.
To help support new-issue pricing, identifying supporting comparable deals is important when assessing the new-issue market as well as how bonds of those comps and bonds of the issuer coming to market are trading in the secondary — more than just a scale from a week ago. Solve's DIVER Scale Viewer and Scale Writer provide tools to easily access this data and analyze the same. Some of this data may also be available on the MSRB's EMMA.
Sanchez also noted the importance of looking at where bonds are trading in the secondary seven to 14 days after pricing. While some of this data can be accessed on EMMA, again, the DIVER platform provides the ability to easily extract secondary market trade data and compare the same with the new-issue scale.
In addition to making sure there is support and a sound basis for the new-issue pricing, Sanchez also spoke to the method of sale, citing a February 2023 CDFA presentation that assessed the value of competitive vs. negotiated sales, noting that there is less favorable pricing with negotiated deals.
This brought a response from an attendee leading to a discussion around competitive vs. negotiated and the reality that there is more to the structure decision than pricing alone — the devil is in the details, and each deal is different.
It was noted that an examination is not always enforcement. What went into the decision(s) and memorialization of the same is important to support the discussion. To that end, communication about practices, adherence to them, and exploring if they can be improved upon is also important.
Whether you are a municipal advisor, banker, or underwriter, the message is clear: the SEC will be looking closely at new-issue pricing. Utilization of tools like SOLVE's DIVER platform can help efficiently and effectively access and analyze data to support your regulatory compliance.
