The Bond Dealers of America (BDA) deploys a variety of advocacy and grassroots tools to influence the policy-making process and promote a more efficient fixed income market. Regulatory authorities in Washington, D.C. recognize the BDA as an authority on technical issues and market trends. Through a variety of events and forums, our members have the opportunity to meet regulators and legislators to discuss market and business challenges. Our federal Political Action Committee (PAC) supports legislators who work to advance policies that improve the fixed income markets.
Regulatory Advocacy Issues
FINRA 4210 Amendments
The BDA believes that FINRA should revise the amendments to FINRA Rule 4210 (margin rule) to allow dealers to either charge margin or to take a capital charge in lieu of margin on certain transactions. The capital charge in lieu of margin is a BDA member proposal which has been discussed with FINRA CEO Robert Cook, SEC Chairman Jay Clayton and the SEC commissioners.
As a result of BDA member outreach and advocacy efforts, FINRA and the SEC have delayed the implementation date of amendments to Rule 4210 to March 25, 2019. More updates will be provided shortly.
Fixed Income Market Structure
Several of BDA’s members sit on the SEC’s Fixed Income Market Structure Advisory Committee (FIMSAC), including Horace Carter (Raymond James), Brad Winges (Piper Jaffray), Amar Kuchinad, (Trumid Financial) and Richard McVey (MarketAxess).
Additionally, the BDA has formed its own Fixed Income Market Structure Working Group, which includes industry leaders at 20 BDA member firms. Brad Winges (Piper Jaffray) and Kevin Giddis (Raymond James) serve as co-chairs. The working group’s first meeting was held on October 15, 2018, and the group expects to engage directly with federal policymakers as a “Main Street” thought leader on these important topics.
Retail Confirmation Mark-up Disclosure Rules
Due to the burdensome requirements and tight timetable of the mark-ups rules, BDA member firms authored a “conformance period,” business plan, which was presented to the SEC, FINRA and the MSRB in the spring of 2018. Under the BDA-authored plan, the mark-up rules would not be enforced if broker-dealers acted in good faith and worked to come into full compliance with the rules by December 31, 2018.
Despite opposition from various trade groups, including the BDA, in late April 2018, the SEC denied the “conformance period” proposal the the rules became effective on May 14, 2018.
MSRB Seeks to Establish Rule for Municipal Advisors/Update Dealer Standards on Advertising
In May 2018, the SEC approved the MSRB’s proposed Rule G-40, on advertising by municipal advisors, and amendments to MSRB Rule G-21, on advertising by municipal securities dealers. New MSRB Rule G-40 and amended Rule G-21 are set to be effective on February 7, 2019. Prior to the SEC approval, the BDA sent several letters to both the MSRB and SEC in opposition to the proposed advertising rule changes.
Since May 2018, the MSRB has issued several requests for public comment related to the application of Rule G-40. Most recently in September 2018, the MSRB issued final guidance on its frequently asked questions (FAQs) regarding the use of municipal advisory client lists and case studies under Rule G-40. The final FAQs included clarifications requested by the BDA in our comment letter.
The BDA has and will continue to respond to all of the MSRB’s requests for comment concerning interpretative guidance and compliance resources related to Rule G-40 and Rule G-21.
FINRA Government Securities Initiative
The BDA submitted comments to FINRA on April 9, 2018, in response to a February 2018 request for comment (Notice 18-05) on the application of various FINRA rules to government securities including U.S. Treasury securities and debt securities. The BDA believes that the application of FINRA rules to government securities will place undue compliance burdens and staffing challenges and opposes the proposal.
SEC’s Proposed Amendments to Rule 15c2-12
In February 2017, the SEC proposed two new amendments to Rule 15c2-12. The amendments propose to add two new events to the existing material events that would be required to be disclosed under an issuer or obligated persons continuing disclosure agreement. Specifically, the SEC proposes to add the incurrence of a material “financial obligation” or agreement to a material debt covenant or debt provision that would modify the priority rights of the issuers or obligated persons existing debt holders as a material event under 15c2-12.
Legislative Advocacy Issues
Promoting Tax Exempt Municipal Bonds and Private-Activity Bonds
In early 2018, the Trump Administration released an infrastructure guideline that would eliminate the AMT provision, provide change-of-use provisions to preserve the tax-exempt status and allow for the advance refunding of PABs. The BDA continues to work with its partners on Capitol Hill to promote these fundamental pillars in any infrastructure package. Most recently in April 2018, the BDA Municipal Bond Division Leadership provided the Senate Finance Committee with comments strongly urging them to expand the use of PABs. Learn more here.
Municipal Advance Refundings
The BDA is leading the advocacy push for H.R. 5003, legislation that would fully reinstate municipal advance refundings. While disappointed in the elimination of advance refundings in the Tax Cuts and Jobs Act of 2017, the BDA continues to work simultaneously with Capitol Hill, the Municipal Bonds For America Coalition, the full issuer community and the U.S. Treasury to find a market-based, regulatory no cost solution for municipal bond issuers.
Financial Regulatory Reform Legislation: High Quality Liquid Assets and the Volcker Rule
The BDA has long-supported legislation to define municipal bonds as high quality liquid assets (HQLA) under banking rules. In early 2018, municipal securities were classified as level 2B HQLA in the Economic Growth, Regulatory Relief, and Consumer Protection Act, (S. 2155). S. 2155 would also exempt banking entities from the Volcker Rule if they have (and are not controlled by a company that has) less than $10 billion in total consolidated assets and total trading assets and trading liabilities that are not more than 5 percent of total consolidated assets. S. 2155 passed both the House and Senate in the spring of 2018 and was signed into law on May 24, 2018.
PCAOB Exemption Legislation
The BDA is working with other industry participants and trade groups on legislation that would exempt privately-held, non-custodial brokers and dealers, including BDA members, from the requirement to have a Public Company Accounting Oversight Board (PCAOB)-registered audit.The PCAOB requirements do not make sense for privately-held, non-custodial firms. The one-size-fits-all PCAOB audit standards that were designed for public companies, and are priced accordingly, have inflicted substantial harm on small businesses around the country.
Bank Qualified Bonds
BDA continues to support legislation to increase the annual volume limit for bank-qualified bonds from $10 Million to $30 million and to index for inflation. Past legislation has also allowed for the use of pooled financings and would calculate the volume cap at the issuer, rather than issuance, level.