BDA Advocacy Agenda

Federal Policy Focus
APRIL 2022

Infrastructure and Municipal Bonds
Following extensive Congressional action on infrastructure in 2021 that included a substantial expansion of Private Activity Bonds, talk of additional measures this spring has slowed drastically. The bipartisan infrastructure package that provided PAB use expansion for broadband and carbon capture, as well doubled the high bond cap, was meant to set the stage for additional and more robust infrastructure legislation this year. However, at this time it seems that Congressional Democrats cannot find a path forward.
Build Back Better Social Infrastructure Package
Following passage of the Bipartisan Infrastructure Framework, Congress continued to press forward on a sprawling social infrastructure spending package early last fall , the Build Back Better Act. Initial drafts that totaled nearly $3.5 trillion in new spending included a vast expansion of municipal finance tools.
These provisions included:
  • The reinstatement of tax-exempt advance refundings
  • Raise the BQ debt limit to 30 million and tie it to inflation,
  • Creation of a new direct-pay bond with a varied reimbursement rate from 35%-28% over its life span, and
  • Expand the definition of exempt facility bonds.
To reduce spending and attract Senate moderates, all muni provisions were removed from the package while also removing provisions not directly impacting health care, education, or climate brining the overall price tag to $1.75 trillion.
However, this slimmed packaged failed to court Senate Democratic moderates.
Currently, prospects for Build Back Better appear slim, albeit revived somewhat. The three pillars of this potential bill are:
-Climate Change -Prescription Drug Prices, and -Deficit Reduction.
While munis do not fit neatly into any of these pillars, we do believe that if this deal materializes, there will be a focus on tax reform, potentially rolling back some changes that the Tax Cuts and Jobs Act enacted. We continue to press for inclusion of muni priorities, and in this case tax-exempt advance refundings are a logical fit and that House Ways and Means Chair Richard Neal (D-MA) continues to vocally support this measure.
Senator Manchin (D-WV) continues to drive the narrative recently signaling that he would be open to restart negotiations. It seems that the Senator is interested in a narrow, $500 billion dollar bill.

Potential Lame Duck Spending Package We also continue to work with our partners on Capitol Hill and within the issuer community to monitor and lay groundwork for inclusion of key muni provisions into the potential lame duck spending package that would follow the November midterm elections.
Congress recently passed a funding measure that will keep the government fully funded through late 2022, setting the stage for the additional spending bill. While odds for inclusion of key muni provisions into a lame duck bill are low, we are told on the Hill that this is a possible avenue, and it is being discussed.
FINRA 4210 Amendments On January 20 the SEC approved amendments to FINRA Rule 4210 governing customer margin. The amendments require dealers to collect customer margin or take a capital charge in lieu of margin for most new-issue agency MBS transactions (Covered Agency Transactions, or CATs). BDA has submitted a request for commission review of the amendments, and that request is still pending at the SEC.
During Commission consideration, the SEC used an intensive review process known as a “proceeding.” Typically, this involves a review of the proposal by the commissioners’ offices themselves. But in this case, the commissioners delegated that review to the staff of the SEC’s Division of Trading and Markets before approving the amendments in January. That important procedural detail opened the door to BDA, together with BDA member Brean Capital, to request a Commission-level review of the FINRA amendments.
That request, which is still pending, has the effect of staying the SEC’s January approval decision. If the Commission decides to undertake a review per our request, their approval of the CAT amendments would be delayed until the completion of their review. If they decline, the approval decision would stand. The only option available to opponents in that case would be litigation.
In the context of the proceeding, BDA together with Brean Capital filed a brief reiterating our opposition to the proposal. (BDA's Comment Letter.) We also filed a comprehensive brief in support of our request for a Commission review. (BDA’s brief.)
On March 3 FINRA approved an amendment to Rule 4210 extending the compliance deadline for extended settlement trades to October 26, 2022.
FINRA in 2021 issued a second concept release which would apply margin requirements to when-issued transactions that settle outside normal settlement windows (BDA's comment letter). We told FINRA that the Rule under both proposals would severely disadvantage regional and middle-market firms.
SEC Proposal to Amend Rule ATS On January 26 the SEC proposed comprehensive amendments to their SEC Rule ATS, the regulation which governs certain electronic trading platforms. Comments are due on April 18, and BDA has engaged with the law firm of Steptoe & Johnson on our response. The SEC proposal is enormous and would represent the biggest change to Rule ATS since it was adopted in 1998. The proposal would require ATSs which support trading in government securities, currently exempt from the Rule, to register with the SEC and come under regulation. It would also create a new category of registrant, Communication Protocol Systems, to apply to platforms which may support connecting buyers and sellers but not actual trade execution. BDA’s response will focus on several aspects of the proposal related to fixed income. First among these will be that single-dealer trading platforms should be treated in regulation as broker-dealer and not ATS activity.
Corporate Syndicate Rule On November 11, 2021 FINRA issued Regulatory Notice 21-40, a proposed change to FINRA Uniform Practices Rule 11880 to shorten the deadline for syndicate managers to settle syndicate accounts and pay comanagers from 90 days after deal closing to 30. BDA in January filed a comment letter in support of the proposal. We filed a second comment letter in March addressing some unsupported statements made in an opposing letter. The FINRA Board is expected to take up the proposal at its May 2022 meeting. BDA’s comment letters are here and here.
BDA has been pursuing a change in regulation to address a mismatch between the SEC Net Capital Rule and FINRA Rule 11880 which governs the settlement of syndicate accounts on corporate bond and equity issuances. FINRA rules allow syndicate leads managers 90 days after deal closing to close syndicate accounts and pay out funds to co-managers. However, the SEC capital rule specifies that syndicate receivables cannot count towards regulatory capital compliance. So, co-managers funds are locked up for 90 days after deal closing until the syndicate account is closed.
BDA and a group of CEOs of minority-, women-, and veteran-owned firms recently met last year SEC Chair Gary Gensler on the issue, and Chair Gensler indicated his support for reducing the 90-day deadline of the FINRA rule.
SEC Rule 15c2-11 On December 16, 2021 the SEC issued a staff No-Action letter related to SEC Rule 15c2-11. The No-Action letter lays out a plan for SEC enforcement of Rule 15c2-11 with respect to quotations for fixed income securities.
The No-Action letter presents a three-phase approach to enforcing Rule 15c2-11 in the fixed income markets. In Phase 1, which began on January 3, 2022, dealers are required to make a determination that securities fall under the set of products which the SEC has exempted from the Rule. Under Phase 2 in 2023, 144A securities where issuer financial disclosures are not available publicly would no longer be exempt from the requirements of the Rule. Under Phase 3, which would begin in 2024, published quotations for securities exempt from the Rule will need to also display a link to issuer disclosure information on the screen.
SEC Rule 15c2-11 requires dealers to review issuer financial information prior to publishing quotes to “quotation mediums” for over-the-counter securities. 2020 amendments to the Rule specify that the issuer financial information must also be publicly accessible.
In September the SEC issued a staff no-action letter confirming that Rule 15c2-11 does indeed apply to relevant fixed income quotations and specified that they will begin enforcing the Rule with respect to fixed income on January 3, 2022.
BDA has been working with SIFMA on this issue. There is currently a joint BDA-SIFMA working group focused on identifying and addressing key compliance questions associated with applying 15c2-11 to fixed income quotations.
MSRB draft compliance resource for new issue pricing
The MSRB recently requested comment on a draft compliance resource related to dealer and MA duties with respect to new issue pricing. BDA filed a generally supportive comment letter in January.
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