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BDA Advocacy Agenda

POLICY UPDATE

April 2025

Tax Reform and the Tax Exemption

A key Republican policy priority for the 119th Congress is the extension of expiring 2017 Tax Cuts and Jobs Act (TCJA) provisions. Included in the expirations are all lowered individual rates, a driving force behind these discussions. Initial hurdles have been passed in recent days including last week the House passing the Senate budget reconciliation outline that calls for the use of the “current policy baseline,” which will allow for permanent extension of the TCJA cuts at no budgetary cost to the federal government. This remains a thorny issue for House conservative, however the initial hurdle of passage of the Senate outline cannot be understated.

Next Steps in Congress

The House and Senate continue to take steps to ass the Presidents one, big, beautiful bill with the House advancing the Senate outline prior to leaving DC for a 2-week Easter recess.

Next, Committee Chairs will get to work identifying vast cuts to offset the sprawling package. The House outline requires upwards of $2 trillion in offsets, a number likely to be disputed by their Senate counterparts who have less appetite for massive spending cuts.

Its now widely expected that the House will begin to release text of the bill and begin the mark-up process within the coming weeks, with Ways and Means eyeing the week of May 5th for their portion of the bill. Another thorny issue will be for how long to extend expiring provisions of the TCJA. The House budget outline allows for up to $4.5 trillion in deficit increasing measures, which budget experts believe will allow the extension of the TCJA for an additional 9 years.

Where Does the Exemption Stand

While the tax-exemption for municipal bonds has broad bipartisan support, in some conservative corners, the exemption is viewed a handout to state and local governments and allows them to overspend and overinvest in unneeded infrastructure. This coupled with outside think tanks producing menus off off-sets that typically include many tax-expenditures, including the tax-exemption as low hanging fruit to achieve these cut extensions. The tax exemption was named as a pay-for option in a leaked House Budget Committee document that listed 50+ pages of options for Congress to use. Along with the tax exemption for governmental bonds, the document singled out the tax-exemption for all private activity bonds, as well promoted revoking the federal subsidy for Build America Bonds. In late February, Congressman Rudy Yakym (R-IN), the Republican Chairman of the House Municipal Finance Caucus today stated in an interview with Bloomberg News that he is willing to go to bat to protect the tax-exempt status of municipal bonds during the ongoing tax debates. Mr. Yakym sits on the powerful Committee on Ways and Means which is currently being tasked with finding ways to extend the Tax Cuts and Jobs Act (TCJA) by years end. The BDA continues to work with Mr. Yakym’s staff providing technical assistance and helping him grow support for the Municipal Finance Caucus.

Chairman Hill Voices Support

House Financial Services Committee Chairman French Hill (R-AR) last week, along with all Republican HFSC Subcommittee Chairs, sent a letter of support for the tax exemption to House Ways and Means Chairman Jason Smith (R-MO). This followed discussions with the BDA, including direct conversations with the Chairman during our most recent fly-in.

The letter can be viewed here.

The Chairman stated:

Municipal bonds are a highly local tool with national reach. Between 2012 and 2021, over $4 trillion in municipal bonds were issued to finance public infrastructure. In an average congressional district, more than 1,400 individual public projects were funded by municipal bonds over the past decade.

We caution against any measures that could have unintended consequences on the municipal bond market for thousands of local governments and the constituents they serve. Preserving access to tax-exempt financing is especially critical for smaller and rural issuers, who often lack alternative pathways to affordable capital.

Tax-exempt municipal bonds have a proven track record of responsible, community-driven investment. They are a fiscally sound tool that enables state and local governments to meet the growing needs of their communities without increasing federal spending or burdening local taxpayers. Therefore, we urge your support in preserving the federal tax-exemption for municipal bonds.

BDA Advocacy for Munis and PABs

The BDA continues to meet with key staff on the Hill, including our 2025 fly-in series. In early February, the BDA along with representation from BDA member firms met with tax writers in both the House and Senate prompting the tax exemption and PABs. While the topics were well received and staff indicated at the time, all options remain on the table as Congress works to extend the TCJA. Beyond fly-ins and Hill meetings, the BDA has partnered with a coalition of issuer groups to form a PAB Working Group as tax-reform heats up and Congress continues to search for pay-fors. Partners include groups representing higher education, not-for-profit health care, and airports among other interested parties. The group is focused on information sharing and advocacy coordination working together with the broader Public Finance Network.

Legislation to Restore Tax-Exempt Advance Refunding Introduced

Congressman David Kustoff (R-TN) introduced legislation that would reinstate tax-exempt advance refundings. The Investing in our Communities Act was co-sponsored by 3 of his Ways and Means colleagues including House Municipal Finance Caucus Co-Chair Rep. Rudy Yakym (R-IN), Rep. Gwen Moore (D-WI), and Rep. Jimmy Panetta (D-CA). The legislation was introduced with the BDAs full support, and is being introduced at a critical time, as it shows the depth of Republican support to Committee Leadership as the House debates the budget reconciliation outline. It also cannot be understated that this legislation shines a light on a policy mistake from 2017, where tax writers eliminated this vital tool, in turn inhibiting economic development and capital improvement projects nationwide just to make the numbers work on paper. A mistake that Congress cannot afford to remake this year. More recently, Senators Wicker (R-MS) and Bennet (D-CO) introduced similar legislation in the Senate that would fully reinstate tax-exempt advance refundings.

One-Minute Trade Reporting

What’s new: FINRA and the MSRB announced recently that there will be a delay in releasing the compliance deadlines for rulemakings adopted last year that will require most dealers to report most bond trades to TRACE and RTRS within one minute with significant exceptions. Both agencies also announced that they will be seeking additional public comment on further changes to the amendments. We have had conversations with FINRA, for example, around changes they are pursuing to address the issue of reporting allocation trades for dually registered BDs/RIAs. BDA will seek to have both initiatives reversed.

Background: The SEC last year approved parallel rule changes from FINRA and the MSRB to shorten the time to report most trades to TRACE and RTRS from 15 minutes to one minute with significant exceptions. Both rulemakings specify that “manual” trades will need to be reported within 15 minutes of execution in the first year the rule changes are in effect, 10 minutes in the second and third years, and five minutes in the fourth year and thereafter. Both proposals also include an exception for firms that execute less than a de minimis number of TRACE or RTRS trades.

On July 21 BDA sent a letter in response to the final versions of the two then proposals. In our letter we told the SEC “BDA generally supports the two Proposals. However, that support is strictly contingent on the inclusion of the two exceptions in the final rule changes. Without those exceptions, the Proposals are unworkable. In addition, we are concerned that given limitations in current technology and market practice, dealers will be unable to report certain trades in less than 15 minutes even with the exceptions in place.”

Pre trade price transparency

What’s new: The MSRB recently withdrew a concept release on pre-trade price transparency. They were considering rule changes that would have required brokers’ brokers and ATSs to report quotes they collect from dealers to the MSRB for surveillance and study. The quotes would not have been publicly disseminated. Since FINRA had no parallel project under way, the withdrawal means this issue is dormant for now.

Background: The MSRB and FINRA have previously examined pre trade transparency. The MSRB issued research reports on pre trade in 2015, 2020, and again earlier this year. The SEC’s now-disbanded Fixed Income Market Structure Advisory Committee in 2020 recommended that the SEC “review developments in this area in the past decade, including the manner in which retail trades are executed, the roles played by market participants, including intermediaries and marketplaces, and the manner and breadth of information dissemination to retail investors.” The SEC’s 2012 “Report on the Municipal Securities Market” recommended any “ATS with material transaction or dollar volume in municipal securities” should “publicly disseminate its best bid and offer prices and, on a delayed and non-attributable basis, responses to ‘bids wanted’ auctions.” The Commission also recommended that the MSRB “could consider rules requiring a brokers’ broker with material transaction or dollar volume in municipal securities to publicly disseminate the best bid and offer prices.”

Best Execution

What’s new: The SEC has apparently abandoned its proposed Regulation Best Execution, a best execution rule that would have been in addition to existing FINRA and MSRB best execution rules. Two of the three commissioners who supported the initiative, including former Chair Gensler, left the Commission around Inauguration Day. BDA opposes the proposal and will seek to have it formally withdrawn.

Background: The SEC 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, and would encompass a large portion of fixed income trades overall. Conflicted trades would require dealers to survey even more markets than non-conflicted trades. BDA raised these concerns in our letter to the SEC.

SEC Rule 15c2-11

What’s new: Late last year the SEC issued a new staff no-action letter with respect to the application of SEC Rule 15c2-11 to quotations for fixed income securities excluding municipals. The no-action letter effectively exempts many fixed income quotations from the Rule as long as the securities being quoted meet certain criteria. The previous no-action letter on Rule 15c2-11, issued in 2023 and now repealed, was scheduled to expire on January 4, 2025. The newly issued letter does not have an expiration date.

While the SEC’s action is welcome and is indeed responsive to BDA’s requests from the Commission, the no-action letter does not solve the underlying problem of effectively amending Rule 15c2-11 outside the formal rulemaking process.

BDA will seek to have the SEC’s 2021 interpretation of Rule 15c2-11 reversed and to amend the Rule to make it explicit that it does not apply to bonds.

Background: In 2021 the SEC announced for the first time that Rule 15c2-11, a long-established rule in the OTC equity markets, also applies to quotations in fixed income securities. SEC staff then issued the temporary staff-no-action letter effectively exempting many bonds from the Rule if they meet certain criteria. The Rule requires traders, before publishing a quotation to a quotation medium, to review certain issuer financial information and ensure that information is available publicly.

Remote supervision

What’s new: FINRA recently announced that they are undertaking a regulatory review related to the “modern workplace.” This will include a review of remote supervision rules and will entail an opportunity for public comment. FINRA’s action is consistent with BDA’s requests to both FINRA and the MSRB to further amend remote supervision regulation.

Background: In January FINRA finalized changes to FINRA Rule 3110 related to remote supervision. The release announced that FINRA was terminating the COVID-related remote work relief that had been in place since 2020 and establishing a new, permanent regime for remote work involving new concepts of “Residential Supervisory Location.” It also announced the creation of a new voluntary “Remote Inspections Pilot Program.” On May 10 the MSRB issued their own changes to MSRB Rule G-27 designed to comport the MSRB’s treatment of remote work and supervision with FINRA’s changes. At its meeting on October 25, the MSRB Board discussed Rule G-27 and the industry’s response to changes.

Both FINRA’s and the MSRB’s rule changes are designed to provide flexibility to firms by permitting certain licensed employees to work and be supervised remotely under certain conditions and restrictions. One issue that has arisen with respect to the MSRB rule changes is the divergent treatment of public finance bankers who may also work as Municipal Advisors and the employees of non-dealer MA firms. Another is the need for traders’ homes to be designated as Offices of Supervisory Jurisdiction (OSJs).

MSRB Rate Card

What’s new: The MSRB has issued a “Request for Information on the MSRB’s Rate Card Process.” This RFI represents the next step in the MSRB’s work on developing a sustainable and fair system for collecting fees from regulated entities. BDA filed a letter in response in January.

Background: The MSRB in December 2023 filed with the SEC their “Rate Card,” for 2024, the rates for the fees charged by the MSRB to dealers and MAs. The fee rates took effect on January 1, 2024. On January 29, the SEC suspended the 2024 Rate Card proposal and initiated disapproval proceedings, which likely would have led to the Proposal being rejected. As a result, the MSRB’s 2023 fee rates took immediate effect. Since the SEC’s suspension, the MSRB has withdrawn its 2024 Rate Card entirely, meaning that the 2023 fee rates will remain in effect for the foreseeable future, at least through 2025. MSRB staff have informed BDA that the Board has initiated an overall review of the Rate Card system and the MSRB’s processes around budgeting and fee setting.

Financial Data Transparency Act

What’s new: A joint agency rulemaking, the first formal regulatory action in implementing the Financial Data Transparency Act (FDTA), was released last year by the OCC, Fed. FDIC, NCUA, CFPB, FHFA, CFTC, SEC, and Treasury. The agencies have proposed to require securities issuers to use both Legal Entity Identifiers (LEIs), a system of entity identification, as well as Financial Instrument Global Identifiers (FIGIs). FIGI is a non-proprietary system of securities identifiers which was developed as an alternative to CUSIPs.

BDA filed a comment letter on the proposal. In our letter to the SEC we said “BDA supports the goals of the Proposal. We believe the data standards contained in the Proposal generally meet the statutory requirements imposed by Congress in the FDTA and are reasonable.” We also said “While we do not oppose the use of FIGI for the purpose of the FDTA, we oppose any additional mandated use of FIGI in securities regulation without a thorough legal and economic review.”

Background: In 2022 Congress enacted the FDTA as part of the National Defense Authorization Act. The Act is designed to promote the interoperability of data provided to financial regulators. The regulatory proposal would establish certain cross-agency data standards. One element, a standard for financial instrument identification, would use the Financial Instrument Global Identifier scheme instead of CUSIP.

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.

One concern about the proposal is that at some point in the future the SEC may expect dealers to police municipal 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.