The 2023 rulemaking agenda for both the Securities and Exchange Commission and Municipal Securities Rulemaking Board will be dominated by pre-trade, post-trade, and time of trade regulations and the complications involved in the Commission adopting its own best execution rule.

SEC Chair Gary Gensler has altogether 35 proposed rulemakings outstanding across equity and fixed income markets and will likely continue his administration’s hard stance well into next year. Some of these regulations have the potential to directly affect the municipal market, while others affecting only other markets may be a sign of things to come for munis.

“The industry has been dealing with a very aggressive, voluminous rule proposal environment and some of that affecting the fixed-income market,’ said Kenneth Bentsen, president and chief executive officer at the Securities Industry and Financial Markets Association.

“The MSRB is going to be principally focused in two areas,” said Mark Kim, chief executive officer of the MSRB. “The first is to continue the coordinated rulemaking that the MSRB has been doing with the SEC and FINRA, in the area of fixed-income market structure. And the way that we are looking at market structure issues are through a pre-trade lens, through a time of trade lens, and through a post-trade lens.”

The Board’s efforts will include analyzing responses to its recent request for information on MSRB Rule G-14 on pre-trade data, which garnered 53 comments and immense concern from the broker-dealer community. Broker-dealers told the board the proposal would provide virtually no benefit to the market and potentially eliminate voice brokerage and therefore reduce liquidity in the areas of large blocks trades, small retail trades and high yields.

“This would also potentially reduce liquidity by putting smaller broker dealers who cannot afford or do not want to pay for a vendor out of business and whenever you take market participants out of the marketplace, you’re reducing liquidity,” said Leslie Norwood, managing director and associate general counsel at SIFMA. “We do have serious concerns about that and we are looking forward to seeing what the regulators come back with after they review all of the comment letters.”

SEC Chair Gensler has also mentioned shortening trade reporting times during speeches many times in recent years

Next steps on G-14, Kim said, include coordination with the SEC and FINRA, additional data analysis of post-trade data and extensive outreach to the broker-dealer community to try and understand the difficulties of complying with a one-minute reporting window.

Early in the New Year the MSRB will be issuing a request for comment on Rule G-47 on time of trade disclosures, which will propose to expand specific disclosures made at the time of trade. With respect to pre-trade data, the board is still in the initial stages of its review but will continue to engage with the industry.

“The second major initiative that I would describe for the MSRB with respect to rulemaking is going to be to continue the efforts we have made in our initiative to modernize our rulebook,” Kim said.  “And as part of this effort, we’re going to continue to be looking at our body of interpretive guidance that supports our rules, and making sure that guidance remains relevant, that it reflects current market practices and that it helps facilitate compliance with our rules.”

The board also has requests for comments out on draft amendments to Rule G-32 to streamline deadlines for submitting information on Form G-32, due Jan. 17, and a request for comment out on G-3 on professional qualification requirements that would create an exemption for municipal advisor representatives requalification exams, due on Jan. 30.

But one of the biggest questions of the New Year stems from the SEC’s recently proposed Regulation Best Execution, which was introduced at an open meeting Dec. 14.

Many were quick to point out the already robust Best Execution regulations on the books at both the MSRB and FINRA and the potential conflicts that may arise from a new rule from the Commission. Even more is being unearthed as the market sifts through the over 400 pages of proposed regulation.

“Interestingly, if you get back to page 360, out of the 440 page proposal, they do mention that a reasonable alternative might be to just adopt FINRA, 5310 and MSRB G-18 as a reasonable alternative to creating their own new role,” said Norwood.  “I think as we dig into this and get our comment letter going, not just on this piece, but on the other three pieces that were proposed by the SEC, certainly that seems like a reasonable approach.”

“I can’t get ahead of my members but the fact that FINRA and the MSRB already have outstanding rules on best execution and of course, both rules are currently enforced by FINRA makes it interesting that the SEC felt the need to propose its own different, similar but different best execution rules,” Norwood said. “So that and other market structure proposals are really going to be the theme for next year in my mind.”

SIFMA’s Bentsen hopes that we don’t end up with multiple best execution rules, which he described as “problematic.”

“It is not merely the existing MSRB rule,” Bentsen said. “It’s the MSRB rule/FINRA rule marked up and they’ve added three or four additional things. Our concern is it goes from being a principles based approach to a very prescriptive approach, which could have all sorts of consequences, but we’ll have to see.”

The MSRB is knee deep in analyzing the SEC’s proposed best execution rule but did say that whatever the end result regulation may be, it could cause riptides across existing regulations.

“Of course, the SEC is going out for comment on its rule, and it may very well decide to amend parts of its rule before it finalizes the rulemaking,” Kim said. “I would imagine that in any scenario, the MSRB will need to amend our rule in some fashion as a result of the SEC adopting a best execution rule,” he added. “I don’t think it would be realistic to think that our rule would be able to remain as it’s currently written.”

The year 2022 was dominated by discussions around environmental, social and governance considerations in the muni market, largely driven by the MSRB’s request for information on the topic and although there are no concrete proposals that would affect munis, Norwood believes it will continue to be a discussion point in the industry in 2023.