Legislation that would return control of the Municipal Securities Rulemaking Board to industry members would be "a step in the right direction" the Bond Dealers of America's chief executive officer told U.S. House lawmakers on Thursday.
BDA CEO Mike Nicholas was among witnesses who testified during a hearing on "The Role of Self-Regulatory Organizations in U.S. Markets: Examining FINRA and the MSRB," which was held by the Subcommittee on Capital Markets of the U.S. House Committee on Financial Services.
In his opening statement for the March 5 hearing, Rep. Andrew Garbarino, R-N.Y., said the Financial Industry Regulatory Authority, which "today regulates approximately 3,500 firms and 620,000 brokers," and the MSRB, which "writes the rules" for the $4 trillion municipal securities market, aren't "minor organizations."
"They sit at the center of how American capital markets function," Garbarino said. "The decisions they make about what rules apply, how they are enforced and who bears the costs have real consequences for businesses of every size and the investors they serve."
Consequently, "Congress has a duty to periodically ensure these organizations are still serving [their] original purpose," he said. To their credit, both FINRA and the MSRB have recently taken steps to modernize their own practices, which Garbarino said is a "constructive sign." Still, "self-examination has limits," he said, adding that it's up to Congress – not the SROs – to gauge whether the framework remains sound.
"I want to be clear: This hearing is not an argument against self-regulation," Garbarino said. "The question is whether FINRA and the MSRB still resemble what Congress authorized or whether they have become something Congress never intended."
Rep. Brad Sherman, D-Calif., the subcommittee's ranking Democrat, said "the policy issue before us is whether the SROs should be folded into the" Securities and Exchange Commission. Sherman described himself as a "very faithful agnostic on that issue."
"I do not know," he said. "On the one hand … any political scientist would tell you that government authority and power should be vested in the government, and ultimately accountable to the American people through the electoral process."
While he realizes that "the SEC is not an office for which you run, … those on the SEC, and particularly its chair, are appointed by the president and confirmed by Congress," Sherman said.
"The SROs are several steps away from that, and no political scientist would embrace that as a good model," he said. "On the other hand, … if it's not 'broke, don't fix it.' [We've] got plenty to do in this committee, and if it's working well, let's go on to look at something that's working not so well."
BDA "strongly supports FINRA and the MSRB remaining independent self-regulatory organizations," Nicholas said.
"The SRO model, when functioning properly, brings market expertise and operational flexibility that government agencies alone cannot replicate," he said.
For the subcommittee, the question before it isn't "whether we need SROs, but whether they are performing their roles with appropriate regard for cost, market structure, transparency and efficiency," Nicholas said.
While it views the MSRB's new rate card fee structure "as a constructive step" toward transparency, BDA has concerns about MSRB "governance and resource management that have persisted for years and demand attention from this subcommittee," BDA's CEO said.
"Broker-dealers fund the majority of the MSRB's budget – almost 80% in 2025 – through underwriting, transaction and technology fees," Nicholas said. "On governance, the MSRB board includes seats, including this year's vice chair, for non-dealer municipal advisors, firms that advise issuers, but do not underwrite or trade."
BDA doesn't object to municipal advisors having representation on the board, "in fact, we encourage it," he said.
"But as a group, municipal advisors contribute only a small fraction of total MSRB fee revenue, 6% in 2025," Nicholas said. "That imbalance between fee contribution and board influence is a structural problem that has persisted and been unaddressed for years."
During the hearing, Garbarino prefaced a question to Nicholas by saying that for the first 35 years after Congress created the MSRB, there was no statutory requirement that a majority of the board be made up of public members. That changed in 2010 when the Dodd-Frank Wall Street Reform and Consumer Protection Act required that a majority of the board represent the public, he said.
Public members include all of those who are not representative of entities regulated by the MSRB, regardless of whether they have government or non-government jobs.
"Legislation before us today, the [Municipal Securities Rulemaking Board] Reform Act, would revisit that requirement and change the board's composition," said Garbarino, who asked Nicholas if the legislation would "represent a return to Congress' original approach to MSRB governance."
BDA believes it would be "a step in the right direction," Nicholas replied.
On Feb. 26, U.S. Sen. John Kennedy, R-La., introduced the Municipal Securities Rulemaking Board Reform Act of 2026 in the Senate. A March 2
"It's important to have public members on the board, no doubt about it," Nicholas said, adding, however, the MSRB "being a public member-controlled board, we think … is a misstep."
When the board is dominated by public members, "there's invaluable expertise that it's missing," Nicholas said.
"The impact [of] switching to an industry-controlled board we think would be positive for everyone, including individual investors," he said.
