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Audio for Select Sessions Now Available – BDA’s 10th Annual National Fixed Income Conference – Washington, DC

Thank you to all attendees, sponsors, and exhibitors for helping to make our 10th Annual National Fixed Income Conference our strongest yet!

 

A detailed summary of our conference is below. Please reach out with any questions or comments. We need your feedback to ensure we continue building a tangibly beneficial conference with the right topics and speakers — all focused on the U.S. fixed income markets.

On October 25th & 26th, the BDA held its 10th Annual National Fixed Income Conference at the Four Seasons Hotel in Washington, D.C.

Key highlights from the event include:

  • Over 200 attendees – fixed income leadership representing all aspects of the markets
  • Over 75 firms represented from coast-to-coast
  • Over 15 exhibitors and sponsors whose support helped to make this event possible
  • An opening night reception at Eno Wine Bar sponsored by Hilltop Securities
  • Listen to the welcoming remarks

Conference Sessions – October 25th

Keynote Address:

Lessons in Leadership

Keynote Speaker: Retired General Stanley McChrystal, Founder, The McChrystal Group

The 10th Annual National Fixed Income Conference began with a keynote address featuring retired U.S. Army Four-Star General Stanley McChrystal.  The General’s inspiring discussion tied his experiences in leading U.S. troops abroad to ways that business leaders can grow a stronger team and work to make the changes needed to grow a successful organization. This included the idea of being a “disruptor,” the theme for this year’s National Fixed Income Conference.

Listen to audio of this session.

A Discussion with former SEC Commissioner Paul Atkins

Moderator: Andrew Southerling, Partner, Morgan Lewis

Panelist: Paul Atkins, CEO, Potomak Global Partners

Moderator Andrew Southerling engaged former SEC Commissioner Paul Atkins on the current leadership at the SEC, current and future regulatory reform efforts on the Hill, the SEC’s look at fiduciary duty and the SEC’s Fixed Income Market Structure Advisory Committee.

Listen to the audio of this session.

The Evolution of Markets and the Future of Electronic Trading

Moderator: Brad Winges, Managing Director and Head of Fixed Income Services, Piper Jaffray

Panelist: Lee Olesky, Co-Founder and CEO, Tradeweb Markets

This fireside chat, moderated by BDA Board Member Brad Winges, discussed the impacts of electronic trading advances in the markets and the impact this will have on spreads, transparency and liquidity.

This discussion was highlighted in a BondBuyer article, which can be viewed here.

Listen to audio of this session.

Market Structure, Disruptors and Opportunities

Moderator: Kevin McPartland, Principal of Market Structure & Technology Research, Greenwich Associates

Panelists:

  • Steve Genyk, Managing Director, Head of Municipal Trading, WMA Capital Markets, UBS
  • Richard Schiffman, Open Trading Product Manager, MarketAxess
  • Alex Sedgwick, Head of Market Structure, T. Rowe Price
  • Martin Mannion, President, Headlands Tech Global Markets

This panel discussed evolving market structure, technology, regulation, business opportunities and challenges facing middle-market and regional sell-side dealers. You can view Greenwich Associates presentation here.

Listen to audio of this session.

D.C. Outlook: How will the 2018 Elections Shape Focus on the U.S. Capital Markets?

Moderator: Colin Wilhelm, Economic Policy Reporter, Washington Examiner

Panelists:

  • Andrew Rothe, Senior Legislative Assistant, U.S. Senator Mike Rounds (R-SD)
  • Jared Roscoe, Senior Banking Counsel, U.S. Senator Mark Warner (D-VA)

Andrew Rothe and Jared Roscoe discussed the outlook on Capitol Hill beyond the upcoming elections into early 2019.  Policy topics included the future of GSE reform, Tax 2.0, infrastructure and the inclusion of PABs and advance refundings in any legislative package.

Listen to audio of this session.

U.S. Municipal Finance – Opportunities Amid Disruption

Moderator: Dan Deaton, Partner, Nixon Peabody

Panelists:

  • David Medanich, Vice Chairman and Head of Public Finance, Hilltop Securities
  • Steve Heaney, Head of Public Finance, Stifel Financial Corporation
  • Scott Richbourg, Head of Public Finance, Build America Mutual
  • Homero Radway, Managing Director & Head of Underwriting and Trading, Neighborly

This discussion centered around the challenges faced in the municipal markets over the past year – including volume, the loss of advance refundings, changes to the bank loan market via tax reform, and regulatory changes such as retail mark-updisclosures. The panel also discussed future trends to look out for in 2019, including the financial condition of municipalities and regulatory changes to 15c2-12. The discussion also mentioned opportunities for new transactional structures like blockchain technologies and other technological trends, as well as weighing the pros and cons of the American and European P3 models.

Listen to the audio of this session.

Automation of the Trading Workflow

Moderator: Chris White, CEO, ViableMkts

Panelists

  • Richard Colucci, Global Head of Sales and Head of Analytics, Algomi
  • Dominic Holland, Head of Fixed Income Electric Markets, BNY Mellon

During this panel, ViableMkts CEO Chris White let a discussion that being with asking how are firms adapting to margin pressures by becoming faster and more efficient.  The panel also addressed current topics that included, “systemizing” liquidity views, order-building and the transaction process.

Fixed Income Data Mining

Moderator: Steve Winterstein, Managing Director & Chief Municipal Fixed Income Strategist, Willmington Trust
Panelists:

  • Mark Heckert, Head of Pricing & Analytics, Intercontinental Exchange
  • Ken Hoffman, President, DPC Data
  • Hardy Manges, Head of Municipal Dealer Sales, MarketAxess
  • Cindy Friedlander, Director, Fixed Income Regulation, FINRA

With the acceleration of technological advancements and the advent of big data, many financial services participants, including broker-dealers, buy-side asset managers, and regulators are challenged with determining what is relevant to accessing and organizing information so that it is useful and improves efficiency and scalability. The panel explored these different corners of the fixed income markets and discussed how they use data technology in their respective workflows.

Networking Reception

At the end of day one of the National Fixed Income Conference, participants gathered for the BDA’s annual reception to network, visit with product and service providers — many whom are sponsors and exhibitors at the conference. Staged in the middle of the exhibit hall, this networking reception provides another opportunity for participants to meet colleagues, and expand their business contacts. BDA appreciates all who participated and sponsored one of our best conferences to date!

Conference Sessions – October 26th

A Fireside Chat with Lynnette Kelly and Robert Cook – 
Regulation and Enforcement of the Fixed Income Markets

Moderator: Mike Nicholas, CEO, Bond Dealers of America 

Panelists:

  • Lynnette Kelly, President and CEO, MSRB
  • Robert Cook, President and CEO, FINRA

This fireside chat focused on the future of the fixed income markets. Both Cook and Kelly gave their insight into how to correct the declining numbers of broker-dealers and how the MSRB and FINRA can work to address this issue.  Cook and Kelly also elaborated on their views of the next ten years, and the role rulemaking plays in those market changes. Cook and Kelly also addressed MSRB Rule G-23 and FINRA Rule 4210, the latter of which was recently revised by FINRA to include BDA’s capital charge in lieu of margin proposal.

The discussion was highlighted in a BondBuyer article which can be viewed here.

Listen to the audio of this session.

Creating and Managing A Diverse Workforce
Regulation and Enforcement of the Fixed Income Markets

Moderator: Sara O’Rourke, Associate Partner, McKinsey & Company
Panelists:

  • Jeremious Henderson, Vice President, Compensation and Benefits, FINRA
  • Kim Jenkins Manigault, Executive Vice President & Chief Diversity and Inclusion Officer, KeyCorp

Is Your Firm Demographically Positioned for a Changing Workforce and Ultimately for Your Firm’s Success?
This panel’s moderator, Sara O’Rourke, presented on the business case for diversity, the data behind the challenges diverse candidates face, and the ways organizations can make a difference. Mr. Henderson and Ms. Manigualt drew upon their experiences in the industry to leave the audience with a better understand of why diversity and inclusion are an important topic for 2018 and beyond.

You can view the presentation, “Leveling the Playing Field: The business case for diversity in the workplace – and how to deliver on it” here.

Listen to the audio of this session.

Roundtables:

In addition to the featured National Fixed Income Conference, the BDA also hosted two dealer roundtables:

Fixed Income Legal & Compliance Roundtable (view the recap here) – October 24, 2018

Public Finance Leadership Roundtable (view the recap here) – October 25, 2018

BDA Advocacy 1st Quarter – 2018

Federal Regulatory and Legislative Priorities

FINRA Rule 4210
In 2016, the BDA was successful in getting FINRA and SEC to file a last-minute amendment to the rule that significantly expanded the “gross open position” exception from $2.5 million to $10 million. BDA had advocated for a more expansive gross open position limit throughout the rulemaking and the $10 million level expands the universe of counterparties and trades where the transfer of margin will typically not apply.

More recently, the BDA was supportive of a delayed effective date and lobbied FINRA directly for the delay. In September 2017, the rule was delayed to June 2018.

In 2018, the BDA has met with SEC Chair Clayton and each SEC Commissioner in addition to FINRA CEO Cook and senior counsel 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 idea was discussed with Robert Cook and senior FINRA staff in December 2017, and in February 2018, the BDA received word that FINRA is considering this proposal. FINRA has discussed this idea in-depth with BDA member firms, and an update is expected shortly.


Retail Confirmation Disclosure Rules
In the fall of 2017, at the request of Robert Cook of FINRA, a BDA working group submitted an amendment recommendation for the retail confirmation disclosure rules to both FINRA and MSRB. The BDA policy recommendation introduced the concept of “general market liquidity provider” to allow dealers that provide liquidity and offer bonds in support of their network of financial advisors to rebut the presumption that their cost is the best measure of prevailing market price for the purposes of the disclosure. The BDA also continued to advocate for a delay of the rules.

Throughout December 2017, BDA staff continued conversations with FINRA staff, and also reached out to SEC commissioners’ staffs to discuss our concerns in-depth after hearing that SEC commissioners were balking on a delay of the 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 rule 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.

The SEC commissioners held their position that the rules should not be delayed. However, the BDA felt that they did leave the door open for an extended timeline without enforcement. 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. The plan BDA presented includes 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 met with the two new SEC commissioners, Hester Peirce and Robert Jackson, Jr., regarding the markup rules.

In March 2018, the BDA was notified that regulators are seriously considering the BDA’s conformance period proposal. Currently, the BDA is in communication with member firms, industry groups and regulators to ensure a positive outcome. More information on this issue will be distributed soon.


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, MBFA and the full issuer community and the U.S. Treasury to find a market-based, regulatory no cost solution for municipal bond issuers.

Grassroots lobbying efforts are ongoing with BDA membership contacting their representatives in Washington. Municipal Bond Division Leadership has provided the BDA with advance refunding project data for Ways and Means comments on “expired tax provisions” in March, showing a wide variety of cost savings lost for state and local governments of all sizes. The BDA also plans to host a member fly-in surrounding “Infrastructure Week 2018” to help raise awareness for municipal advance refundings on Capitol Hill this May.


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.

The BDA plans to incorporate PABs into the “Infrastructure Week” fly-in this May.


MSRB Rule G-15 Minimum Denomination Rule
As a result of direct lobbying efforts of the BDA, the MSRB withdrew a proposed rule to amend MSRB Rule G-15 for minimum denominations (Proposed and withdrawn MSRB Rule G-49). The withdrawal of the rule took place after a BDA conversation with MSRB Counsel Mike Post that was supported by Dan Deaton from Nixon Peabody. During that call, BDA highlighted that the rule proposal and the existing G-15 framework was harming the marketplace, especially retail investors. After withdrawing the rule, the MSRB sought additional input from the BDA on a conference call with BDA members. The accomplishment is that BDA advocacy resulted in the rule being withdrawn. The BDA educated the MSRB and they appear committed to updating G-15 in a way that would focus the minimum denomination rule on issuances with minimum authorized denominations of $100,000 and above, removing a significant burden on the retail municipal market. Pending regulatory discussions will continue in 2018.


DOL Fiduciary Duty / SEC Best Interest Standard
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.

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. In June 2017, SEC Chairman Jay Clayton requested public comments on how the SEC might best approach a “fiduciary” standard. The BDA met with the Chairman Clayton, Commissioner Stein, and senior staff to Commissioner Piwowar in January 2018 and let them know that BDA will submit comments to the SEC soon.

The BDA supports a “best interest standard” and strongly believes that the standard should fit within the existing broker-dealer regulatory regime.


Review and Withdrawal of IRS Political Subdivision Rule
The IRS political subdivision rule was proposed in 2016. The BDA opposed the proposal. Due to market participant feedback the rule was not approved during the Obama Presidency. The Trump Administration reviewed IRS rule proposals and identified the political subdivision rule as a particularly burdensome rule.

The BDA and MBFA wrote to the IRS confirming that the rule was burdensome, unnecessary, and harmful for economic growth. The IRS repeatedly identified the comments of market participants as a reason why it identified this rule as particularly burdensome. The proposal was withdrawn on October 20, 2017.


SEC Proposes Amendment to 15c2-12 for Bank Loan Disclosure
The BDA supports the disclosure of bank loans and the most effective way to require the disclosure of bank loans would be for the SEC to amend 15c2-12. In 2017, the SEC released a proposed rule to amend 15c2-12 to require the disclosure of bank loans. This proposal is a BDA accomplishment. While the rule is not yet final, the BDA has engaged in direct advocacy with the SEC prior to and after the rule proposal on the subject of bank loans. Discussions are ongoing in 2018.


High Quality Liquid Asset (HQLA) Legislation/Regulation
Working in tandem with state, local and issuer groups, the BDA has 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.

In early 2018, municipal securities were classified as level 2B HQLA in 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, which also is expected to pass the Senate soon.


SEC Fixed Income Market Structure Committee
In 2017, the BDA recommended four candidates (Craig Noble, Brad Winges, Horace Carter, Mike Marz) for the SEC’s Fixed Income Market Structure Advisory Committee (FIMSAC). The BDA is pleased that Horace Carter (Raymond James) was selected for the committee, as were BDA members Amar Kuchinad, (Trumid Financial) and Richard McVey (MarketAxess). The BDA continues to monitor FIMSAC activities and will look for ways to actively engage the SEC on these topics.


Additional BDA Priorities 2018


PCAOB Exemption Legislation
The BDA is working with other industry participants and trade groups on potential 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 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.

Currently, the BDA is waiting to see final bill text, and once the legislation is introduced, the BDA plans to actively advocate for it on Capitol Hill.


MSRB Seeks to Establish Rule for Municipal Advisors/Update Dealer Standards on Advertising
The BDA has been active in submitting comments in opposition to the MSRB’s 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.

Most recently, the BDA submitted comments in February 2018 to the SEC in response to the MSRB’s proposed new rule. While the rule is not yet final, the BDA continues to be active in direct advocacy with the SEC prior to the implementation of new advertising standards.


Bank Qualified Debt
The BDA continues to support the reintroduction of the Municipal Bond Market Support Act or inclusion or this Act in an infrastructure package. Bank-qualified debt legislation would increase the annual volume limit for bank-qualified bonds from $10 million to $30 million and index for inflation. Past legislation has also allowed for the use of pooled financings and calculates the volume cap at the issuer, rather than issuance, level. The BDA has lobbied Congress extensively on the bank-qualified issue during the past seven years and we will continue to do so in 2018.


FINRA Government Securities Initiative
In February 2018, FINRA issued a 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. The BDA is working with its various committees to draft comments in response to FINRA 18-05.


Debt Research
The BDA submitted comments to FINRA in mid-2017 concerning the proposed limited safe harbor from FINRA debt research rules for desk commentary. The letter outlined the belief that the best solution to help facilitate the timely flow of commentary to investment managers would be a clear interpretation of “research report” that demonstrates that the vast majority of desk commentary is not fundamental research. The BDA also asked that if and when FINRA proposes rule text for the safe harbor, it should provide clarity on desk commentary content. The BDA continues to monitor this proposed rule.


Update: Municipal Bonds for America coalition (MBFA)
In February 2017, 385 organizations and individuals signed an advocacy letter, representing nearly all-50 states, to House and Senate leaders urging them to retain the current law status of municipal bonds as they began deliberation on comprehensive tax reform. The MBFA Coalition was extremely active in its advocacy efforts to preserve all tax-exempt financing options for municipal bonds, including PABs and advance refundings, in the Tax Cuts and Jobs Act. In 2018, MBFA Executive Chair Steve Benjamin will become the president of the

U.S. Conference of Mayors, and will further advocate for the tax-exemption in this highly-visible position. The Coalition will continue to educate Congressional leaders and staff members through its Muni Bonds 101 seminars on Capitol Hill, meetings with staff members of influence at the White House, and developing and maintaining its relationship with members of Congress to preserve the tax- exempt status of municipal bonds.

Click here to print.

BDA Advocacy 1st Quarter – 2018

Federal Regulatory and Legislative Priorities

 

FINRA Rule 4210

In 2016, the BDA was successful in getting FINRA and SEC to file a last-minute amendment to the rule that significantly expanded the “gross open position” exception from $2.5 million to $10 million. BDA had advocated for a more expansive gross open position limit throughout the rulemaking and the $10 million level expands the universe of counterparties and trades where the transfer of margin will typically not apply.

More recently, the BDA was supportive of a delayed effective date and lobbied FINRA directly for the delay. In September 2017, the rule was delayed to June 2018.

In 2018, the BDA has met with SEC Chair Clayton and each SEC Commissioner in addition to FINRA CEO Cook and senior counsel 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 December 2017, and in February 2018, the BDA received word that FINRA is considering this proposal. FINRA has discussed this idea in-depth with BDA member firms, and an update is expected shortly.


Retail Confirmation Disclosure Rules
In the fall of 2017, at the request of Robert Cook of FINRA, a BDA working group submitted an amendment recommendation for the retail confirmation disclosure rules to both FINRA and MSRB. The BDA policy recommendation introduced the concept of “general market liquidity provider” to allow dealers that provide liquidity and offer bonds in support of their network of financial advisors to rebut the presumption that their cost is the best measure of prevailing market price for the purposes of the disclosure. The BDA also continued to advocate for a delay of the rules.

Throughout December 2017, BDA staff continued conversations with FINRA staff, and also reached out to SEC commissioners’ staffs to discuss our concerns in-depth after hearing that SEC commissioners were balking on a delay of the 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 rule 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.

The SEC commissioners held their position that the rules should not be delayed. However, the BDA felt that they did leave the door open for an extended timeline without enforcement. 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. The plan BDA presented includes 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 met with the two new SEC commissioners, Hester Peirce and Robert Jackson, Jr., regarding the markup rules.

In March 2018, the BDA was notified that regulators are seriously considering the BDA’s conformance period proposal. Currently, the BDA is in communication with member firms, industry groups and regulators to ensure a positive outcome. More information on this issue will be distributed soon.


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, MBFA and the full issuer community and the U.S. Treasury to find a market-based, regulatory no cost solution for municipal bond issuers.

Grassroots lobbying efforts are ongoing with BDA membership contacting their representatives in Washington. Municipal Bond Division Leadership has provided the BDA with advance refunding project data for Ways and Means comments on “expired tax provisions” in March, showing a wide variety of cost savings lost for state and local governments of all sizes. The BDA also plans to host a member fly-in surrounding “Infrastructure Week 2018” to help raise awareness for municipal advance refundings on Capitol Hill this May.


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.

The BDA plans to incorporate PABs into the “Infrastructure Week” fly-in this May.


MSRB Rule G-15 Minimum Denomination Rule
As a result of direct lobbying efforts of the BDA, the MSRB withdrew a proposed rule to amend MSRB Rule G-15 for minimum denominations (Proposed and withdrawn MSRB Rule G-49). The withdrawal of the rule took place after a BDA conversation with MSRB Counsel Mike Post that was supported by Dan Deaton from Nixon Peabody. During that call, BDA highlighted that the rule proposal and the existing G-15 framework was harming the marketplace, especially retail investors. After withdrawing the rule, the MSRB sought additional input from the BDA on a conference call with BDA members. The accomplishment is that BDA advocacy resulted in the rule being withdrawn. The BDA educated the MSRB and they appear committed to updating G-15 in a way that would focus the minimum denomination rule on issuances with minimum authorized denominations of $100,000 and above, removing a significant burden on the retail municipal market. Pending regulatory discussions will continue in 2018.


DOL Fiduciary Duty / SEC Best Interest Standard
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.

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. In June 2017, SEC Chairman Jay Clayton requested public comments on how the SEC might best approach a “fiduciary” standard. The BDA met with the Chairman Clayton, Commissioner Stein, and senior staff to Commissioner Piwowar in January 2018 and let them know that BDA will submit comments to the SEC soon.

The BDA supports a “best interest standard” and strongly believes that the standard should fit within the existing broker-dealer regulatory regime.


Review and Withdrawal of IRS Political Subdivision Rule
The IRS political subdivision rule was proposed in 2016. The BDA opposed the proposal. Due to market participant feedback the rule was not approved during the Obama Presidency. The Trump Administration reviewed IRS rule proposals and identified the political subdivision rule as a particularly burdensome rule.

The BDA and MBFA wrote to the IRS confirming that the rule was burdensome, unnecessary, and harmful for economic growth. The IRS repeatedly identified the comments of market participants as a reason why it identified this rule as particularly burdensome. The proposal was withdrawn on October 20, 2017.


SEC Proposes Amendment to 15c2-12 for Bank Loan Disclosure
The BDA supports the disclosure of bank loans and the most effective way to require the disclosure of bank loans would be for the SEC to amend 15c2-12. In 2017, the SEC released a proposed rule to amend 15c2-12 to require the disclosure of bank loans. This proposal is a BDA accomplishment. While the rule is not yet final, the BDA has engaged in direct advocacy with the SEC prior to and after the rule proposal on the subject of bank loans. Discussions are ongoing in 2018.


High Quality Liquid Asset (HQLA) Legislation/Regulation
Working in tandem with state, local and issuer groups, the BDA has 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.

In early 2018, municipal securities were classified as level 2B HQLA in 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, which also is expected to pass the Senate soon.


SEC Fixed Income Market Structure Committee
In 2017, the BDA recommended four candidates (Craig Noble, Brad Winges, Horace Carter, Mike Marz) for the SEC’s Fixed Income Market Structure Advisory Committee (FIMSAC). The BDA is pleased that Horace Carter (Raymond James) was selected for the committee, as were BDA members Amar Kuchinad, (Trumid Financial) and Richard McVey (MarketAxess). The BDA continues to monitor FIMSAC activities and will look for ways to actively engage the SEC on these topics.


Additional BDA Priorities 2018


PCAOB Exemption Legislation
The BDA is working with other industry participants and trade groups on potential 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 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.

Currently, the BDA is waiting to see final bill text, and once the legislation is introduced, the BDA plans to actively advocate for it on Capitol Hill.


MSRB Seeks to Establish Rule for Municipal Advisors/Update Dealer Standards on Advertising
The BDA has been active in submitting comments in opposition to the MSRB’s 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.

Most recently, the BDA submitted comments in February 2018 to the SEC in response to the MSRB’s proposed new rule. While the rule is not yet final, the BDA continues to be active in direct advocacy with the SEC prior to the implementation of new advertising standards.


Bank Qualified Debt
The BDA continues to support the reintroduction of the Municipal Bond Market Support Act or inclusion or this Act in an infrastructure package. Bank-qualified debt legislation would increase the annual volume limit for bank-qualified bonds from $10 million to $30 million and index for inflation. Past legislation has also allowed for the use of pooled financings and calculates the volume cap at the issuer, rather than issuance, level. The BDA has lobbied Congress extensively on the bank-qualified issue during the past seven years and we will continue to do so in 2018.


FINRA Government Securities Initiative
In February 2018, FINRA issued a 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. The BDA is working with its various committees to draft comments in response to FINRA 18-05.


Debt Research
The BDA submitted comments to FINRA in mid-2017 concerning the proposed limited safe harbor from FINRA debt research rules for desk commentary. The letter outlined the belief that the best solution to help facilitate the timely flow of commentary to investment managers would be a clear interpretation of “research report” that demonstrates that the vast majority of desk commentary is not fundamental research. The BDA also asked that if and when FINRA proposes rule text for the safe harbor, it should provide clarity on desk commentary content. The BDA continues to monitor this proposed rule.


Update: Municipal Bonds for America coalition (MBFA)
In February 2017, 385 organizations and individuals signed an advocacy letter, representing nearly all-50 states, to House and Senate leaders urging them to retain the current law status of municipal bonds as they began deliberation on comprehensive tax reform. The MBFA Coalition was extremely active in its advocacy efforts to preserve all tax-exempt financing options for municipal bonds, including PABs and advance refundings, in the Tax Cuts and Jobs Act. In 2018, MBFA Executive Chair Steve Benjamin will become the president of the

U.S. Conference of Mayors, and will further advocate for the tax-exemption in this highly-visible position. The Coalition will continue to educate Congressional leaders and staff members through its Muni Bonds 101 seminars on Capitol Hill, meetings with staff members of influence at the White House, and developing and maintaining its relationship with members of Congress to preserve the tax- exempt status of municipal bonds.

Click here to print.

2016-17 BDA’s Federal Regulatory and Legislative Priorities and Accomplishments

The following issue list highlights the BDA regulatory and legislative priorities over the past twelve months and the noted accomplishments achieved through direct Hill and regulator lobbying and by utilizing the BDA membership through meetings in Washington, DC and at BDA roundtables and conferences throughout the year.  Thanks to your time and efforts, the BDA continues to expand our presence and impact and thus adds more value than ever to all member firms.  Please don’t hesitate to contact me with any questions or comments.

 

Tax Reform and the Municipal Bond Tax-Exemption

After steady focus by the BDA over 8+ years, and while various tax reform proposals have been released by Congressional leaders and the administration, the tax-exemption remains out of scope and off the table – for now.  Through direct federal advocacy with state and local government organizations, issuer groups and middle-market broker dealers, the BDA-led Municipal Bonds for America (MBFA) Coalition continues to be the leading voice in Washington to protect the tax-exemption for municipal bonds. The BDA and MBFA coalition will continue to ensure that the tax-exemption remains intact during the legislative process in tax reform this fall and into 2018.

 

FINRA Rule 4210

BDA was successful in getting FINRA and SEC to file a last-minute amendment to the rule in June 2016 that significantly expanded the “gross open position” exception from $2.5 million to $10 million. BDA had advocated for a more expansive gross open position limit throughout the rulemaking and the $10 million level does expand the universe of counterparties and trades where the transfer of margin will typically not apply. In May 2016, BDA submitted amendment language at the SEC’s request that would have exempted all transactions, including transactions over $10 million, if those trades settled on the next good settlement date. While, this advocacy didn’t result in the exact change BDA wanted, getting the $10 million exemption limit is a result of direct BDA advocacy at the SEC, especially. BDA had two fly-ins at the SEC to discuss this rule with Trading and Markets and the accomplishment is the higher “gross open position limit”. More recently, BDA was supportive of a delayed effective date and lobbied FINRA directly for the delay, which is a significant and valuable delay for BDA member firms who would have been challenged severely by a December 2017 effective date.

 

Retail Confirmation Disclosure Rules

As a result of direct engagement, including two joint meetings with MSRB and FINRA and a direct BDA Board Meeting with Robert Cook and Bob Colby at FINRA, Robert Cook specifically sought a BDA amendment recommendation for improving the rule. This proposed amendment was then subsequently sent to SEC for a discussion with Trading and Markets. The accomplishment is in the value of direct engagement in a member-engaged process that delivered a serious policy proposal to the regulators at their request. 

 

MSRB Rule G-15 Minimum Denomination Rule

As a result of direct lobbying efforts of the BDA, the MSRB withdrew a proposed rule to amend MSRB Rule G-15 for minimum denominations (Proposed and withdrawn MSRB Rule G-49). The withdrawal of the rule took place after a BDA conversation with MSRB Counsel Mike Post that was supported by Dan Deaton from Nixon Peabody. During that call, BDA highlighted that the rule proposal and the existing G-15 framework was harming the marketplace, especially retail investors. After withdrawing the rule, the MSRB sought additional input from the BDA on conference call with BDA members. The accomplishment is that BDA advocacy resulted in the rule being withdrawn. BDA educated MSRB and they appear committed to updating G-15 in a way that would focus the minimum denomination rule on issuances with minimum authorized denominations of $100,000 and above, removing a significant burden on the retail municipal market.

 

DOL Fiduciary Duty

While the rule and exemptions are extremely burdensome, 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 excluded a series of assets including municipal bonds, UITs, CDs, and mortgage securities. While municipal bonds are still excluded from the Principal Trading Exemption (PTE), the other assets are not, and the list of assets that can be recommended to retirement investors under the Best Interest Contract Exemption is now unlimited.

 

Review and Withdrawal of IRS Political Subdivision Rule

The IRS political subdivision rule was proposed in 2016. BDA opposed the proposal. Due to market participant feedback the rule was not approved during the Obama Presidency. The Trump Administration review IRS rule proposals in 2016 and identified the political subdivision rule as a particularly burdensome rule. BDA and MBFA wrote to the IRS confirming that the rule was burdensome, unnecessary, and would harm economic growth. Currently, the proposal is identified as a rule that should be rescinded and this is very likely to occur in the fall of 2017.  IRS repeatedly identified the comments of market participants as a reason why it identified this rule as particularly burdensome.

 

MSRB States Intent to not File Bank Loan Disclosure Concept Release

Although BDA is a proponent of bank loan disclosure, it opposed the MSRB’s concept release on bank loan disclosure. That proposal would have required MAs to be the party responsible for making the disclosure. BDA said it would be preferable to have an amendment to 15c2-12 which would make certain bank loans subject to material event notices. The MSRB stated that due to the comments it received it would not turn the concept release into a rule filing.

 

SEC Proposes Amendment to 15c2-12 for Bank Loan Disclosure

BDA supports the disclosure of bank loans and the most effective way to require the disclosure of bank loans would be for the SEC to amend 15c2-12. In 2017, SEC released a proposed rule to amend 15c2-12 to require the disclosure of bank loans. This proposal is a BDA accomplishment. While the rule is not yet final, BDA has engaged in direct advocacy with the SEC prior to and after the rule proposal on the subject of bank loans.

 

High Quality Liquid Asset (HQLA) Legislation/Regulation

Working in tandem with state, local, and issuer groups BDA has supported the introduction and re-introduction in the House and Senate and passage through the House of legislation to define municipal bonds as HQLA in the new banking liquidity rule. Additionally, BDA has urged federal banking regulators to amend the rule to allow municipal securities to be defined as Level 2A assets. Legislation to define municipal securities as HQLA (either as 2A or 2B) has bipartisan support and is discussed as a bill with a real chance to pass into law during this current session of Congress.

 

Potential

 

SEC Fixed Income Market Structure Committee

In August, BDA recommended four candidates (Craig Noble, Brad Winges, Horace Carter, Mike Marz) for the SEC’s Fixed Income Market Structure Advisory Committee. Since that time, we have contacted each SEC Commissioner and the Office of Municipal Securities. 

 

Municipal Bonds for America (MBFA)

In 2016, the MBFA Coalition went through extensive transformation structurally to enhance its advocacy efforts in Washington and beyond. The Coalition instituted formal bylaws, which helped to improve how the coalition operates and functions. Additionally, the Executive Committee was refreshed with new and impassioned leaders, while maintaining the incoming president of the U.S. Conference of Mayors, Steve Benjamin as our Executive Chair. These actions have proved to be valuable as the Coalition continues to receive record turnout and Congressional participation through its Muni Bonds 101 seminars on Capitol Hill, meets with staff members of influence at the White House, and continues to develop and maintain its relationship with members of Congress to preserve the tax-exempt status of municipal bonds. The MBFA completed a data project in 2016 that focuses on key members of Congress on the House Ways & Means and Senate Finance Committees, which demonstrates “by the numbers,” the benefits of the municipal tax-exemption in the respective district or state of the member. The MBFA also led an effort in February 2017 that saw 385 organizations and individuals sign an advocacy letter, representing nearly all 50 states, to House and Senate leaders urging them to retain the current law status of municipal bonds as they begin deliberation on comprehensive tax reform.

 

Op-Eds

The BDA and MBFA continue to advocate for the value of municipal bonds and the importance they add to American society through various forms, including op-eds. For example: In September 2017, BDA Board Chair Tom Dannenberg was featured in Crain’s Chicago Business, commenting on the disbanded White House Advisory Council on Infrastructure and touting the essential role of municipal bonds in financing our nations growth, which drives our economy. Also, in September 2017, MBFA Executive Chair Steve Benjamin, mayor of Columbia, SC, was featured in an article in The Hill that focused on how those faced with the devastation left behind by Hurricanes Harvey and Irma can look to the traditional bond market to rebuild stronger, smarter, and more resilient communities. In November 2016, BDA CEO Mike Nicholas contributed to an op-ed in The Hill, which highlighted the importance of tax-exempt bonds as a viable solution for project finance and was written in response to the piece, “Bonds are Taxes,” that argued local governments have the capacity to pay for needed projects out of current tax revenues.

BDA Advocacy 3rd Quarter – 2017

Regulatory Advocacy Issues

FINRA and MSRB’s Retail Confirmation Markup Disclosure Rules
In November 2016, the SEC approved the MSRB’s and FINRA’s retail confirmation disclosure rules that will require dealers to disclose a markup for certain retail trades. The rules are effective on May 14, 2018. BDA member firms discussed the cost and complexity of automating the “waterfall” concept for corporate, Agency, and municipal securities trades for retail investors in meetings with the SEC, FINRA, and MSRB throughout the first half of 2017 in order to prepare dealers for the 2018 compliance date.


BDA Letter to the Treasury Department on Capital Markets Regulatory Reform
The Treasury Department is currently working on a series of policy papers examining the U.S. financial regulatory system, including U.S. capital markets regulation. In August 2017, the BDA submitted a letter to the Secretary of the Treasury, which highlighted concerns with U.S. broker-dealer industry consolidation and explained specific concerns with MSRB and FINRA retail confirmation rules and the mortgage margin amendments for FINRA Rule 4210. The Treasury report will be the first statement with policy specifics and recommendations related to the U.S. capital markets by the Trump Administration.


FINRA Mortgage Security Margin Amendments
In October 2015, FINRA filed proposed amendments with the SEC to Rule 4210 to establish margin requirements for transactions in TBAs, specified pools, and collateralized mortgage obligations. FINRA amended the rule three times, including changes BDA recommended to increase to the allowable gross open position limit and the minimum margin transfer threshold, and to permit risk limits for advisor accounts to be made at the advisor level. The SEC approved the rule in June 2016. In August 2017, BDA submitted a letter to FINRA, which highlighted BDA member compliance questions and resubmitted a recommendation for amending the rule to reduce the competitive burdens caused by the rule, especially for middle-market dealers.


MSRB’s Minimum Denomination Rule Filing with the SEC
BDA submitted two comment letters to the MSRB stating that proposed MSRB Rule G-49 should be focused on issuances with ‘minimum authorized denominations’ of $100,000 or greater. The MSRB filed its minimum denomination rule with the SEC in February 2017, but later withdrew the proposal and stated that it would continue to work on amendments to the minimum denomination rule. In September 2017, the BDA will continue the discussion with the MSRB as it considers amendments to MSRB Rule G-15 and will advocate for regulatory alternatives to reduce regulatory burdens in the municipal securities market.


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. The BDA met with the SEC’s Office of Municipal Securities in June 2017 and discussed the policy concerns BDA raised in its comment letter.


The Department of Labor’s Fiduciary Duty Rule
In April 2016, the Department of Labor (DOL) approved a rule to expand the definition of ‘fiduciary’ under ERISA. The new rule applies a fiduciary duty to those providing investment advice to retirement investors. In January 2017, the Trump Administration issued a Presidential Memorandum directing the DOL to review the rule. As a result, the DOL delayed the April 2017 applicability date for the new rule by 60 days and then subsequently sought to delay the applicability of the rule’s most significant amendments until 2018. BDA has submitted multiple comment letters in 2016 and 2017, advocating for a harmonized best interest standard of care for both retirement and non-retirement investors.


Request for Comment on Draft Amendments to MSRB Rule G-34 (CUSIP Requirements)
BDA submitted a comment letter in March 2017 that disagreed with how the MSRB had fashioned its regulatory proposal. BDA stated that the MSRB should not craft a rule that requires CUSIP numbers in transactions where the issuer and purchasing investors do not want a CUSIP number and that a CUSIP number requirement will have substantial negative consequences for the market.

 

Legislative Advocacy Issues

Financial Reform Legislative Priorities
BDA will work with Congress and the Administration to advance regulatory reform legislation. This will include working to advance BDA’s advocacy priorities including requiring more stringent regulatory cost-benefit analyses, High Quality Liquid Asset legislation, amendments to the Department of Labor Fiduciary Duty Rule, revisiting the Municipal Advisor Rule, and more.


Protecting Tax-Exempt Bonds and the Municipal Bonds for America Coalition
The Administration and Congress remain committed to passing tax reform measures by the end of 2017. In July 2017, the BDA submitted policy recommendations to Senate Finance Committee Chairman Orrin Hatch (R-UT) advocating for retaining the municipal tax exemption, increasing the dollar limit for bank qualified bonds from $10mm to $30mm, and allowing for the expanded use of private activity bonds. BDA continues to engage with the House Ways & Means and Senate Finance committees voicing opposition to any proposal that modifies or eliminates the tax-exempt status for municipal bonds. Additionally, 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. The MBFA Coalition is engaged with key House and Senate offices through its advocacy efforts, including the Municipal Bonds 101 Seminars.


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. BDA has lobbied Congress extensively on the bank-qualified issue and we will continue to do so in the tax reform discussion into Fall 2017.

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Regulatory Reform: BDA Submits Letter to U.S. Treasury Upcoming Report on U.S. Capital Markets and Securities Law & Regulation

On August 22nd, BDA submitted a letter to the Treasury Department regarding its upcoming report on U.S. Capital Markets Regulation, which is due out in the fall of 2017. The letter is here for your review. Treasury staff specifically requested BDA’s input on regulations, enforcement, and market liquidity.

BDA’s letter focuses on the following issues:

  • FINRA Rule 4210
  • Retail Confirmation Rules
  • Defining Municipal Securities as High Quality Liquid Assets (HQLA)
  • U.S. Fixed Income Market Liquidity
  • Regulatory Cost-Benefit Analyses
  • Enforcement Improvements

The letter’s sections are designed to provide Treasury Staff with a brief synopsis of the significant issues BDA member firms are confronting. If Treasury Staff requests additional information, BDA will engage member firms and deliver answers.

Treasury Report Series on Banking, Securities, and Capital Markets Regulation
In response to Executive Order 13772 (Core Principles for Regulating the U.S. Financial System), issued by President Trump on February 3, 2017, the U.S. Treasury will issue a series of reports on the U.S. financial regulatory system. The first report focused on the regulatory system for U.S. banks and credit unions. That report can be accessed here.
  • The second report, focused on U.S. capital markets regulation will be published in the fall of 2017.

Implications of the Report

  • The report will be the first statement with policy specifics and recommendations related to the U.S. capital markets by the Administration.
  • The report will be studied by Congress, especially as the Senate considers which financial regulatory reforms could garner the bipartisan support necessary to meet the 60-vote threshold.

FINRA Margin Amendments

FINRA amendments to Rule 4210 require a new margining regime for mortgage products, including TBA securities. BDA continues to work with our members to assist in establishing appropriate compliance regimes for middle-market dealers so that they can continue to provide liquidity to the TBA market.

Advocacy

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.

 

Federal Regulatory and Legislative Accomplishments and Priorities
2023-2024

 

Muni Advocacy on Capitol Hill

The BDA continues to lead industry effort’s promoting municipal bonds on Capitol Hill. The BDA alongside the Public Finance Network (PFN), led by the Government Finance Officers Association has spent considerable time and effort to grow bipartisan support of the tax-exemption, protection and expansion of private activity bonds, as well serval additional muni provisions including the restoration of tax-exempt advance refundings, reintroduction of legislation to raise the bank qualified limit and these efforts are beginning to show results.

 

Tax-Exemption Remains Strong

As the cornerstone of BDA advocacy, the municipal bond tax-exemption continues to gain bipartisan support, even as bipartisanship legislating continues to flail on Capitol Hill. A main pillar of support is the House Municipal Finance Caucus led by Reps. Dutcher Ruppersberger (D-MD) and Rudy Yakym (R-IN). The Caucus, founded in 2016 by Congressman Ruppersberger, serves as a forum for discussing issues related to funding for state and local government initiatives. Key issues include protecting the tax-exempt status of municipal debt, ensuring a robust market for municipal securities and understanding the impact of financial regulations on municipal finance.

The BDA continues its educational efforts in both the House and the Senate with eyes squarely focused on 2025 when portions of the 2017 Tax Cuts and Jobs Act expire and provisions to pay-for extensions of the tax cuts will likely be debated. We believe that the tax-exemption has strong support in both Chambers and in both parties, however it remains a top-10 tax expenditure for the federal government—making it a potential target to use as an offset for additional spending as concerns continue to grow on the debt and annual deficit.

 

Support for Advance Refundings Grows

The BDA is leading industry advocacy for H.R. 1837, legislation that would fully reinstate municipal advance refundings. The BDA continues to work simultaneously with Capitol Hill and issuer community in PFN to advance this key policy initiative.

The Investing in our Communities Act was introduced this Spring by Representatives David Kustoff (D-TN) of the House Ways and Means Committee and Dutch Ruppersberger (D-MD) Co-Chair of the House Municipal Finance Caucus. On the Senate side, Roger Wicker (R-MS) and Debbie Stabenow (D-MI) reintroduced the LOCAL Infrastructure Act and are accompanied by 16 bipartisan co-sponsors, a high water mark in support in the upper chamber.

Having support of a sitting Member of the Ways and Means Committee sponsor this legislation and having robust bipartisan support in the Senate cannot be understated, however, many hurdles need to be cleared for passage.

It should be noted that Majority staff in the House have softened their stance on the legislation but noted that there is no immediate push to pass this year, instead look towards the end of this Congress next year or beyond.

While we expect odds of advancement of these key bills this Congress remain low, having support on key House Committees is invaluable for the longer-term efforts of the muni community and continue to work to position these provisions for the future deliberations around the sunsetting provisions in the 2017 Tax Cuts and Jobs Act legislation.

 

BDA Membership on Capitol Hill

Following earlier fly-in’s, the BDA hosted a summer DC advocacy fly-in, meeting with the MSRB, FINRA, the SEC, U.S. Department of Treasury, and key senior Congressional Committee staff to discuss the BDA’s regulatory and legislative fixed-income priorities.

The BDA was met with positive and productive conversations covering a wide range of regulatory and legislative topics and priorities. Events such as this are key to ensure policy makers hear from industry experts and are invaluable events helping to direct decisions in DC.

The meetings focused on a plethora of key market issues and priorities, including:

  • Market structure and current business conditions in a volatile market,
  • One minute trade reporting,
  • The continued importance of tax-exemption,
  • Restoration of tax-exempt advance refundings,
  • The need to raise the bank qualified debt limit and work to rebrand the tool focusing on rural benefits, and
  • Potential for a bi-partisan tax deal in 2024 as vehicle.
    • It should be noted at this point, the House majority cannot advance a tax partisan tax package out of Committee do to the NE Republicans demanding action on SALT.

The group met key market regulators at the MSRB, FINRA, and the SEC followed by discussions with the U.S. Department of Treasury Offices of State and Local Finance and Tax Policy. Following agency meetings, the group lobbied key policy makers on the Hill including:

  • Senior Senate Finance Majority Tax Staff
  • Senior Senate Finance Minority Tax Staff
  • House Ways and Means Majority Senior Counsel
  • House Financial Services Senior Counsel

 

FINRA Margin Rule

After an eight-year rulemaking process, FINRA finally completed changes to its Rule 4210 governing margin. Under the changes, firms will need to begin collecting and holding variation margin on sales of new-issue agency MBS under certain circumstances when the price of the counterparty’s position drops below a designated threshold between the trade and settlement dates.

The SEC originally approved the Covered Agency Transactions (CAT) amendments to Rule 4210 in 2015. Those amendments have largely never taken effect. In the final amendments approved in 2023, FINRA made several key changes in the final rule advocated by BDA, including dropping a requirement from the 2015 rule changes that firms collect both maintenance and variation margin and adding an option for firms to take a capital charge in lieu of collecting margin. Most importantly, the rule changes will have been delayed by nine years by the time they take effect. The compliance deadline for the CAT amendment is May 22, 2024.

 

One-Minute Trade Reporting

Both the MSRB and FINRA have parallel proposals to shorten the time for dealers to reports trades to the Real-time Trade Reporting System (RTRS) and the Trade Reporting and Compliance Engine (TRACE) from 15 minutes to one minute after execution. , both the FINRA and MSRB boards have approved versions of the proposals but have not transmitted them to the SEC for final approval.

Both proposals would require dealers to report trades in applicable municipal and corporate bonds within one minute of execution. In our response to the proposals, BDA raised a number of concerns about trades which could likely never be reported within one minute. Both agencies have suggested that they will include in their final proposals key carveouts that would make the rule workable, including exemptions for firms with very low trade volumes and for “manual” trades, to be defined in the rule and to include trades conducted by telephone and other trades that require human intervention in execution or processing. Details will come when the agencies transmit their final proposals to the SEC.

 

Best Execution

The SEC has proposed to impose a new best execution rule in addition to existing FINRA and MSRB best execution rules. The proposal would require dealers to develop compliance procedures around evaluating trade prices. Of particular concern is the treatment of “conflicted trades,” which would have special requirements. In the proposal, conflicted trades include principal trades, including riskless principal trades. Conflicted trades would require dealers to survey even more markets than non conflicted trades. BDA rsied these concerns in our letter to the SEC.

The next step in the process will be for the Commission to consider the amended and final proposal.

 

Financial Data Transparency Act

In 2022 Congress enacted the Financial Data Transparency Act (FDTA) as part of the National Defense Authorization Act. The FDTA will, among other provisions, require municipal issuers to publish financial disclosure statements in a machine-readable format which will allow software to identify common data elements within the statements. There is a four-year implementation period from the date of enactment. The statute requires the SEC to develop a “taxonomy,” a collection of data items associated with tags thar will make the documents machine-readable. Issuers generally remain opposed to the FDTA.

The SEC has begun the task of building the taxonomy, which will occupy the first two years of the implementation period followed by two years of testing and adoption. There are two areas of concern for underwriters and dealers. First is that at some point in the future the SEC may expect dealers to police issuer compliance with the FDTA standard as current regulations do with respect to issuer continuing disclosure. Second is that the FDTA initiative could impose costs on the MSRB as the market’s disclosure repository which would be borne predominantly by dealers. BDA will continue to monitor the development of the FDTA scheme.

 

Meetings with Regulators

BDA’s 2023 National Fixed Income Conference being in Washington, DC provided an opportunity for members to meet face-to-face with federal regulators. During our Legal and Compliance Roundtable, BDA members met with staff from the SEC, FINRA and MSRB on a host of regulatory topics affecting the fixed income markets. These discussions supplemented BDA’s ongoing and regular communication with key regulatory bodies. More interaction with regulators is planned for 2024.

 

Advocacy Feature

BOND DEALERS OF AMERICA 2015 YEAR-IN-REVIEW – REGULATORY & LEGISLATIVE ADVOCACY


BOND DEALERS OF AMERICA 2015 YEAR IN REVIEW

FEDERAL REGULATORY & LEGISLATIVE ADVOCACY


In early 2015, BDA Board Chair Steve Genyk of Janney Montgomery Scott discussed the BDA’s 2015 municipal market priorities in an interview with the Bond Buyer. Genyk discussed maintaining the tax-exemption for municipal bonds and increasing the annual issuance limit for issuers of bank-qualified bonds as two key legislative priorities for the BDA. He discussed regulatory issues and noted the disproportionate impact of rules and enforcement actions on small and medium-sized firms.  It is in this vein that we advocated on your behalf, focusing on both regulatory and legislative issues, and blanketing the muni industry generally.  Below is a recap of our efforts in 2015.


2015 REGULATORY INITIATIVES

During this period of massive regulatory change, BDA is focused on the highest priority regulatory issues impacting the U.S. fixed income markets and provides members with valuable opportunities to engage directly with regulators.


Municipal Advisor Regulatory Regime
The SEC’s Municipal Advisor (MA) rule went into effect on July 1, 2014. The BDA worked closely with the SEC as it formulated the rule and the associated FAQs. The MSRB is currently engaged in completing the MA regulatory regime. The SEC recently approved on amendments to MSRB Rule G-42 on duties of non-solicitor municipal advisors and we also look forward to the finalization of Proposed Rule G-37 dealing with pay-to-play rules for municipal advisors, which MSRB filed with the SEC in late December.


Municipal Advisor Rule One Pager for Issuers: In order to reduce confusion and misinformation in the marketplace, the BDA and retained counsel Nixon Peabody, created a market document for our members. The purpose of the document is to inform issuers on the new MA rule requirements applicable to market participants, including issuers. The market document is available to BDA member firms upon request.


FINRA 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. The proposal made changes in response to comments submitted by BDA in 2014 and creates exceptions designed to make dealer transactions with smaller customers workable within in the context of the rule. 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 will meet with the SEC in early January 2016 to discuss outstanding concerns.


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.


Market Impact of TRACE and MSRB Reporting Amendments
FINRA and MSRB updated the trade reporting requirements and processes throughout 2015. BDA commented on several proposals and regulatory changes.

  • Securitized Products: BDA commented on the market and liquidity impact of requiring real-time reporting of securitized products.
  • Trade Reporting Process: BDA commented on a new standard to require trade processes and procedures to report a trade ‘as soon as practicable’.
  • Market Data Sets: BDA commented on regulatory proposals to expand the offerings of new FINRA and MSRB data sets.
  • ‘No Remuneration’ Indicator: BDA commented to FINRA and MSRB on a new trade-reporting indicator that will go into effective in mid-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, which expands upon topics covered during BDA’s previous testimony, comment letter, and our in-person meeting.


Fiduciary Duty
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. The best execution rule requires municipal securities dealers to use “reasonable diligence” to identify the best potential trading venue for a particular security and then execute transactions in that venue to provide the customer with a price as favorable as possible under prevailing market conditions. 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.


High Quality Liquid Assets
In May 2015, the Federal Reserve requested comment on a proposed rule to include a certain subset of general obligation municipal securities as high quality liquid assets (HQLA) in the new banking liquidity rule. In July, the BDA submitted a comment letter recommending multiple improvements to the Fed’s proposal and urged the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to work on a comprehensive final rule that includes all investment grade municipal securities.


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 by acting as unregistered dealers in performing private placements. By engaging in broker-dealer activities without registering as a broker-dealer or complying with the regulatory requirements of broker-dealers, investors are denied the protections of the broker-dealer 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. The policy recommendations included changing the timing of listed events, altering filing requirements for audited financial statements, 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. In addition, BDA recommended improvements to EMMA and highlighted confusion among issuers regarding their disclosure responsibilities.


2015 LEGISLATIVE INITIATIVES

BDA provides its members with in-person access to key Capitol Hill policy makers 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 and our members.


Protecting Tax-Exempt Bonds
BDA opposes any proposal to modify or eliminate the tax exemption applicable to municipal bonds. As Congress continues to consider tax reform, BDA continues to work with industry partners, including issuers and state and local groups, through the Municipal Bonds for America (MBFA) Coalition to preserve the tax exemption. In 2015, BDA wrote multiple letters to the Senate Finance Committee working groups about the value of the municipal bond tax exemption to U.S. infrastructure.


Fiduciary Duty Legislation
BDA wrote a letter of support for H.R. 1090, the Retail Investor Protection Act, which was introduced by Rep. Ann Wagner (R-MO). The legislation passed the House in October. BDA submitted this letter and met with Congressional staff to outline the need for legislation to promote a more harmonized rule making with the SEC in a lead role, not the DOL. H.R. 1090 would restrict the DOL from issuing a rule making related to establishing a fiduciary duty until 60 days after the SEC has issued a rule amending the standard of care applicable to dealers.


Bank Qualified Bond Legislation
BDA worked with key Congressional offices to assist in the introduction of H.R. 2229, the Municipal Bond Market Support Act of 2015, which was introduced by Rep. Tom Reed (R-NY) and Rep. Richard Neal (D-MA). The bill would increase the BQ limit from $10 to $30 million, allowed the limitation to apply at the borrower level to allow for pooled financings and indexes the limit for inflation. BDA and other trade groups partnered to advocate for the bill and educate lawmakers and staff on Capitol Hill.


HQLA
BDA is working to advance legislation to include municipal bonds as High Quality Liquid Assets under the banking Liquidity Coverage Ratio. BDA worked with Rep. Messer (R-IN) who introduced H.R. 2209, which would classify municipal securities as Level 2A assets in the bank liquidity rule. As of December, the bill has passed the House Financial Services Committee.


MBFA Legislative Day and Muni Bonds 101 Seminar
On July 21, 2015, the MBFA Coalition hosted a Capitol Hill fly-in and a Municipal Bonds 101 Seminar for Congressional staffers. MBFA members spent the day meeting with House and Senate leadership, tax-writing, budget, and banking committee staff discussing the benefits of municipal bonds and advocating to preserve their tax-exemption. You can find a recap of that event here.


NEW INITIATIVES & OPPORTUNITIES


Throughout the year, the BDA produces market practice documents, opinion pieces, and writes letters to securities regulators. Additionally, BDA works with outside consultants to provide you with direct answers to your policy questions, no matter the issue.  We host a monthly member fly-in series, present opportunities for our members to participate in industry specific events.  Below, please find a recap of those items.  If there are any additional market documents you think would be helpful to you throughout the year, do not hesitate to reach out to us.


Due Diligence Webinar Series for Municipal Bankers
In light of increased scrutiny by the SEC and FINRA on the due diligence and documentation responsibilities of bankers in the municipal securities market, the BDA hosted a series of three webinars, exclusively for BDA member firms, focused on providing due diligence training for public finance bankers. BDA retained counsel Nixon Peabody led the webinar series, which featured senior legal and compliance representatives from BDA member firms. Audio files and slides from the three presentations are available to BDA member firms upon request.


BDA’s Wall Street Journal ‘Letter to the Editor’ on Regulation
In February 2015, BDA’s Letter to the Editor, ‘Killing the Non-Giant Competition’ was published in response to the Journal’s Commentary, ‘Regulation Is Good for Goldman’, which focused on remarks made by Goldman Sachs CEO, Lloyd Blankfein regarding the impact of the current U.S. regulatory environment on competition in the U.S. financial markets, especially on the small-to-mid-sized securities firms BDA represents. The letter argues that the impact of the current regulatory environment, which includes multiple rules that require ongoing, high-cost technology, operations and compliance expenditures, is a massive burden for dealers, especially smaller dealers. This severely disadvantages smaller dealers and harms the competitive landscape for issuers and investors.


BDA Member Fly-In Series
BDA hosts monthly member “fly-ins” to Washington, D.C. to provide valuable opportunities for BDA member firms to meet directly with Members of Congress, senior staff from key congressional committees, and top market regulators. These meetings ensure that BDA member firms are able to engage and learn from regulators and lawmakers. In-person meetings allow BDA members to gain valuable insight into the rulemaking process, to discuss existing legislative and regulatory proposals, and ultimately to advocate for BDA member priorities. If you are interested in participating in a fly-in for 2016, please contact the BDA. For a complete listing of our 2015 member fly-in series, click here.


BDA Participates in Tax Reform Working Group Roundtable
Earlier this year, the BDA participated in a roundtable hosted by the Senate Finance Committee’s Tax Reform Working Group on Community Development and Infrastructure.  The discussion at the roundtable centered around the various bond programs and opportunities for reform.  BDA was represented by Guy Yandel of George K. Baum & Company. For more information on that event, click here.


Congressional Roundtable on Fixed Income Market Liquidity
In July, Dan Leland of Southwest Securities (Hilltop Securities) participated–as the sole dealer representative–in a fixed income liquidity roundtable hosted by U.S. Representative Randy Neugebauer, Chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. You can view a video of the hearing here. The roundtable focused on liquidity issues in the bond markets, including:

  • Increased bank capital and liquidity rules and the Volcker Rule
  • The pros and cons of “all-to-all” electronic trading platforms
  • Standardization of fixed income issuance versus issuer flexibility
  • Fixed income market transparency and TRACE reporting


BDA 2015 Fixed Income Compensation Survey
The BDA is pleased to present the results of its 7th Annual Fixed-Income Compensation Survey.  It is our hope that the BDA 2015 Compensation Survey will serve as a valuable tool to enhance and inform your compensation management, strategic planning process and decision making.  Please contact us for the member-only access to this document.


BDA 2015 EVENTS

BDA roundtables, seminars, member fly-ins, events, along with the BDA National Fixed Income Conference allowed member firms to engage with key Capitol Hill policy makers, regulators, and fellow dealers to discuss significant market and regulatory issues.  BDA events heighten awareness of the key business, market, regulatory and legislative challenges that directly impact the fixed-income markets.


  • 3rd Annual Municipal Fixed-Income Legal and Compliance Roundtable, January 2015, Philadelphia, PA. This event, co-hosted with Morgan Lewis, featured presentations from the SEC, FINRA, and MSRB as well as dealer-to-dealer discussions about the most pressing topics facing our firms. To view the event recap, click here.
  • Fixed Income Sales Manager’s Meeting, January 2015, Memphis, TN. This event featured dealer-to-dealer discussions, as well as a presentation on Municipal Bond Information Services’ (MBIS) market data, reporting services, and comparable securities service. To view the event recap, click here.
  • Annual Strategy Session, February 2015, Dallas, TX. The event featured two days of discussions on the taxable, municipal and retail fixed-income markets, the evolving role of technology in fixed-income as well as an in-depth discussion of the political and regulatory outlook for the BDA in 2015. To view the event recap, click here.
  • National Municipal Bond Summit, March 2015, Ft. Lauderdale, FL. Co-hosted with The Bond Buyer, the National Municipal Bond Summit was widely attended by issuers, investors, broker-dealers, regulators, public officials, and other municipal market participants. To view the event recap, click here.
  • Municipal Market Seminar on Regulation, Compliance and Enforcement, May 2015, St. Louis, MO. This event brought together over 100 industry professionals who heard from the SEC, FINRA and MSRB who discussed their current rulemaking initiatives and recent regulatory developments. To view the event recap, click here.
  • Retail Fixed Income Roundtable, May 2015, St. Louis, MO. Hosting almost 50 firms, attendees discussed the issues most important to their businesses, including candid dealer-to-dealer discussions about ongoing regulatory challenges and the various approaches to maximize resources. To view roundtable recap, click here.
  • Fixed Income Legal and Compliance Roundtable, June 2015, Washington, D.C. The roundtable included robust discussions of the SEC’s MCDC Initiative, ongoing concerns with the SEC’s Municipal Advisor rule, enforcement trends and more. Attendees also heard directly from senior staff at the SEC and FINRA.  To view the event recap, click here.
  • Annual DC Board of Directors Trip to Washington, DC, June 2015, Washington, D.C. BDA Board of Director came to Washington, DC to meet with federal regulators, Members of Congress and senior staff on Capitol Hill. Specific meetings featured SEC Chair Mary Jo White, MSRB Executive Director Lynnette Kelly, and FINRA CEO Rick Ketchum. To view event recap, click here.
  • 2015 Institutional Fixed Income Roundtable, August 2015, Chicago, IL. This event, attended by heads of fixed income from over two-dozen middle-market firms, featured presentations on taxable market structure and liquidity and municipal credit market issues. To view the event recap, click here.
  • Fixed Income Legal & Compliance Roundtable, October 2015, Denver, CO. Over 30 BDA representatives and industry participants attended this event with candid dealer-to-dealer discussions about a variety of issues directly impacting business at member firms. To view the event recap, please click here.
  • Annual National Fixed Income Conference, October 2015, Denver, CO. This event garnered record numbers in attendees, exhibitors and sponsors. Attendees were given an opportunity to hear directly from FINRA, MSRB and the SEC during panel discussions and networking events. To see the event recap, click here.


ADDITIONAL NEWS

We’ve Moved!
As of December, 2015, the BDA has moved into new and expanded office space located in the heart of DC on K Street.  We invite you to visit us in our new office space as you plan your trips to DC in 2016. For a link to our official announcement and to include our new address in your files, click here.


BDA Continues to Add Members

BDA membership continues to grow year after year. In 2008, we launched our association with 14 member firms and are proud to say that in just over 7 years time, we’ve grown to over 56 members, including both full and associate members. In 2015, we welcomed the following firms as the newest BDA members:

Full Members

Associate Members


We hope this 2015 Year in Review was informative.  From all of us at the BDA, we want to thank you for your participation and dedication to our efforts and we are looking forward to an even more successful 2016!



BDA 2015 Year in Review-2

Bond Dealers of America 2015 Year in Review
Federal Regulatory & Legislative Advocacy

2015 REGULATORY INITIATIVES

During this period of massive regulatory change, BDA is focused on the highest priority regulatory issues impacting the U.S. fixed income markets and provides members with valuable opportunities to engage directly with regulators.

Bond Buyer Interview with BDA Chair Steve Genyk

In early 2015, BDA Board Chair Steve Genyk of Janney Montgomery Scott discussed the BDA’s 2015 municipal market priorities in an interview with the Bond Buyer. Genyk discussed maintaining the tax-exemption for municipal bonds and increasing the annual issuance limit for issuers of bank-qualified bonds as two key legislative priorities for the BDA. He discussed regulatory issues and noted the disproportionate impact of rules and enforcement actions on small and medium-sized firms.

Municipal Advisor Regulatory Regime

The SEC’s Municipal Advisor (MA) rule went into effect on July 1, 2014. The BDA worked closely with the SEC as it formulated the rule and the associated FAQs. The MSRB is currently engaged in completing the MA regulatory regime. BDA continues to work with our membership, the MSRB, and the SEC on amendments to Proposed Rule G-42 on duties of non-solicitor municipal advisors and we also look forward to the finalization of Proposed Rule G-37 dealing with pay-to-play rules for municipal advisors.

Municipal Advisor Rule One Pager for Issuers: In order to reduce confusion and misinformation in the marketplace, the BDA and retained counsel Nixon Peabody, created a market document for our members. The purpose of the document is to inform issuers on the new MA rule requirements applicable to market participants, including issuers. The market document is available to BDA member firms upon request.

FINRA 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. The proposal made changes in response to comments submitted by BDA in 2014 and creates exceptions designed to make dealer transactions with smaller customers workable within in the context of the rule. 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 will meet with the SEC in early January 2016 to discuss any outstanding questions or concerns.

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.

Market Impact of TRACE and MSRB Reporting Amendments

FINRA and MSRB updated the trade reporting requirements and processes throughout 2015. BDA commented on several proposals and regulatory changes.

  • Securitized Products: BDA commented on the market and liquidity impact of requiring real-time reporting of securitized products.
  • Trade Reporting Process: BDA commented on a new standard to require trade processes and procedures to report a trade ‘as soon as practicable’.
  • Market Data Sets: BDA commented on regulatory proposals to expand the offerings of new FINRA and MSRB data sets.
  • ‘No Remuneration’ Indicator: BDA commented to FINRA and MSRB on a new trade-reporting indicator that will go into effective in mid-2016.

FINRA Extended Settlement Initiative

In September, BDA met with FINRA to discuss FINRA’s intention to update guidance or engage in 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, which expands upon topics covered during BDA’s previous testimony, comment letter, and our in-person meeting.

Fiduciary Duty

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.

Due Diligence Webinar Series for Municipal Bankers

In light of increased scrutiny by the SEC and FINRA on the due diligence and documentation responsibilities of bankers in the municipal securities market, the BDA hosted a series of three webinars, exclusively for BDA member firms, focused on providing due diligence training for public finance bankers. BDA retained counsel Nixon Peabody led the webinar series, which featured senior legal and compliance representatives from BDA member firms. Audio files and slides from the three presentations are available to BDA member firms upon request.

BDA’s Wall Street Journal ‘Letter to the Editor’ on Regulation

In February 2015, BDA’s Letter to the Editor, ‘Killing the Non-Giant Competition’ was published in response to the Journal’s Commentary, ‘Regulation Is Good for Goldman’, which focused on remarks made by Goldman Sachs CEO, Lloyd Blankfein regarding the impact of the current U.S. regulatory environment on competition in the U.S. financial markets, especially on the small-to-mid-sized securities firms BDA represents. The letter argues that the impact of the current regulatory environment, which includes multiple rules that require ongoing, high-cost technology, operations and compliance expenditures, is a massive burden for dealers, especially smaller dealers. This severely disadvantages smaller dealers and harms the competitive landscape for issuers and investors.

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. The best execution rule requires municipal securities dealers to use “reasonable diligence” to identify the best potential trading venue for a particular security and then execute transactions in that venue to provide the customer with a price as favorable as possible under prevailing market conditions. 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.

Congressional Roundtable on Fixed Income Market Liquidity

In July, Dan Leland of Southwest Securities (Hilltop Securities) participated–as the sole dealer representative–in a fixed income liquidity roundtable hosted by U.S. Representative Randy Neugebauer, Chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. You can view a video of the hearing here. The roundtable focused on liquidity issues in the bond markets, including:

  • Increased bank capital and liquidity rules and the Volcker Rule
  • The pros and cons of “all-to-all” electronic trading platforms
  • Standardization of fixed income issuance versus issuer flexibility
  • Fixed income market transparency and TRACE reporting

High Quality Liquid Assets

In May 2015, the Federal Reserve requested comment on a proposed rule to include a certain subset of general obligation municipal securities as high quality liquid assets (HQLA) in the new banking liquidity rule. In July, the BDA submitted a comment letter recommending multiple improvements to the Fed’s proposal and urged the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) to work on a comprehensive final rule that includes all investment grade municipal securities.

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 by acting as unregistered dealers in performing private placements. By engaging in broker-dealer activities without registering as a broker-dealer or complying with the regulatory requirements of broker-dealers, investors are denied the protections of the broker-dealer 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. The policy recommendations included changing the timing of listed events, altering filing requirements for audited financial statements, 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. In addition, BDA recommended improvements to EMMA and highlighted confusion among issuers regarding their disclosure responsibilities.

2015 LEGISLATIVE INITIATIVES

BDA provides its members with in-person access to key Capitol Hill policy makers 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 and our members.

BDA Member Fly-In Series – BDA hosts monthly member “fly-ins” to Washington, D.C. to provide valuable opportunities for BDA member firms to meet directly with Members of Congress, senior staff from key congressional committees, and top market regulators. These meetings ensure that BDA member firms are able to engage and learn from regulators and lawmakers. In-person meetings allow BDA members to gain valuable insight into the rulemaking process, to discuss existing legislative and regulatory proposals, and ultimately to advocate for BDA member priorities. If you are interested in participating in a fly-in for 2016, please contact the BDA. For a complete listing of our 2015 member fly-in series, click here.

Protecting Tax-Exempt Bonds

BDA opposes any proposal to modify or eliminate the tax exemption applicable to municipal bonds. As Congress continues to consider tax reform, BDA continues to work with industry partners, including issuers and state and local groups, through the Municipal Bonds for America (MBFA) Coalition to preserve the tax exemption. In 2015, BDA wrote multiple letters to the Senate Finance Committee working groups about the value of the municipal bond tax exemption to U.S. infrastructure.

Fiduciary Duty Legislation

BDA wrote a letter of support for H.R. 1090, the Retail Investor Protection Act, which was introduced by Rep. Ann Wagner (R-MO). The legislation passed the House in October. BDA submitted this letter and met with Congressional staff to outline the need for legislation to promote a more harmonized rule making with the SEC in a lead role, not the DOL. H.R. 1090 would restrict the DOL from issuing a rule making related to establishing a fiduciary duty until 60 days after the SEC has issued a rule amending the standard of care applicable to dealers.

MBFA Legislative Day and Muni Bonds 101 Seminar – On July 21, 2015, the MBFA Coalition hosted a Capitol Hill fly-in and a Municipal Bonds 101 Seminar for Congressional staffers. MBFA members spent the day meeting with House and Senate leadership, tax-writing, budget, and banking committee staff discussing the benefits of municipal bonds and advocating to preserve their tax-exemption. You can find a recap of that event here.

Bank Qualified Bond Legislation

BDA worked with key Congressional offices to assist in the introduction of H.R. 2229, the Municipal Bond Market Support Act of 2015, which was introduced by Rep. Tom Reed (R-NY) and Rep. Richard Neal (D-MA). The bill would increase the BQ limit from $10 to $30 million, allowed the limitation to apply at the borrower level to allow for pooled financings and indexes the limit for inflation. BDA and other trade groups partnered to advocate for the bill and educate lawmakers and staff on Capitol Hill.

HQLA

BDA is working to advance legislation to include municipal bonds as High Quality Liquid Assets under the banking Liquidity Coverage Ratio. BDA worked with Rep. Messer (R-IN) who introduced H.R. 2209, which would classify municipal securities as Level 2A assets in the bank liquidity rule. As of December, the bill has passed the House Financial Services Committee.

BDA 2015 EVENTS

BDA roundtables, seminars, member fly-ins, events, along with the BDA National Fixed Income Conference allowed member firms to engage with key Capitol Hill policy makers, regulators, and fellow dealers to discuss significant market and regulatory issues.  BDA events heighten awareness of the key business, market, regulatory and legislative challenges that directly impact the fixed-income markets.

3rd Annual Municipal Fixed-Income Legal and Compliance Roundtable, January 2015, Philadelphia, PA.  This event, co-hosted with Morgan Lewis, featured presentations from the SEC, FINRA, and MSRB as well as dealer-to-dealer discussions about the most pressing topics facing our firms. To view the event recap, click here.

Fixed Income Sales Manager’s Meeting, January 2015, Memphis, TN.  This event featured dealer-to-dealer discussions, as well as a presentation on Municipal Bond Information Services’ (MBIS) market data, reporting services, and comparable securities service. To view the event recap, click here.

Annual Strategy Session, February 2015, Dallas, TX. The event featured two days of discussions on the taxable, municipal and retail fixed-income markets, the evolving role of technology in fixed-income as well as an in-depth discussion of the political and regulatory outlook for the BDA in 2015. To view the event recap, click here.

National Municipal Bond Summit, March 2015, Ft. Lauderdale, FL. Co-hosted with The Bond Buyer, the National Municipal Bond Summit was widely attended by issuers, investors, broker-dealers, regulators, public officials, and other municipal market participants. To view the event recap, click here.

Municipal Market Seminar on Regulation, Compliance and Enforcement, May 2015, St. Louis, MO. This event brought together over 100 industry professionals who heard from the SEC, FINRA and MSRB who discussed their current rulemaking initiatives and recent regulatory developments. To view the event recap, click here.

Retail Fixed Income Roundtable, May 2015, St. Louis, MO. Hosting almost 50 firms, attendees discussed the issues most important to their businesses, including candid dealer-to-dealer discussions about ongoing regulatory challenges and the various approaches to maximize resources. To view roundtable recap, click here.

Fixed Income Legal and Compliance Roundtable, June 2015, Washington, DC. The roundtable included robust discussions on the SEC’s MCDC Initiative, ongoing concerns with the SEC’s Municipal Advisor rule, enforcement trends and more. Attendees also heard directly from senior staff at the SEC and FINRA.  To view the event recap, click here.

Annual DC Board of Directors Trip to Washington, DC, June 2015, Washington, DC.  BDA Board of Director came to Washington, DC to meet with federal regulators, Members of Congress and senior staff on Capitol Hill. Specific meetings included, but were not limited to SEC Chair Mary Jo White, MSRB Executive Director Lynnette Kelly and FINRA CEO Rick Ketchum. To view event recap, click here.

2015 Institutional Fixed Income Roundtable, August 2015, Chicago, IL. This event, attended by heads of fixed income from over two-dozen middle-market firms, featured presentations from top municipal and taxable fixed income market analysts as well as discussion around the highest priority issues facing the U.S. fixed income markets. To view the event recap, click here.

Fixed Income Legal & Compliance Roundtable, October 2015, Denver, CO. Over 30 BDA representatives and industry participants attended this event with candid dealer-to-dealer discussions about a variety of issues directly impacting business at member firms. To view the event recap, please click here.

Annual National Fixed Income Conference, October 2015, Denver, CO. This event garnered record numbers in attendees, exhibitors and sponsors. Attendees were given an opportunity to hear directly from FINRA, MSRB and the SEC during panel discussions and networking events. To see the event recap, click here.


FOR A LOOK AHEAD INTO 2016 EVENTS, CLICK HERE

BDA 2015 Fixed Income Compensation Survey – The BDA is pleased to present the results of its 7th Annual Fixed-Income Compensation Survey.  It is our hope that the BDA 2015 Compensation Survey will serve as a valuable tool to enhance and inform your compensation management, strategic planning process and decision making.  Please contact us for the member-only access to this document.