MSRB Fee Hikes Get Approval

WASHINGTON — The Securities and Exchange Commission has approved a proposal by the Municipal Securities Rulemaking Board to nearly double the amount of fees it collects from dealers, despite industry opposition.

In an order issued last week, the SEC agreed with the board that the fee increases, which were scheduled to go into effect Saturday, are needed to help pay for continued improvements to its EMMA site, as well as its expanded oversight of municipal advisers under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The SEC said the fee hikes would "help defray the costs and expenses of administering the board" and are needed in light of "substantial increases in the costs incurred by the board" in its previous two fiscal years.

MSRB expenses increased 14.5% to $21.3 million during the fiscal year ending Sept. 30, 2009, from $18.6 million, and were projected to rise 8.5% during the fiscal year that ended on Sept. 30. But the board has said it anticipates sharply higher increases for fiscal 2011 and 2012.

As a result, the MSRB will impose a new $1 "technology fee" on each interdealer transaction as well as dealer sales to customers. The fee is expected to generate $10 million annually, though it is designed to be transitional, according to the board's October filing with the SEC.

The MSRB also will, for the first time in 10 years, increase the transaction fee it charges on most munis to 1 cent from one-half cent per $1,000 par value of bonds. It expects that increase to generate $7 million annually. Short-term debt would be exempt from the fee increase.

In all, the additional $17 million would boost by nearly 84% the transaction fees the board collects from dealers.

Though industry groups warned that the MSRB was unfairly subsidizing adviser regulation through fee hikes on dealers, the SEC noted that the MSRB has already begun to charge advisers annual fees and will assess other fees on advisers "as appropriate."

"Furthermore, the MSRB has proposed to account for technology fee collections in a separate technology renewal fund, which should help to ensure that such funds are used only for the replacement and renewal of outdated technology systems and to fund new technology initiatives," the SEC said in its order approving the changes. "In addition, with respect to the new technology fee in particular, the MSRB stated that it will annually review whether this fee should continue to be assessed and, if so, at what level, and indicated that 'such review will take into consideration, among other things … issues of equity among regulated entities.' "

Because the bulk of the dealer-assessed fees the MSRB historically has collected stem from underwriting assessments, the SEC said it believes the new, broader-based fee structure more "equitably" assesses fees on all dealers, including those that may not participate in underwriting syndicates.

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