Search Results for "4210"

BDA Files Letter on FINRA Margin Rule

Continuing to provide lead advocacy, BDA today filed a comment letter on a FINRA proposal to amend FINRA Rule 4210 to apply to trades in when-issued securities with long delivery times. The changes generally specify that firms must collect margin for customers for trades in securities with settlement times longer than standard. Alternatively, firms can take capital charges in lieu of margin. There are several significant exceptions to the Rule. The current compliance implementation deadline for the Rule is October 24, 2021
In our letter we argue that the Rule disadvantages regional and mid-size firms relative to bulge brackets because most mid-size firms customers do not have margin agreements in place, making collecting margin practically impossible. The capital charge provision helps, but regional firms generally have less capital than bulge brackets, to begin with, and these amendments place more demand on mid-size firms’ limited capital than on large firms’. In addition, we argue for extending proposed exceptions for when-issued government and municipal securities to match issuer practices.
In addition to the current proposal on when-issued trades, FINRA has released a separate proposal to address margining for agency MBS with an extended settlement. BDA will comment separately on that initiative.
As always, please call or write if you have any questions.

Event Recap: Fixed Income Legal and Compliance Roundtable

Yesterday, the BDA was joined by the SEC, FINRA, and MSRB for a Fixed Income Legal and Compliance Roundtable.  55 fixed income professionals from over 30 firms participated in this roundtable at which pressing regulatory and legal issues – impacting institutional and retail fixed income – were discussed.

Thanks to our sponsors DPC Data and Lumesis!

The L&C Roundtable was moderated by Dan Deaton of Nixon Peabody and featured:

  • Rebecca Olsen, Director of the SEC Office of Municipal Securities
  • Cindy Friedlander, FINRA Senior Director of Fixed Income Regulation
  • Gail Marshall, MSRB Chief Compliance Officer

The Discussion on FINRA Examination Direction was moderated by Robert Fisher, Nixon Peabody and featured:

  • Jeff Fauci, FINRA Director of Enforcement

The event featured an extensive conversation on currently regulatory matters such as:

FINRA

The main focus of FINRA’s discussion surrounded Rule 4210, a long-standing advocacy priority for the BDA. FINRA provided a helpful overview of the covered agency proposal that he said should be re-proposed soon. 
In that discussion, in response to a question, FINRA stated that:

  • Limitations on taking a capital charge, which are 25% of TNC and a total of $25 million, will work a little differently with the exceptions;
  • For the latter, only capital chargers taken in lieu of margin will count toward the $25 million.  Thus, if a dealer did not have the responsibility to collect margin because an exception exists (like the $10 million net positions for an account), then any mark-to-market exposure would not count toward the $25 million limits;
  • But this will not work like that for the 25% of TNC.  There, he suggested that the would-be a total net capital position that would be taken into consideration and would be without regard to whether an exception would be available.

Representatives from FINRA also focused on the BDA comments regarding remote issues including supervision questions and communication in the “new normal” Key points included:

  • FINRA worked to clarify how chats on meeting platforms such as Zoom or Webexshould be classified stating that they will try to treat them such as verbal conversations that are not recorded;
  • They also described how they see examinations proceeding in the near future, with a likely emphasis on a hybrid model meaning in most circumstances they will be virtual;
  • They also plan to solicit comments on the temporary relief granted during the past year, including the collection of data from firms, to see if some of these provisions should be made permanent.

MSRB

  • The MSRB provided a brief update on their work with FINRA in response to the pandemic imposed remote work, and changes to Rule such as G-27 that they continue to monitor;
  • They also noted that they continue to work with FINRA on Pennying, and plan to coordinate on potential next steps-which as this point does not seem imminent; 
  • Staff also discussed the upcoming Retrospective Rule Review.  They are working to clarify existing interpretive guidance and cleaning up existing Rules. This is an effort to ensure everything is more straight forward and this process will also include retiring 15 pieces of previous guidance
  • The MSRB plans to address G-10 during the Board Meeting later this month and plan to see comments pending Board approval to tighten up language in the Rule.  The RFC will likely be released by the end of May.

SEC

  • The SEC briefly commented on the pending leadership change, and noted that it will remain mostly business as usual until the change is solidified;
    • While the FIMSAC has been extended, there is no scheduled meeting for 2021. The BDA continues to monitor closely 
  • OMS also noted that while nothing for munis has happened in the ESG space, that we should continue to monitor the corporate disclosure space as a guide to what potentially could be discussed with munis. They also noted the change by issuers in seeking guidance on COVID disclosure instead of avoiding voluntary actions
  • The SEC is also working to streamline its materials including a new link on the homepage for all ESG and climate happenings at the Commission.

FINRA Examinations

Following the Regulator Roundtable portion of the webinar, the BDA hosted Jeff Fauci the Director of FINRA Enforcement, and Robert Fisher from Nixon Peabody for an update on the direction of FINRA enforcement.

Key points included:

  • In general, formal actions trended downward from 2015-2020, but FINRA saw an increase in the past year and that cases are becoming vastly more complicated;
  • FINRA noted that there has been a substantial of 529 plan cases in the past year in which supervisory and suitability concerns were raised;
  • An action regarding G-13 discussed and was noted that there is very little case law on the Rule.  FINRA noted that in circumstances like this, they look at new settlements or enforcement actions of a Rule that hasn’t been broadly applied working to understand if there is a fact pattern and the Rule just has been underutilized, or it is truly a one-off.

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BDA 2021 Policy Focus

The BDA is the established advocate and thought leader in Washington, DC for the US bond markets.  No other group is as focused or aggressive and below is an example of the BDA’s bond market policy focus as we roll into 2021

For more information please visit www.bdamerica.org or contact us at 202-204-7900.

2021 Federal Policy Focus:

  • Promote municipal bonds through federal infrastructure legislation
  • Ensure the SEC does not resurrect the TCE for MAs
  • Corporate syndicate settlement and SEC net capital rule
  • BondMarkets 2020 – Comprehensive recommendations for regulation of the US bond markets
  • SEC re-evaluation of the MA Rule
  • Remote work and review of FINRA and MSRB rules
  • Maintain opposition to TRACE Pilot Program as proposed by FIMSAC
  • FINRA Rule 4210, including BDA, approved amendments
  • Press the MSRB to reform its fee structure and budget

We look forward to representing you in the new year!

BDA’s Taxable Fixed Income Focus August 2020

GSE Reform:

The BDA continues to advocate for reform of the Government Sponsored Enterprises (GSE)  Fannie Mae and Freddie Mac. Recently, as part of the BDA’s effort to grow political intelligence for membership, a GSE policy brief was developed that covers the history of GSE’s and discusses current happenings and BDA actions, while handicapping potential future possibilities.

Following the proposals laid out in the 2019 BDA GSE White Paper which included the call for “Capital Building,” the FHFA, led by Director Mark Calabria, has taken steps to reform the two mortgage agencies.  On June 2, 2020, the agency proposed a capital rule, which is viewed as a crucial first step of reform, and an idea that has been advocated for by the BDA. While at this time it seems reform will remain narrow and non-legislative, with the most likely change being the capital rule, prospects for further action in 2021 seem even less likely. House Financial Services, led by Committee Chairwoman Maxine Waters (D-CA), a long time opponent of reform, will almost certainly retain the position for next Congress and GSE would remain a non-priority for the Committee.  It’s also worth noting that the current financial distress our country is navigating may further delay administrative reform.  While the mortgage market has yet to hit severe turbulence, the long-term prospectus on the industry varies.

Fannie Mae and Freddie Mac have recently announced that they will begin to plan charging a 50-basis point up-front fee on all mortgage refinancing originations. The fee is designed to compensate the agencies for heightened credit risk during the virus crisis and to generate revenue for building up capital and is scheduled to take effect on September 1. However, the White House, key members of Congress, and mortgage industry stakeholders have all come out recently against the initiative, and press reports indicate imposition of the fee may be delayed.
The BDA GSE political intelligence document can be viewed here.

Moving Forward Act

As part of the ongoing infrastructure discussions on Capitol Hill the House recently passed H.R. 2 the Moving Forward Act, a broad-based infrastructure package as park of the Surface Transportation Reauthorization which runs out of current funding on September 30th.

Part of the package includes a new direct pay bonds program known as Qualified Infrastructure Bonds. While Qualified Infrastructure Bonds were based off the prior Build America Bonds program,  they would be exempt from sequestration, a key change from BABs, and would initially have a deeper subsidy for issuers than BABs. 

QIBs would be taxable bonds similar to Build America Bonds where a cash credit accrues to the issuer for a portion of the interest expense. The reimbursement percentages for issuers are proposed to be (by year of issuance):

  • 2020 through 2024: 42%
  • 2025: 38%
  • 2026: 34%
  • 2027 and thereafter: 30%

The bill defines Qualified Infrastructure Bond as “100 percent of the available project proceeds of such issue are to be used for capital expenditures or operations and maintenance expenditures in connection with property the acquisition, construction, or improvement of which would be a capital expenditure.” The bond must also qualify for tax exemption and meet arbitrage issue price requirements. Current refundings of QIBs would be permitted.

H.R. 2 also includes many BDA municipal priorities, these include:

  • The restoration of municipal advance refundings;
  • Expansion of PABs; and
  • Raising the limit on BQ debt.

The bill also would authorize a new category of School Infrastructure Bonds (SIBs) where the proceeds are used for capital construction and repair of public school facilities as described in the bill. Similar to Qualified School Construction Bonds authorized in 2009 and 2010, SIBs would be taxable bonds where the issuer receives a 100% reimbursement for interest costs. The bill would authorize $10 billion of SIB issuance per year for three years. Allocations would be on a formula basis.

At  this time, passage of the full package in 2020 seems unlikely.  Congress is poised to pass a short-term extension of the Surface Transportation Reauthorization by September 30th, punting the policy debate until 2021.

The BDA has developed an Infrastructure policy brief that takes a deep dive into BABs, as well other municipal provisions that are BDA priorities.

The BDA infrastructure political intelligence document can be viewed here.

Corporate Syndicate Rule

In late 2019, the BDA wrote FINRA calling to amend FINRA Uniform Practice Code Rule 11880 (“Rule 11880”) to reduce the maximum time to settle syndicate accounts from the current 90 days.  The BDA believes reducing the time to settle syndicate accounts would streamline the corporate bond and equity issuance process and reduce counter-party credit risk.

The current version of this provision of the rule was put in place in 1987. Rule 15c3-1, which specifies that dealers may count certain receivables towards regulatory capital, but only receivables 30 days old or younger. Underwriting receivables due to co-managers in underwriting syndicate do not count as regulatory capital after 30 days.

For co-managers in a corporate new-issue underwriting syndicate, capital is tied up for the last 60 days of the FINRA 90-day period and cannot be counted towards compliance with capital rules. Additionally, the MSRB amended its Rule G-11 governing underwriting syndicates in 2009, reducing the time to settle a syndicate from 90 days after closing to 30.

Since our letter to FINRA, we have had continuing conversations with FINRA and SEC staff on this issue. FINRA has expressed concern that shortening the syndicate settlement deadline may not be feasible for all types of transactions. However, SEC staff have expressed some initial willingness to revisit capital regulations that prohibit dealers from counting receivables longer than 30 days—such as deal proceeds held by a senior manager for up to 90 days—from counting towards compliance with regulatory capital rules. We will continue the dialog with SEC staff on the issue.

TRACE Pilot 

Earlier this year, FINRA halted a plan, known as the TRACE Pilot, to test whether delayed disclosure of corporate bond trades would boost market liquidity. The TRACE pilot, as proposed, was to review the effect of withholding dissemination of certain block trade transactions for 48 hours. The proposal also would have raised the trade size caps for disseminating actual block trade sizes.

In a major advocacy win for the BDA, the move comes after widespread market opposition, while the BDA was the only sell-side trade group to join the opposition.  

BDA opposed the pilot program as BDA member firms believe the proposed 48-hour delay in disseminating trade information would introduce significant and damaging opacity to the market, disadvantage retail investors, and include no incentive for middle-market firms to increase their capital commitment or provision of liquidity.
Rumors have emerged that FINRA and the SEC may reconsider an amended version of the TRACE Pilot proposal in the future. BDA will continue to closely monitor regulator actions on this issue and respond as appropriate.

FINRA 4210

As a longstanding priority for the Taxable Committee, the BDA continues to press FINRA to reassess Rule 4210.

In a big advocacy win for the BDA, in October 2019, FINRA filed with the SEC a proposed rule change to extend to March 25, 2021,the implementation date of the amendments to FINRA Rue 4210 (margin requirements).

The delay, as well as certain changes to the amendments are in line with the BDA advocacy efforts, but the BDA continues to press FINRA for further postponement or for FINRA to withdraw the amendments entirely.

EVENT RECAP: Institutional Fixed Income Roundtable

On Thursday, August 22nd, over 50 fixed income leaders from BDA member firms attended BDA’s Institutional Fixed Income Roundtable at the Ritz-Carlton in Dallas, TX.

Attendees heard from taxable and municipal market experts, engaged in active discussions on fixed income market disintermediation, new liquidity providers, market dynamics and trends, issuance expectations, and the buy-side outlook. Following the Roundtable, participants enjoyed a cocktail and networking reception.

Below is a recap of the key issues discussed at each session.

Fixed Income Overview: Challenges and Opportunities 

Discussion Leader: Dan Collins, Managing Director, Head of Fixed Income Market & Portfolio Strategy, Wells Fargo Securities

  • Issuance of Treasuries are ramping up, and that trend should continue;
  • The impacts of potentially negative rates and a flat-to-inverted yield curve;
  • Debt to GDP ratio is concerning, but servicing of the debt is not an issue currently;
  • While there are some geopolitical headwinds, there are no reasons to see a recession in the next 12 months

Legislative, Regulatory & Political Update

Discussion Leaders: Kelli McMorrow, Senior VP, Bond Dealers of America; Brett Bolton, VP, Bond Dealers of America

  • BDA staff discussed the current political climate and expectations for the 2020 election cycle
  • Bolton discussed BDA advocacy actions in response to the Fall 2018 request for guidance regarding private placement activities by municipal advisors
    • The BDA response can be viewed here
    • Staff also discussed prior meetings with the SEC and the MSRB on the issue, as well as continued work on a second letter to the SEC, and an upcoming Washington, DC fly-in to discuss the request with the SEC and leaders on Capitol Hill highlighting investor protection concerns
  • McMorrow provided an update on other legislative and regulatory priorities such as FINRA Rule 4210 and GSE reform. A BDA working group is drafting a white paper on “Main Street” broker-dealer priorities in GSE reform.
  • McMorrow and Bolton also gave an update on specific priority issues for the BDA –such as GSE reform, the reinstatement of municipal advance refundings, and rasing the BQ debt limit.

Market Disintermediation/New Liquidity Providers/Buy-Side Trends & Expectations

Discussion Leader: Ken Monahan, VP, Market Structure & Technology, Greenwich Associates 

Presentation materials are available here 

  • Where is the liquidity in the future? And are the sources as distinct as they see?
  • Who are the other market participants? And who are the other non-dealer market-makers? And how much of an increasing role are they playing in fixed income?
  • Is auto-execution a future goal, or already here?
      • This structure is common in FX and Treasuries, but remains an open question as to whether it will succeed in credit.

     

Thank you to our sponsors!

Recap: Institutional Fixed Income Roundtable – August 22nd

On Thursday, August 22nd, over 50 fixed income leaders from BDA member firms attended BDA’s Institutional Fixed Income Roundtable at the Ritz-Carlton in Dallas, TX.

Attendees heard from taxable and municipal market experts, engaged in active discussions on fixed income market disintermediation, new liquidity providers, market dynamics and trends, issuance expectations, and the buy-side outlook. Following the Roundtable, participants enjoyed a cocktail and networking reception.

Below is a recap of the key issues discussed at each session. 

Fixed Income Overview: Challenges and Opportunities 

Discussion Leader: Dan Collins, Managing Director, Head of Fixed Income Market & Portfolio Strategy, Wells Fargo Securities

  • Issuance of Treasuries are ramping up, and that trend should continue;
  • The impacts of potentially negative rates and a flat-to-inverted yield curve;
  • The debt to GDP ratio is concerning, but servicing of the debt is not an issue currently;
  • While there are some geopolitical headwinds, there are no reasons to see a recession in the next 12 months
Legislative, Regulatory & Political Update

Discussion Leaders: Kelli McMorrow, Senior VP, Bond Dealers of America; Brett Bolton, VP, Bond Dealers of America

  • BDA staff discussed the current political climate and expectations for the 2020 election cycle
  • The BDA response can be viewed here
  • Staff also discussed prior meetings with the SEC and the MSRB on the issue, as well as continued work on a second letter to the SEC, and an upcoming Washington, DC fly-in to discuss the request with the SEC and leaders on Capitol Hill highlighting investor protection concerns
  • McMorrow provided an update on other legislative and regulatory priorities such as FINRA Rule 4210 and GSE reform. A BDA working group is drafting a white paper on “Main Street” broker-dealer priorities in GSE reform.
  • McMorrow and Bolton also gave an update on specific priority issues for the BDA –such as GSE reform, the reinstatement of municipal advance refundings, and raising the BQ debt limit.
Market Disintermediation/New Liquidity Providers/Buy-Side Trends & Expectations

Discussion Leader: Ken Monahan, VP, Market Structure & Technology, Greenwich Associates 

Presentation materials are available here 

  • Where is the liquidity in the future? And are the sources as distinct as they see?
  • Who are the other market participants? And who are the other non-dealer market-makers? And how much of an increasing role are they playing in fixed income?
  • Is auto-execution a future goal, or already here?
    • This structure is common in FX and Treasuries but remains an open question as to whether it will succeed in credit.

BDA’s 1st Quarter Advocacy Priorities

April 2019

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.

GSE Reform

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.

Recap: Retail Fixed Income Roundtable – Hosted in St. Louis by Wells Fargo Advisors

On May 9th, the BDA held its annual Fixed Income Retail Roundtable in St. Louis, Missouri. The event included a networking reception and dinner at Vin de Set sponsored by DPC Data on the evening of Wednesday, May 8th.

The roundtable was hosted by Wells Fargo Advisors and was attended by over 35 retail fixed-income leaders from middle-market dealers, platforms, and technology vendors. The event was sponsored by Bondwave, Tradeweb Direct, Edward Jones and Build America Mutual.

The key issues discussed during the roundtable included: a global economic forecast, muni market trends, retail fixed income regulations, and the evolving landscape of fixed income market structure issues. A full recap of the issues discussed can be found below, and the agenda can be viewed here.

Roundtable Recap:
Thursday, May 9th
Wells Fargo Advisors
St. Louis, MO
General Forecast and Outlook
Featured Speaker: Paul Christopher, Head of Global Market Strategy, Wells Fargo Investment Institute 
The roundtable was kicked off with a discussion on the overall health and direction of the U.S. and global economies.  Included in the discussion were potential roadblocks for continued economic growth which included political pressures, tariffs, change in interest rates and Brexit.

Municipal Market Update and Outlook
Featured Speaker: Dorian Jamison, Municipal Analyst ,Wells Fargo Advisors, Advice and Research
This discussion covered the municipal market performace for Q2 of 2019. Since the post tax-reform slump in 2018, the market has increased marginally in the first quarters of the year. Mr. Jamison also discussed tax reform and the removal of advance refundings. The group also discussed the muni bond considerations in Puerto Rico, and other considerations the bond market is looking ahead to – such as the impacts of climate change on municipalities.

Fixed Income Market Issues
Discussion Leader: John Reilly, Wells Fargo Advisors
Mr. Reilly engaged members in a broad overview of marketplace issues.  This included the end of LIBOR, new market participants and platforms, changing technologies, and the activities of the SEC’s FIMSAC and BDA’s own Fixed Income Market Structure Working Group.
Fixed Income Regulatory Issues
Discussion Leader: Don Winton, Crews & Associates
Mr. Winton engaged members in a discussion of the ongoing regulatory priorities influencing member firms. These included FINRA exam issues, FINRA report cards, Rule 4210, retail confirmation mark-up disclosures, and the upcoming SEC rule “Reg BI.”

BDA Legislative and Regulatory Update
Discussion Leaders: Kelli McMorrow and Brett Bolton, BDA
BDA staff discussed key regulatory and legislative items that are directly affecting fixed income market and business practices. These included:
FINRA Rule 4210
MUMD compliance
FINRA’s TRACE pilot program
MSRB Rule G-23
Last Look/”Pennying”
BDA’s Fixed Income Market Structure Working Group
Capitol Hill update on advance refundings, infrastructure, and GSE reform efforts

Thank you to our sponsors!

Recap: BDA’s Annual Sales Manager Roundtable

On Thursday, April 25th the BDA held its annual Fixed Income Sales Manager Roundtable, hosted by FTN Financial in Memphis, Tennessee.  The event was attended by sales managers and fixed-income leaders from middle-market firms nationwide and there was an active discussion of the biggest sales-related issues facing middle-market broker-dealers in the fixed-income markets. The roundtable was followed by a networking dinner at McEwen’s in downtown Memphis.

The key issues discussed during the roundtable included: demographics of the sales team and clients, recruiting and retaining talented and diverse sales people, training programs, rising costs of data and other technology, compensation models, and trends in sales technology.

Key Topics in Sales Management

Discussion Leader: Steve Pulley, Crews & Associates

  • Managers are facing many challenges in a rapidly changing sales environment; from new regulations and rising costs in technology.  What are firms doing to keep up in this changing environment?
  • Continued rising costs in technology
  • How does this change compensation model for sales team?
  • Increasing legal and compliance cost due to regulation
  • Regulations discussed were FINRA Rule 4210 and the ongoing TRACE pilot
  • How to adapt business model for increasingly young buy-side clients
  • Included in the discussion were communication methods, and how to grow interest in fixed-income
  • Sales team dynamics – Which formula works best for productivity?

Developing and Retaining a Talented Sales Force

Discussion Leader: Mat Parker, Raymond James

  • Senior members of sales teams are closing in on retirement age and firms are struggling to attract and maintain millennial and diverse employees.  How are firms adapting to the change? And what methods seem to be working in retention?
  • Aging sales-force and how to transition
  • Discussed were compensation methods for retiring sales team members – This included 24-36 month declining scale, post-retirement compensation model
  • Methods for engaging and increasing diversity in fixed income
      • Firms discussed internship programs that have increased diversity
      • Firms also are working to engage talent at a broader range of colleges and universities
  • What are firms doing to ensure talent is well trained and ready to step into a more senior role

Technology and Sales

Discussion Leader: Todd A. Shearer, Fifth Third Securities

  • As electronic trading continues to grow, what changes are sales managers making in order to keep up with the changes and trends?
  • What are the impacts of electronic trading advances in the markets and spreads, transparency and liquidity?
  • The impacts of “data scrapping” were discussed as well the costs associated
  • How do you handle commissions/sales credits for trades that are done electronically?
  • Firms discussed which compensation models are working best currently, and what the long term impacts of increased usage of electronic trading will do to compensationThis included how to attract young talent if compensation continues to trend lower
  • How do your customers want to talk to you, and how do you adapt to add value?
      • Call vs. email were debated as best methods.  The generational divide on preference was also discussed
      • Firms also recognize that there is not a “one size fits all” method to communication, and that their clients are becoming much younger

BDA Legislative and Regulatory Update

Discussion Leaders: Kelli McMorrow and Brett Bolton, BDA

BDA staff discussed key regulatory and legislative items that are directly effecting the market and business practices. This included:

  • FINRA Rule 4210 and the ongoing TRACE pilot
  • MSRB Rule G-23, Activities of Financial Advisors
  • BDA’s Fixed Income Market Structure Working Group
  • “Pennying”
  • Capitol Hill Update on Advance Refundings, Infrastructure, and GSE reform efforts.

2018 BDA Regulatory and Legislative Accomplishments

In the past few years of massive regulatory change, the BDA has remained focused on the highest priority issues impacting the U.S. fixed income markets and provided its members with valuable opportunities to engage directly with regulators. The BDA also provides its members with in-person access to key Capitol Hill policymakers on the Senate Finance Committee, the Senate Banking Committee, the House Financial Services Committee and the House Ways and Means Committee. The legislation developed by these committees directly impacts the fixed income markets.

Through a truly engaging partnership with hundreds of industry leaders at BDA member firms, below are the 2018 regulatory and legislative accomplishments of the BDA.
Thank you for your ongoing support.

2018 Regulatory Accomplishments


Revisions and Delay of Amendments to FINRA Rule 4210

The BDA believes that the 4210 amendments represent a regulatory overreach by FINRA. FINRA is using a broad statutory authority of the Securities and Exchange Act in an attempt to adopt a systemic risk rule, potentially violating congressional intent. The BDA also believes that the 4210 amendments are anti-competitive to BDA members.

In April 2018, FINRA asked the SEC to delay Rule 4210 amendments to March 2019, indicating that many market participants have requested that FINRA reconsider the potential impact of an amended Rule 4210 on smaller and medium-sized broker-dealers. The BDA and its members led the charge in the request of this delay.

Additionally, in late 2017, the BDA proposed a “capital charge in lieu of margin” to FINRA CEO Robert Cook. This proposal would allow dealers to remain competitive with money manager accounts and still manage any systemic risk.

The FINRA Board of Governors approved the BDA-led “capital charge in lieu of margin” revision, and other revisions, at their September 2018 board meeting.  The 4210 revisions are currently in the process of being referred from FINRA to the SEC, and FINRA has indicated they will likely further delay the March 2019 deadline as well.  BDA will provide updates as they become available. (The partial government shutdown is hindering the formal, regulatory communication process.)

Fixed Income Market Structure

The BDA plays an active role in the SEC Fixed Income Market Structure Committee. BDA members of the SEC’s Fixed Income Market Structure Advisory Committee (FIMSAC) include Horace Carter (Raymond James), Amar Kuchinad, (Trumid Financial), Richard McVey (MarketAxess) and Brad Winges (Hilltop Securities).

Additionally, the fall of 2018, the BDA established an internal Fixed Income Market Structure Working Group. The group met in October and December 2018 and is planning a full slate of meetings in 2019. The working groups brings together 20+ thought leaders across the industry, and will proactively get in front of federal policy and business decisions impacting the fixed income markets. 

Also included in the Fixed Income Market Structure Working Group will be a subcommittee on municipal disclosures.  It is widely expected that the SEC will take a deeper look into the practices and the BDA plans to use this group in order to take proactive measures in early 2019.

Retail Confirmation Mark-up Disclosure Rules

The BDA became aware in late 2017 that the SEC Chairman and commissioners were frustrated with industry calls for a flat delay of the rules, and quickly acted to set up BDA member meetings to best express our concerns to the chair and commissioners in-person.

In early 2018, at the urging of SEC Chairman and commissioners, the BDA led the charge and presented to the SEC a plan for a “conformance period,” in which the mark-up 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.

Despite opposition from various trade groups the SEC was not able to come to a consensus on delaying the rules, and the SEC denied the conformance period proposal. The rules became effective on May 14, 2018. The BDA is engaging with regulators (SEC, FINRA and MSRB) regarding compliance with the rules.

Primary Offering Practices

This fall, BDA submitted a letter in response to an MSRB request for comment on primary offering practices.  In the letter, the BDA focused on G-11 Primary Offering Practices including free-to-trade wire and alignment of the time frame for the payment of group net sales credits with the payment of net designation sales credits. Also addressed was G-32 disclosures in connection with Primary Offerings including equal access to the disclosure of the CUSIP numbers refunded and the percentages and whether non-dealer Municipal Advisors should make  the official statement available to the managing or sole underwriter after the issuer approves it for distribution.

The BDA hosted a follow-up conference call with the MSRB to discuss issues address in the comment letter such as: Whether non-dealer municipal advisors should make the official statement available to the managing or sole underwriter after the issuer approves it and have processes and automation made this portion of the rule unnecessary.

SEC Municipal Disclosures-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 Commissions interpretative guidance that was last updated in 1994.

Recently, the SEC adopted the Rule amendments and the BDA worked tirelessly with multiple committees to draft Q&A’s for OMS to consider.  The questions address concerns with the interplay of the New Events and the 2010 Rule.

MSRB Rule for Municipal Advisors/Update Dealer Standards on Advertising

In 2018, the BDA was proactive in submitting comments to the MSRB as they issued guidance through draft sets of frequently asked questions (FAQs) and compliance resources to implement proposed new rule, MSRB Rule G-40, on advertising by municipal advisors, and amendments to MSRB Rule G-21, on advertising by municipal securities dealers. MSRB Rule 40 and G-21 are set to be effective on February 7, 2019.

Specifically, in July 2018, the BDA submitted comments to the MSRB on their draft set of frequently asked questions (FAQs) related to Rule G-40 and a municipal advisor’s use of case studies and municipal advisory client lists.

In August 2018, the BDA submitted comments to their draft set of frequently asked questions (FAQs) related to the use of social media in advertising by municipal advisors and municipal securities dealers under Rule G-21 and Rule G-40. In October and December 2018, the BDA submitted comments a draft compliance resource regarding the application of the content standards under Rule G-40.

Last fall, 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 guidance and revised FAQs include some clarifications requested by the BDA in its comments in July 2018.

In addition to submitting written comments, BDA has been actively engaged with MSRB staff as they develop guidance to proposed Rule G-40 and amended Rule G-21.

Pennying and Best-Ex

In November of 2018, the BDA responded to an MSRB inquiry into the practice of pennying and how best-ex affected the practice. After multiple member and committee conference calls on the subject, BDA staff drafted a response to the MSRB and continued weekly follow up with the organization, including more discussion with BDA membership. Concerns were raised about the definition of pennying and how widespread the practice occurs.  The BDA urged the MSRB not to place this into the realm of rule making, instead offer guidance on the practice.

The BDA hosted multiple conference calls with the MSRB and membership and anticipates another iteration of the original request for comment to be produced in early 2019.

2018 Legislative Accomplishments 


Promoting Tax Exempt Municipal Bonds, Private-Activity Bonds and Municipal Advance Refundings Through Infrastructure

The BDA has been building relationships with various state and local groups, coalitions, and trade associations to continue to strengthen the coalition of advocates for the protection of tax-exempt municipal bonds, expanded use of private-activity bonds and reinstatement of municipal advance refundings.

In May 2018, the BDA Municipal Bond Division Leadership submitted comments to the House Ways and Tax Policy Means Subcommittee’s hearing titled, “Tax Reform and Small Businesses: Growing Our Economy and Creating Jobs,” requesting to restore the ability of state and local governments to save taxpayer dollars and generate additional funds for infrastructure and other key initiatives by restoring tax exempt advanced refundings.

The BDA lead the advocacy push for H.R. 5003, legislation that would fully reinstate municipal advance refundings. The BDA continues to meet with Members of Congress on both sides of the aisle that serve on Committees of jurisdiction, as well developing relationships with new Members of the House Municipal Finance Caucus to promote similar language as H.R. 5003. 

The BDA is planning to build off the momentum created in 2018 by hosting a Congressional Roundtable and fly-in on March 12, 2019.  

High Quality Liquid Assets

Working in tandem with state, local and issuer groups, the BDA advocated for and supported the introduction and re-introduction in the House and Senate and passage through the House of legislation to define municipal bonds as HQLA under banking liquidity rules. 

Municipal securities were classified as level 2B HQLA in S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law in May 2018.

While the BDA advocated that municipal bonds deserve the classification of level 2A liquid assets due to the long track record of safe investment, treatment of eligible municipal securities as level 2B, is a step in the right direction to continue leveling the playing field and making municipal bonds a more attractive investment.

Small Business Audit Correction Act

In June 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 (S. 3004 & H.R. 6021). The bill would exempt privately-held, small, non-custodial brokers and dealers in good standing from the requirements to hire a Public Company Accounting Oversight Board (PCAOB) registered audit firm to meet their annual SEA Rule 17a-5 reporting obligation to perform the audit in accordance with PCAOB standards. Passage of legislation would allow eligible firms to conduct their annual audits in a less costly and burdensome manner.

Through the BDA’s advocacy’s efforts, the Small Business Audit Correction Act steadily advanced in Congress throughout the year. In June 2018, the Senate Banking Committee favorably considered S. 3004 at their hearing titled, “Legislative Proposals to Increase Access to Capital.”  In September 2018, the House Financial Services Committee marked-up and approved H.R. 6021 by a vote of 36-16.

In 2019, the BDA will actively meet with the new members of the Senate Banking and House Financial Services Committees to garner support for the bill, should it be re-introduced in the 116th Congress.

Michigan Legislation on Competitive vs. Negotiated Bond Sales

In June 2018 a bill was introduced in the Michigan State Legislature that would require municipal issuers to issue all outstanding debt through competitive bid, unless the issue is no more than $500,000, at which point negotiated is an option. The BDA’s Fixed Income Municipal Bond Committee has developed a strategy to fight against the anti-competitive nature of this bill and will engage in a grassroots effort to stop the legislation from moving forward before other states follow suit.

The BDA placed an op-ed in the BondBuyer in opposition of the legislation. The piece laid out the BDA’s argument in favor of allowing issuers the discretion of choice in what works best for them. Due in part to the BDA and membership advocacy, the bill has been pulled from the legislative calendar, and further action has been postponed indefinitely.

Municipal Bonds for America (MBFA)

The MBFA Coalition continued its efforts dedicated to preserving the tax exempt status of all municipal bonds, including private-activity bonds and the full reinstatement of advance refundings in 2018.  Throughout the year, the Coalition engaged with Members of Congress and their staff on the outcomes of the Tax Cuts and Jobs Act, while interfacing with the White House on plans and proposals for municipal financing in a federal infrastructure package.  

These efforts included hosting a reception for Members of Congress that supported the tax exemption during the debates on tax reform; hosting a post-tax reform webinar for Capitol Hill staff, trade groups, and issuers; hosting a webinar on the Administration’s infrastructure proposal; hosting the annual municipal bonds seminar, including the largest fly-in to date for the MBFA Coalition (visiting over 40 House and Senate offices); and, hosting a fundraiser for the new chairman of the House Ways and Means Committee (Rep. Richard Neal).

With over 100 new Members of Congress recently elected to the House of Representatives and Senate, the work of the MBFA is just beginning.  The Coalition plans to have an even larger presence on Capitol Hill to educate, inform, and prepare Members and their staff for the debates to come on infrastructure (funding and financing), technical corrections to the Tax Cuts and Jobs Act, and the preservation of the tax-exemption.