New Members, New Fees

WASHINGTON — The Municipal Securities Rulemaking Board announced the members of its new, majority-public board Friday, hours after it proposed a series of large fee increases to defray the technology costs for its EMMA site as well as expenses tied to the regulation of municipal advisers under the Dodd-Frank Act.

The new members include Robert Fippinger, senior counsel at Orrick Herrington & Sutcliffe LLP in New York and the author of a seminal primer on municipal securities regulation, along with C. Christopher Trower, an Atlanta-based attorney who successfully argued for Kentucky in a landmark 2008 Supreme Court decision that upheld states’ rights to preferential tax treatment of their own bonds.

The pair are among the 11 new members of the MSRB, which temporarily expanded to 21 from 15 members Friday. The board for the first time has a majority of “public” members and has taken on oversight of municipal advisers.

“The MSRB intends to create rules for the municipal adviser community that protect the market and that are also fair and equitable for advisors,” chairman Michael Bartolotta, vice chairman at First Southwest Co., said in a statement.

“We will continue to ensure that rules governing dealers follow the same standards and support a robust primary and secondary market. We also will be making technology enhancements so the MSRB can continue to provide market transparency.”

Also on Friday, the the board outlined its rulemaking plans for municipal advisers, noting it will be necessary to adapt existing rules, as well as adopt new ones, for all advisers except dealers working as financial advisers whose activities already are covered by the board’s rules.

In a chicken-before-the-egg scenario, the board noted that, as of Friday, all muni advisers have a fiduciary duty to place the interests of clients above their own under the Dodd-Frank Wall Street Reform and Consumer Protection Act, but said it still must write a rule detailing that duty.

In addition, the MSRB reminded advisers that it is unlawful for them to advise municipal borrowers on muni financial products or the issuance of muni securities, or solicit municipal borrowers, unless their firms are registered with the Securities and Exchange Commission.

The SEC also on Friday disclosed that 577 adviser firms had registered with it, the lower end of the range of firms expected to register. MSRB executive director Lynnette Hotchkiss said last week at an industry meeting in New York that the number of firms could range between 500 and 2,000.

The board said in the notice it issued Friday it would begin it own registration process following the adoption of “associated MSRB administrative rules.”

Meanwhile, the fee proposal — which the previous dealer-led board agreed to file with the SEC Thursday night — calls for the MSRB to impose a new $1 “technology fee” on dealers for each transaction involving long-term debt. The fee would generate $10 million annually, according to the board’s filing with the SEC.

The MSRB also is seeking permission, for the first time in 10 years, to increase to one cent the half-cent transaction fee per $1,000 par value of bonds.

It expects the increase to generate $7 million annually.

Meanwhile, the MSRB is proposing to increase the existing subscriptions price for two trade data services that provide information vendors and other subscribers with real-time or delayed trade data through electronic feeds.

The board wants to raise the annual subscription for its Real-Time Transaction Price Service to $10,000 from $5,000 and rename the feed the “MSRB Real-Time Transaction Data Subscription Service.” It told the SEC that it would be willing to waive the fee for nonprofit organizations and academics performing research.

The MSRB also wants to increase the Comprehensive Transaction Price Service annual fee to $5,000 from $2,000, and rename it the MSRB Comprehensive Transaction Data Subscription Service. Currently, the comprehensive feed consists of a T+5 report of transaction data five business days after trades and a T+20 report of data 20 days after trades. The proposal would essentially provide a third report, T+1, for data one day after trades, which the board would cease to provide for free.

The MSRB is asking that all the fee changes take effect on Jan. 1, 2011.

The fee hikes would come on top of provisions in the Dodd-Frank act that permits the MSRB to obtain half of any enforcement penalties collected by the SEC and one-third or another portion of any Financial Industry Regulatory Authority enforcement-related collections.

The MSRB also is authorized to impose fines on dealers and advisers that fail to submit information or documents in a timely manner as required by its rules.

Though a dealer-led board approved the fee hikes, industry officials were slow to embrace them.

Michael Nicholas, chief executive officer of Bond Dealers of America, noted that any hikes to fees or fines tend to disproportionately impact small and mid-sized dealers, which also has an impact on investors.

“We completely understand that the MSRB may need a larger budget to accommodate its larger mission and board, but we just want to make sure that there’s transparency in the process and an appreciation for the market impact when there’s a significant increase in fees,” he said.

Separately, as the board announced its new members Friday, it also disclosed for the first time the names of the candidate pool of roughly 150 individuals who had been nominated to serve on the MSRB as well as the names of the previous members who served on the nominating committee. Eight of the new members are “public representatives,” while three are non-dealer municipal advisers.

In addition to Fippinger and Trower, the other new public members are: Milroy Alexander, former chief executive officer of the Colorado Housing and Finance Authority; Sheryl Bailey, deputy county administrator for management services in Chesterfield County, Va.; Jay Goldstone, chief operating officer of San Diego; Robert Jackman, founder and trustee of the Brooke Jackman Foundation Inc. in New York; David Madigan, chief investment officer at Breckinridge Capitol Advisors in Boston; and Benjamin Thompson, a founding principal at Samson Capitol Advisors in New York.

The three advisers will join seven bank and broker-dealers from the previous industry-led board whose terms did not expire Thursday.

They are: Adela Cepeda, president of A.C. Advisory Inc. in Chicago; Robert Lamb, president of Lamont Financial Services Corp. in Wayne, N.J.; and Noreen White, co-president of Acacia Financial Group in Montclair, N.J.

The new public representatives join the three non-dealers from the previous board: Frank Thomas Howard, executive director of financial management in Kentucky’s finance and administration cabinet; Kathleen McDonough, former senior managing director of Ambac Financial Group in New York; and Mark Muller, senior vice president and municipal portfolio manager at Loews Corp. in New York.

They join three continuing bank representatives: Bartolotta; Martin Vogtsberger, managing director and head of institutional brokerage at Fifth Third Securities Inc. in Columbus; and Kevin Willens, managing director at Goldman, Sachs & Co. in New York.

The four continuing securities firm representatives are: Stanley Grayson, vice chairman and chief operating officer at M.R. Beal & Co. in New York; Stephen Heaney, managing director and head of public finance at Stone & Youngberg LLC in Los Angeles; Alan Polsky, senior vice president at Dougherty & Co. in Minneapolis; and John Young 2d, managing director at Samuel A. Ramirez & Co. in New York.

Bartolotta succeeds Peter Clarke, managing director at JPMorgan in New York, while Young succeeds as vice chairman Alan Murphy, senior vice president at Stifel, Nicolaus & Co. in Denver.

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