WASHINGTON — Larry Bowden, an executive at Little Rock-based Stephens Inc., has taken over as chairman of Bond Dealers of America as the group is recruiting muni market groups to form a new coalition that will lobby on tax-related issues, including threats to the tax-exempt status of municipal bonds.
| Larry Bowden |
Among those threats is a proposal in President Obama’s 2013 budget to cap at 28% the value of tax-exempt interest that high-income taxpayers can exclude from their taxable income.
In addition, members of Congress, including Sen. Ron Wyden, D-Ore., have introduced legislation that would authorize the use of tax-credit bonds for transportation projects.
BDA, which represents 52 middle-market, fixed-income securities dealers, expects the coalition will include dealers, academics, financial advisors and, crucially, issuers.
Bowden, 58, said in an interview that issuers can impress upon regulators and lawmakers that eliminating the tax-exempt status of muni bonds would mean higher borrowing costs, which would in turn be passed on to individuals in the form of higher rates for city services, such as sewer and water.
“We are going to have to get the local municipalities, as well as state governments, involved,” Bowden said. “If the cost of finance goes up, it will be passed along, all the way down to the individual rate-payers and taxpayers. It will impact everyone out there.”
Chief executive Mike Nicholas and Bowden said middle-market firms like BDA’s members would be disproportionately impacted if muni bonds lose tax-exempt status.
The group’s members tend to underwrite bonds issued by smaller cities and towns — municipalities like Little Rock, for instance, Bowden said. If muni bond interest becomes taxable, those issuers could have more trouble accessing the credit market than larger cities, he said.
Nicholas, who is organizing the tax coalition, declined to disclose its name or membership, but said more details will be released in the coming weeks.
Bowden said another of BDA’s priorities is to urge regulators to finalize municipal advisor rules to implement provisions of the Dodd-Frank Act, which gave the Securities and Exchange Commission and the Municipal Securities Rulemaking Board oversight over these advisors.
The MSRB proposed several of those rules with the SEC last year, but then withdrew them, citing the need for the SEC to finalize a definition of “municipal advisor.”
The SEC’s first crack at a definition was overly broad and drew protests from hundreds of muni market participants and lawmakers.
The agency had planned to include that definition in final registration rules for municipal advisors last year, but delayed the rules, saying they may not be completed until Sept. 30.
Bowden said muni advisor regulations will bring parity to the industry. Currently, municipal bond dealers that provide financial advisory services are regulated, but independent municipal advisors — those not affiliated with a dealer — are not.
“It’s strange that we are pushing for a regulation, but this … needs to be a level playing field,” he said. “If we are going to be regulated, then anyone providing that advice should be regulated, too.”
BDA is also concerned about the impact of the Volcker Rule, which Bowden and other muni market participants fear will prohibit banks from buying and selling municipal bonds issued by public agencies and authorities.
The rule is slated to take effect July 21 — two years after the Dodd-Frank Act was signed — but regulators have said they may not finalize rules to implement it by that deadline.
The BDA has urged federal regulators to explain how, or if, dealers’ obligations will change after July 21, if the implementation rules are delayed.
The group also wants muni bonds issued by authorities and agencies to be exempted from the Volcker Rule. Currently, only munis issued by governments would be exempt.
Bowden’s employer, Stephens, is not affiliated with a bank and would not be affected by the rule, but about 10 BDA members do have bank ties.
The rule “would limit their ability to participate in certain securities, which would then impact overall liquidity,” Bowden said.
One of the BDA’s overarching goals is to draw attention to the impact new regulations have on the industry, particularly on regional firms like the group’s members.
“One of our main issues is trying to keep a focus on the cost-benefit analysis of all the new regulations, because [they are] disproportionately impacting middle-market firms like ours,” he said.
And with regard to all of these new proposed rules, Bowden has a message for lawmakers and securities regulators. He said BDA’s firms didn’t cause the financial crisis, but have been swept up in proposals designed primarily to protect the economy from the actions of much larger financial institutions.
“Most of the firms that we represent, if not all of the firms, are not in a position to cause the next financial crisis,” he said. “We certainly weren’t creating the sub-prime issues and we weren’t creating the structured product. We don’t even come close to the leverage that most of the major firms have.”
Some of BDA’s firms have had to hire additional staff to comply with new regulations. And compliance costs, he said, have driven some firms out of business,
The group’s membership includes so-called middle market dealers like Chicago-based William Blair & Co., Miami-based J.W. Korth & Co., Jersey City, N.J.-based G.X. Clarke & Co. and St. Petersburg, Fla.-based Raymond James & Associates Inc.
BDA’s members range in staff size from less than 100 employees to more than 1,000. Some have offices only in the United States; others have national and international operations.
Bowden was raised in Helena, Ark., a port city on the Mississippi River, about 80 miles south of Memphis, Tenn.
He attended the University of Arkansas at Little Rock, and initially studied to be a doctor. He later changed focus, and graduated with a degree in psychology.
Bowden joined Stephens 32 years ago in the firm’s institutional sales division, where he focused on muni sales. He later managed fixed-income trading, worked in Stephen’s clearing division, which did business with a few hundred banks across the country, and was managing director of professional strategies in Stephen’s private client group.
Bowden has been director of the firm’s institutional fixed-incomes sales and trading division since 2006. He oversees a staff of about 120 employees.
He is married and has four children between the ages of 10 and 29. Bowden enjoys skiing, fishing and hunting, and, every year, stays with his family in the same rented vacation houses in Florida and Park City, Utah.
