RBDA Slams CUSIP Bureau Over Fees

WASHINGTON - The Regional Bond Dealers Association has launched an attack on what it calls the CUSIP Service Bureau's "aggressive campaign to extract licensing fees" from muni market participants, claiming the bureau is trying to "prohibit, restrict and exploit" the use of Cusips, which are purchased by issuers and required by the market.

The RBDA yesterday sent a letter to the Securities and Exchange Commission urging it, at a minimum, to permit dealers to use Cusips that are required by regulators, exchanges or clearing and settlement utilities without having to obtain approval from, or pay licensing fees to, the CUSIP bureau, which is operated by Standard & Poor's under the direction of the American Bankers Association.

"Clearly, it is the intention of S&P and the ABA to exploit our industry's standard identifier in order to levy a toll on the majority of securities transactions, statements, disclosures and electronic searches that occur every day in the United States," the RBDA said in the letter.

"They pursue this with no significant accountability to, or oversight by, regulators or the securities industry. Not only is this contrary to the goals of transparency and investor protection but, if successful, will further increase costs to investors and market participants."

"The service bureau's tactics are starting to have a chilling effect on the free flow of information," warned RBDA co-chief executive officer Michael Decker.

Cusips are used to identify government and municipal securities as well as stocks of all registered U.S. companies. The term stands for Committee on Uniform Securities Identification Procedures, referring to a committee established by ABA in 1964 at the request of industry clearing corporations. Market participants commonly refer to the "CUSIP bureau," though its name was formally changed last year to CUSIP Global Services.

Though issuers have always had to purchase Cusips, the RBDA said the CUSIP bureau has begun an aggressive campaign to coerce additional fees from market participants. Initially, they sought the fees from clearing brokers but in the last few years, "this campaign has been extended to smaller dealers and institutional investors," the group told the SEC. The RBDA also noted that the European Commission, the executive branch of the European Union, is reportedly investigating the CUSIP bureau for these practices.

Decker said the RBDA is not quarreling with the initial fees that CSB charges issuers for Cusips, but rather with the growing number of licensing fees that it is charging dealers and other market participants.

"Beyond [those initial] fees, the CSB has attempted to force restrictive language regarding the use of Cusip identifiers into thousands of service agreements between information providers, vendors, dealers, investors, regulators, and credit rating agencies - sometimes with success and sometimes not, depending on the sophistication and strength of the dealer, investor or information vendor," the RBDA said.

Decker said the SEC could use its "broad market influence" to get the bureau to voluntarily back off from being so aggressive in pursuing its licensing fees.

"If that's not practical or successful, perhaps the SEC needs to have some sort of formal jurisdiction over market entities like the bureau that provide a service that's really integral to market transparency and liquidity," he said.

Decker added: "The function of providing numbers is relatively low-tech and not a high-value service and it's really inappropriate for ABA and the Cusip service to try to monetize that function to the extent that they are."

In a lengthy written response, Michael Privitera, a spokesman for CUSIP Global Services, said that RBDA's letter "misrepresents the services and practices" of his firm.

"It is unfortunate that RBDA did not bring this matter directly to the attention of the American Bankers Association or CUSIP Global Services in order to discuss their concerns in a constructive and business-like manner," the statement said. "Contrary to the statements made by the RBDA, for over 30 years, CGS has entered into reasonable and customary license agreements with users of its database services and has been charging reasonable and non-discriminatory licensing fees for providing convenient access to its proprietary databases."

But one industry participant who asked not to be named said that, since every Cusip is paid for when it is assigned, "it's kind of mysterious then that there's additional charges being imposed."

"The thing we're seeing now is apparently a bunch of lawyers hired by the ABA are making the whole conversation much more legalistic and much more uncomfortable," the industry participant said.

The RBDA's letter comes about a month after the MSRB reached an agreement with the ABA over the use of Cusips on EMMA, the board's central repository for primary and continuing market disclosures. ABA had warned that its intellectual property and contractual rights would be violated without an agreement.

Though the terms of the MSRB agreement were not disclosed, pricing information available on the bureau's Web site indicates that the bureau charges some firms annual fees of $90,000 or more for Cusip service agreements, on top of the fees issuers pay for their securities to be assigned a Cusip.

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