Regulatory Advocacy Issues
MSRB Rule on Activities of Financial Advisors
MSRB Rule G-23 establishes requirements applicable to a broker, dealer, or municipal securities dealer acting as a financial advisor with respect to the issuance of municipal securities. Rule G-23 prohibits a broker-dealer firm that also provides financial advisory services from serving as a financial advisor to the issuer and an underwriter on the same transaction.
Recently, the BDA and the MSRB discussed the modernization of Rule G-23 and the upcoming retrospective review of the Rule. The MSRB believes the restrictions and requirements imposed upon dealers acting in a financial capacity remain appropriate in light of the municipal advisor regulatory regime and remain clearly delineated.
The BDA believes that the Rule is negative towards issuers and investors and the BDA is currently drafting a response laying out market driven solutions that would work to improve the Rule.
FINRA 4210 Amendments
FINRA Rule 4210 (Margin Requirements) describes the margin requirements that determine the amount of collateral customers are expected to maintain in their margin accounts, including both strategy-based margin accounts and portfolio margin accounts. The BDA believes that the amendments are anti-competitive to smaller and mid-size broker-dealers and believe that FINRA should revise the amendments to allow dealers to either charge margin or to take a “capital charge in lieu of margin” on certain transactions.
BDA members proposed the “capital charge” in a meeting with FINRA CEO Robert Cook in December 2017 and continued to advocate for the idea with comment letters and member fly-ins throughout 2018. The BDA partnered with senior leaders on the House Financial Services Committee and Senate Banking Committee to pressure the SEC and FINRA to rethink the rule, both advocating for the “capital charge” proposal as well for outright termination of the amendments.
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, 2020 and are working to implement BDA’s recommended “capital charge in lieu of margin” proposal.
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 (Hilltop Securities), 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 26 BDA member firms. Brad Winges 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.
The group will begin a quarterly fly-in series in 2019 to keep senior policymakers informed on business and market conditions, as well as the impact of federal regulation on U.S. capital markets.
Retail Confirmation Mark-up Disclosure Rules
Due to the burdensome requirements and tight timetable of the mark-up 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 rules became effective on May 14, 2018.
MSRB 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.
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 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.
SEC’s Amendments to Rule 15c2-12
The BDA continues to advocate on Rule 15c2-12 to the SEC Office of Municipal Securities. Working with the Legal and Compliance Committee, the BDA continues to encourage commissioners to update the Commission’s interpretative guidance that was last updated in 1994.
Recently, the SEC adopted the Rule amendments and BDA has been working tirelessly with multiple committees to draft Q&As for OMS to consider. The BDA plans to set up a fly-in to meet with OMS on the draft Q&As and discuss further action on municipal disclosure in early 2019.
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.
Municipal Advance Refundings
The BDA is leading the advocacy push for 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.
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 from the requirement to have a Public Company Accounting Oversight Board (PCAOB)-registered audit. The one-size-fits-all PCAOB audit standards were designed for public companies, and are priced accordingly, have inflicted substantial harm on small broker-dealers.
In 2018, Senators Tom Cotton (R-AR) and Doug Jones (D-AL) and Representatives French Hill (R-AR) and Vicente Gonzalez (D-TX) formally introduced The Small Business Audit Correction Act. BDA is continuing to advocate for the reintroduction of these bills in 2019.
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.
The BDA is actively engaging with membership and policymakers as the Trump Administration and Congress look at reforming Fannie Mae and Freddie Mac. The Senate Banking Committee, led by Chairman Mike Crapo (R-ID), has examined GSE reform in hearings in March 2019, and President Trump has directed federal agencies to report to him on how to end the conservatorship the GSEs are currently under.
Head over to the Advocacy page to see greater detail on these issues.