The Municipal Securities Rulemaking Board (MSRB) announced in Regulatory Notice 2015-13 that it will be raising the fees assessed to its registrants (brokers, dealers, and municipal securities dealers (collectively “dealers”) and municipal advisors (collectively “regulated entities”), effective October 1, 2015. These fees are as follows: Rule A-11 (municipal advisor professional fee); Rule A-12 (initial and annual registration fees); Rule A-13 (underwriting, transaction and technology fees); and Rule A-16 (examination fee). The MSRB also charges data subscription and service fees for the direct electronic delivery of municipal trade data and disclosure documents associated with municipal bond issues. This information is available at no charge on the MSRB’s Electronic Municipal Market Access (EMMA®)2 website.
The MSRB’s current annual registration fee of $500 is paid by each of the over 2,000 regulated entities registered with the MSRB. While the annual fee amount has not changed since 2009, the share of total MSRB expenses defrayed by the annual fees has decreased from almost 5 percent in 2009 to 3.5 percent in 2014 despite the increase in the number of regulated entities.
In addition, approximately 35 percent of the entities registered with the MSRB as dealers do not regularly engage in any trade activity subject to fees under Rule A-13 and, as a result, the annual fee is the primary way these dealers share in the costs and expenses of operating and administering the MSRB. Thus, an increase in the annual fee from $500 to $1,000 provides for all regulated entities to more fairly contribute to defraying the costs and expenses of operating and administering the MSRB.
The MSRB’s current fee for initial registration under Rule A-12 is $100, an amount that has not been changed since its inception in 1975. During its holistic fee review, the Board concluded that an increase in the initial registration fee from $100 to $1,000 was reasonable to help defray a significant portion of the administrative and operational costs associated with processing an initial registration.
With organizational reserves (operating reserves and the technology renewal fund) currently above targeted levels and future year financial pro formas indicating declines in aggregate reserve levels (while remaining slightly above targeted levels), coupled with the increase in registration fees, the Board determined to decrease the underwriting fee from .003% ($.03) to .00275% ($.0275) per $1,000 of the par value. This decision was based on a number of reasons. First, the fee is based on the assessment factor (i.e., par value of underwriting) that is the most volatile year over year. Second, as noted above, underwriting fees are paid primarily by a small number of dealers, all of which also pay significant transaction and technology fees, making some relief to such firms equitable. Additionally, for each new underwriting, the sales of the initial offering are subject to all three market activity fees such that a decrease in the underwriting fee on initial bond sales is fair and reasonable.
To achieve adequate funding aligned with expense levels, the Board determined it would be reasonable to continue to assess a technology fee ($1.00 per transaction for each inter-dealer and customer sale reported to the MSRB), but that the revenue from the technology fee would no longer be designated exclusively for capitalized hardware and software expenses and should be aggregated and available for the most appropriate organizational uses.
The Board believes that, while effectively revenue neutral, the fee changes support the continuous and ongoing efforts of the MSRB to reasonably distribute fees among all regulated entities based on the level of involvement by brokers, dealers, municipal securities dealers and municipal advisors in the municipal securities market.
The implementation date for the annual and initial fee changes under Rule A-12 is October 1, 2015. Together the increase in the annual and initial fees will provide approximately $1 million in annual revenue which will defray the expenses of MSRB operations and allow the MSRB to lower underwriting fees by an offsetting amount to achieve a more balanced distribution of fees.
For further details and the complete regulatory notice, click here to read MSRB Regulatory Notice 2015-13.