Drop in Dealer Num­bers Raises Some Con­cerns

The Bond Buyer - - Front Page - By Kyle Glazier

WASH­ING­TON – Con­cerned about the ex­o­dus of deal­ers from the mu­nic­i­pal se­cu­ri­ties busi­ness, of­fi­cials from self-reg­u­la­tory or­ga­ni­za­tions say they don’t want reg­u­la­tions to be the rea­son smaller firms in par­tic­u­lar are merg­ing with oth­ers or fold­ing their muni desks.

Mu­nic­i­pal Se­cu­ri­ties Rule­mak­ing Board Pres­i­dent and Chief Ex­ec­u­tive Of­fi­cer Lyn­nette Kelly and Fi­nan­cial In­dus­try Reg­u­la­tory Au­thor­ity Pres­i­dent and CEO Robert Cook ex­pressed those sen­ti­ments Fri­day while on a panel at the Bond Deal­ers of Amer­ica’s Na­tional Fixed In­come

Con­fer­ence here.

In a dis­cus­sion with BDA CEO Mike Ni­cholas, the two reg­u­la­tors dis­cussed why they worry about deal­ers leav­ing the mar­ket.

The num­ber of MSRB-reg­is­tered deal­ers has fallen by al­most one-third since 2009, ac­cord­ing to an MSRB re­port re­leased ear­lier this year.

There were 1,346 MSRB-reg­is­tered deal­ers last year, down from 1,967 in 2009. The trend was due to a com­bi­na­tion of merg­ers and ac­qui­si­tions in the busi­ness and the exit of smaller muni firms, ac­cord­ing to the board.

Cook said Fri­day that while many mar­ket par­tic­i­pants might tend to worry most about liq­uid­ity be­ing af­fected by a de­te­ri­o­rat­ing dealer com­mu­nity, the prob­lem could go be­yond that.

Dealer firms pro­vide jobs and con­trib­ute to their economies lo­cally, he pointed out, and FINRA wants that to con­tinue.

“We want to have an environment where small busi­ness can pros­per,” Cook said. “We do care about small firms.”

Cook said FINRA is open for com­mu­ni­ca­tion from the in­dus­try at any time, but al­ready spends time eval­u­at­ing whether its rules need to dif­fer­en­ti­ate for smaller firms, or whether smaller shops need more compliance sup­port.

The MSRB re­port showed that trade ac­tiv­ity and mar­ket size have been rel­a­tively stable de­spite the ex­o­dus of deal­ers from the mar­ket, but Kelly said she still has some con­cerns.

“The risk of par­tic­i­pat­ing in the mu- nic­i­pal mar­ket is get­ting higher and higher,” Kelly said, ref­er­enc­ing the MSRB’s pre­vi­ous find­ings. “What I worry about is reg­u­la­tion shouldn’t drive the busi­ness model or the size of firms.”

Kelly also said the MSRB wants to be help­ful to small firms. It is mak­ing compliance sup­port a pri­or­ity and is also un­der­tak­ing re­views of its ex­ist­ing rules.

Kelly men­tioned the board’s Rule G-23 on the ac­tiv­i­ties of fi­nan­cial ad­vi­sors as one that could be ripe for re­view.

The rule, which bans a firm from serv­ing as a fi­nan­cial ad­vi­sor and un­der­writer on the same trans­ac­tion, was con­tro­ver­sial with deal­ers from the start and many have com­plained that there is not enough clar­ity around it.

“G-23 is def­i­nitely at the top of our list,” Ni­cholas told Kelly.

The BDA con­fer­ence con­cluded Fri­day. ◽

“What I worry about is reg­u­la­tion shouldn’t drive the busi­ness model or the size of firms,” said MSRB Pres­i­dent and CEO Lyn­nette Kelly.

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