MSRB Files Rule Change With SEC to Raise Annual Fee

WASHINGTON — The Municipal Securities Rulemaking Board has filed a proposed rule change with the Securities and Exchange Commission that would raise the board’s annual fee for municipal securities firms to $500 from $300 on Oct. 1 and generate an additional $280,000 for the board for fiscal year 2010.

The primary reason for the proposed fee increase, which became effective upon filing with the SEC, is to partially offset a decrease in revenues coupled with increased costs associated with “operating market information services and regulating the municipal securities market,” the board said in its SEC filing.

In a telephone interview yesterday, MSRB officials said that the increased costs were partly tied to the board’s EMMA disclosure site, which have been greater than anticipated.

“Obviously we’re in a difficult economic environment,” said MSRB associate general counsel Lawrence Sandor. “As a result of decreased revenues and also increased expenses, in part driven by EMMA and other operational expenses, we need to address some of those budgetary issues.”

But because the annual fee increases would only provide a “nominal” increase in revenues, the board plans to soon file another proposal to raise underwriting fees by eliminating exemptions for short-term debt from its Rule A-13. Under the rule, the board charges underwriting fees of three cents per $1,000 par value of bonds and one cent per $1,000 par value of notes. It also charges a transaction fee of one-half cent per $1,000 par value of bonds.

Specifically, the board plans to eliminate exemptions from underwriting fees for most types of short-term debt, except for commercial paper, and will increase the one-cent underwriting fee to three cents per $1,000 par value of notes.

MSRB chief financial officer Melanie Richardson said that staff are still developing estimates for how much additional revenue eliminating the A-13 exemptions would provide the board each year.

In its notice, the MSRB said it is also evaluating additional revenue sources, including assessments of 529 college saving plan securities, fees for its professional qualifications tests, and subscriptions charges for its information products.

MSRB executive director Lynnette Hotchkiss could not say how much additional revenue the board is seeking to raise.

“Our assessments are based on bond volume, [and] it’s very hard to estimate what the bond volume will be year to year,” she said. “We have an important mission, and certainly with the advent of EMMA, it costs a lot of money to keep those operations going.”

Richardson said that the board currently has “just over” 2,000 registrants. In any given year, only a small pool of them underwrite bonds. A larger portion trades securities.

The board last increased the annual fee to $300 from $200 in 2003, citing an “imbalance” as fees have gone up for firms that underwrite and trade bonds, but not for other firms that did not participate in traditional municipal securities underwriting activities or were not actively involved in the trading of munis. At the time, the board estimated that the $100 increase would generate an additional $250,000 per year.

Though some market participants have said they long expected the vast number of projects the MSRB is undertaking to adversely impact its bottom line, the board’s apparent revenue shortfall contrasts with a relatively rosy financial picture reported by the firm earlier this year.

An audited financial statement released by the MSRB in February said its net assets rose to just over $28 million for the fiscal year ending Sept. 30, 2008, $3.6 million more than the previous year. Though underwriting fees had declined $268,000 to $12.188 million, transaction fees were up $829,552 to almost $7.723 million.

“Our careful monitoring of expenses and our conservative investment policy have left us positioned better off in these troubled times, in spite of the resources spent on our transparency initiatives,” Richardson said at the time.

MSRB officials have said previously that EMMA would cost between $2.5 million and $3 million, though that price tag does not include one-time add-ons, such as a transparency system for short-term securities like variable-rate demand obligations that the board launched earlier this year and continues to develop.

When the SEC proposed rule changes last year to make EMMA the central repository for continuing disclosure documents, the commission estimated that the MSRB’s start-up costs associated with developing the continuing disclosure component to EMMA would be about $1 million. The SEC also estimated that annual operating costs for the system would be about $350,000, excluding salary and other costs related to employees, which could total $400,000 per year.

Though it is free to submit and access individual documents on the EMMA site, the board charges $45,000 annually for real-time feeds of continuing disclosure filings and $20,000 annually for subscriptions to primary offering documents filed with the board.

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