Retail Confirmation Mark-up Disclosure Rules
In January 2018, BDA members met with SEC Chairman Jay Clayton, SEC Commissioner Kara Stein, and senior staff to SEC Commissioner Mike Piwowar in support of a delay of the rules and to make clear to the SEC the numerous compliance problems small firms are facing with vendors, etc. The BDA also explained to the commissioners the “general market liquidity provider” amendment. During the meeting with Chairman Clayton, he prompted the BDA to draft a “business plan” laying out the framework of steps to be taken if a delay of enforcement were to be granted.
Following the meeting, the plan BDA presented to the SEC included a “conformance period,” in which the regulations 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. As a follow-up, in March 2018, BDA members also met with the two new SEC commissioners, Hester Peirce and Robert Jackson, Jr., regarding the mark-up rules.
Despite opposition from various trade groups, in late April 2018, the SEC denied the conformance period proposal for retail confirmation mark-up disclosure rules and they will become effective on May 14, 2018.
However, both FINRA and MSRB have agreed to work with BDA members as they prepare to comply with the rules and leave the door open for an extended timeline without enforcement. Learn more here
SEC Best Interest Standard/ DOL Fiduciary Duty
The BDA is engaged with SEC Commissioners and staff this spring on next steps and plans to further engage Capitol Hill as the SEC comment period opens this summer. In April 2018, the SEC voted to issue for public comment two proposed rules and an interpretation to address the ”fiduciary” rule/best interest standard. Comments are due on August 7, 2018. BDA will form a working group to draft comments to the SEC.
At present, the DOL fiduciary rule has been partially implemented; but several sections of the rule have also been delayed by the Trump Administration to examine if DOL or the SEC is best suited to take the lead on this issue. While the DOL fiduciary rule and exemptions are extremely burdensome, the BDA and dealer firms were successful in getting significant changes included in the final rule. Initially the Best Interest Contract Exemption (BIC) and the Principal Trading Exemption (PTE) excluded a series of assets including municipal bonds, UITs, CDs, and mortgage securities. Learn more here
The BDA continues to engage Capitol Hill, FINRA and the SEC on next steps for FINRA Rule 4210. In 2018, the BDA met with SEC Chair Clayton and each SEC Commissioner in addition advocating for excluding from the rule transactions from the “Covered Agency Securities” definition that do not pose systemic risk, such as specified pools and CMOs; transactions from the “Covered Agency Securities” definition that settle on the next or first good settlement date; and/or allowing dealers to take a capital charge instead of requiring them to enter into margining agreements with customers.
The BDA believes that FINRA should revise the amendments to allow dealers to either charge margin to counterparties or to take a regulatory capital charge to cover any mark-to-market deficiency in excess of the de minimis threshold. This would allow dealers to remain competitive with money manager accounts and still manage any systemic risk. This proposal was discussed with Robert Cook and senior FINRA staff in February and April 2018.
As a result of BDA member outreach and advocacy efforts, FINRA and the SEC has delayed the implementation date of Rule 4210 to March 25, 2019. The BDA continues to press for inclusion of the capital charge proposal and is planning a meeting for BDA members to discuss this issue directly with FINRA staff in mid-May and June. Learn more here