FINRA Mortgage Security Margin Amendments
In October 2015, FINRA filed proposed amendments with the SEC to FINRA Rule 4210 to establish margin requirements for “to be announced” (TBA) transactions, specified pool transactions, and transactions in collateralized mortgage obligations. BDA submitted comments to the SEC in October 2015 that highlight ongoing concerns with the impact of the proposal on small-to-medium sized dealers and met with the SEC in January 2016 to discuss outstanding concerns.
Municipal Advisor Regulatory Regime
The SEC’s Municipal Advisor (MA) rule went into effect on July 1, 2014. The MSRB is currently engaged in completing the MA regulatory regime. The SEC recently approved amendments to MSRB Rule G-42 on duties of non-solicitor municipal advisors. BDA also submitted a comment letter on proposed Rule G-37 on pay-to-play rules for municipal advisors, which MSRB filed with the SEC in late December.
Retail Confirmation Markup Disclosure Proposals
In late 2015, FINRA and the MSRB each released a rule proposal to require dealers to disclose a markup relative to a reference price or the contemporaneous inter-dealer price on trade confirmations for retail accounts. BDA submitted a comment letter in December that urged regulators to harmonize their proposals and to strive to create the lowest cost, least complicated rule for retail investors and dealers. BDA will continue to advocate for a less complex, less costly rule in 2016.
FINRA Extended Settlement Initiative
In September, BDA met with FINRA to discuss FINRA’s intention to update guidance or engage in a rule making related to forward settlement transactions in municipal securities. The discussion was focused on the municipal market but FINRA would like to engage in a dialogue with BDA member firms about forward settlements in the taxable market, too. A full recap of the September 2015 meeting can be read here.
IRS Proposed Regulations on Issue Price
In June 2015, the IRS and U.S. Treasury issued a proposed rule to amend the definition of issue price for municipal securities. BDA submitted a comment letter in September 2015 outlining our initial concerns and suggesting alternative approaches for consideration. Additionally, BDA discussed the proposal with senior regulatory officials at the IRS and Treasury during an in-person meeting and through testimony at an IRS public hearing about the market impact of the rule. In December 2015, BDA submitted a follow-up comment letter.
In April 2015, the Department of Labor (DOL) issued a proposed rule to expand the definition of ‘fiduciary’ under ERISA. The proposal would apply a fiduciary duty to broker-dealers providing investment advice to retirement investors. In July, BDA submitted a comment letter to the DOL and testified at a DOL public hearing. BDA has advocated for the DOL and the SEC to coordinate their efforts in order to harmonize the rules applicable to broker-dealers and to avoid denying customers access to advice. Additionally, the SEC has stated it intends to publish a proposed rule to harmonize the standards of care applicable to broker-dealers and investment advisers.
MSRB and FINRA Best Execution Standards
In December 2014, the SEC approved MSRB Rule G-18 establishing best execution standards for municipal securities. Per the MSRB implementation guidance released in November 2015, the rule will take effect on March 21, 2016. Additionally, in November 2015, FINRA published best execution guidance for fixed-income securities under FINRA’s jurisdiction. BDA is working with internal working groups to determine the value of these guidance documents as firms develop compliance solutions.
Private Placement Activity of Non-Dealer Municipal Advisors
BDA remains concerned that non-dealer municipal advisors (MAs) might be violating securities law in certain instances, which denies investors the protections of the brokerdealer regulatory regime. BDA has consistently encouraged the SEC and MSRB to remind non-dealer MAs that soliciting investors and acting as a placement agent are registered broker-dealer activities.
Improving Municipal Disclosure: SEC Rule 15c2-12
BDA continues to engage the SEC on improving the clarity of disclosures in the municipal marketplace. In January, BDA submitted a comment letter to the SEC that recommended several specific policy changes for the SEC to consider with respect to SEC Rule 15c2-12 including changing the timing of listed events and eliminating the requirement for listed event notices for ratings changes, and providing obligated persons a more effective process for amending and updating financial and operating information filed pursuant to continuing disclosure agreements.
Protecting Tax-Exempt Bonds
BDA opposes any proposal to modify or eliminate the tax exemption. Municipal bonds have worked for issuers and taxpayers as a cost efficient means to finance critical infrastructure, transportation, and other community improvement projects for 100 years. Limiting their value would significantly increase costs to state and local governments, taxpayers, and investors. BDA works with industry partners, including issuers and state and local groups, through the Municipal Bonds for America (MBFA) Coalition to preserve the tax exemption.