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Regional Bond Dealers Form U.S. Trade Group

  • March 7, 2008
  • Shane Kite

Fourteen U.S. bond dealers said today that they have formed the Regional Bond Dealers Association (RBDA), a trade group devoted to the interests of regional fixed-income securities dealers.

The Alexandria, Va.-based organization will advocate public policies and market practices intended to improve the environment for its dealer-members. The association’s aim is to provide a stronger voice for a constituency that has for years complained of unsatisfactory representation from other groups focused on policy and operational issues.

“There has never been an organization dedicated to representing regional-sized fixed-income-focused firms,” said co-chief executive Michael Decker, who most recently was senior managing director of research and public policy at the Securities Industry & Financial Markets Association (Sifma). “These types of firms have fit with varying degrees of success into other trade associations that have existed, but there’s never been an outfit dedicated just to their needs and their perspectives.”

Decker’s co-CEO, Mike Nicholas--the two are the first staff members of the RBDA--was managing director in Sifma’s capital markets group, responsible for all regional dealer activities. Among the near-term issues Decker sees the group weighing in on are improving trade order management; amending tax policy governing municipal bonds; and ensuring that calls for applying more price transparency to bonds outside of corporates and munis, which already require price reporting, don’t result in policies that adversely affect liquidity.

Nicholas said in a statement that “last year, regional dealers underwrote over $340 billion of municipal, securitized, corporate and agency bonds. These firms serve a vital role in the market of bringing together borrowers and investors and providing market liquidity. In particular, regional bond dealers play a key role in financing the capital needs of innumerable public entities throughout the U.S.”

The RBDA’s founding members are Crews & Associates, Cronin & Co., Duncan-Williams, Fifth Third Securities, FTN Financial, GX Clarke & Co., Incapital, ML Stern & Co., Seattle-Northwest Securities Corp., Southwest Securities, Stone & Youngberg, Tejas Securities, Vining-Sparks IBG and Wells Fargo Brokerage Services. Membership is open to any regional securities firm that focuses on bond markets.

The chairman of the new association is Mark Medford, president and CEO of Memphis-based FTN Financial, a subsidiary of First Horizon National Corp. “We are looking forward to promoting public policies and market practices that will improve the bond markets and the business environment for regional firms,” Medford said in a statement. “We will also be focusing on forums for education, networking and discussion of opportunities and challenges unique to regional bond dealers.”

Kenneth Williams, president and CEO of San Francisco-based Stone & Youngberg, was elected vice chairman. Silas Matthies, EVP of Minneapolis-based Wells Fargo Brokerage Services, was named secretary-treasurer.

“Technology will definitely be on our agenda,” Decker said. “The firms that have joined the RBDA have identified some issues in technology that they’d like to address, such as developing, as a collective group, better systems for trade order management and other kinds of operational issues.”

“In terms of public policy,” he added, “we’ll definitely focus attention on amending tax policy to expand the use of municipal bonds by state and local governments.”

Specifically, the RBDA wants to loosen restrictions in the federal tax code that curtail how municipal bonds, which are exempt from federal taxes, can be used by state and local issuers. There are private use and arbitrage limitations that must be met for a qualified bond to be tax-exempt.

"Bond market price transparency is also on our agenda,” Decker said. That would include “looking at issues of market price transparency in the wake of the industry’s experience with Trace and municipal bond trade reporting, and some of the issues that have come up in the context of the subprime downturn and the credit crunch.”

Dealers must report their corporate bond trades to Trace, or the Transaction Reporting and Compliance Engine, which is a price reporting system operated by the Financial Industry Regulatory Authority (Finra). The Municipal Securities Rulemaking Board requires similar reporting. The regulators publish edited versions of some of the data.

“I don’t think there’s any expectation that Finra would roll back the Trace requirements any time soon,” Decker noted. “But the effect Trace has had on bond market liquidity is a concern among our members.”

Added Decker: “There’s also talk about applying some kind of trade reporting or price transparency system, whether it’s Trace or something else, to the market for mortgage- and asset-backed securities and structured and [other] products. If that ever became a serious proposal, it’s definitely something that the RBDA would have a view on. We would want to see any new trade reporting or price transparency system constructed in such a way that it was consistent with some of the unique characteristics of the securitized and structured products market.”

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