Broker dealers are divided over whether small firms should be dealt more relaxed regulation and compliance standards, or be subject to uniform standards that treat large Wall Street banks and single person firms the same in the eyes of the Municipal Securities Rulemaking Board.
The dueling sentiments came through in response to the MSRB's request for information on how its rules affect small firms. Initial comments
"BDA does not believe smaller firms should face relaxed or different regulations or compliance standards than larger firms," wrote Michael Decker, senior vice president of research and federal policy at the Bond Dealers of America. "There is no justification for a reduced standard for investor or issuer protection for some but not all BDs active in the market. Instead, we urge the Board to consider how its potential rule changes would affect all market participants, including smaller BDs, and to write rules which do not impose unreasonable compliance standards on any market participant, big or small. This is especially important with respect to implementation periods for regulatory changes."
"In many cases, it may reasonably take smaller firms more time to implement rule changes than larger firms due to fewer resources available for the task," the BDA letter said. "We urge the Board to consider the effects of its rule amendments on those firms that would be particularly challenged and to gauge implementation times to ensure all firms are able to be fully compliant on a rule's effective date."
Decker also noted that amendments to MSRB Rule G-14 on time of trade includes exceptions not based on the size of the firm but on a firm's level of municipal securities trading activity, and that going forward exceptions like this one may "benefit smaller firms seeking to comply".
Other commenters took the opportunity to lay at regulators' feet least some blame for the difficulties broker-dealers have been having in the municipal securities market over the past twelve or so years.
"In recent years, the municipal securities market has not only seen the loss of small firms in the industry, but also major firms exiting the municipal securities market," wrote Leslie Norwood, managing director, associate general counsel and head of municipal securities at the Securities Industry and Financial Markets Association. "While such decisions usually are not attributed to solely one factor, regulatory changes driving compliance, operation and administrative burdens, and the commensurate costs are most certainly a major contributing factor," she added, noting that the effects on liquidity of these exits may not be apparent in calm times, but come to the fore during moments of crisis. "The MSRB should continue to track the number of market participants, as well as the size of their balance sheet committed to making markets in municipal securities, to monitor the robustness of the market."
"Our members cannot say this strongly enough: there is a tipping point at which the additional costs for broker dealers to provide marginal improvements in transparency to investors makes the municipal market no longer a good use of the broker dealer's capital," wrote Norwood.
