WASHINGTON — The Securities and Exchange Commission late Thursday signed off on rule changes that make the Municipal Securities Rulemaking Board a majority-public self-regulator and allow it to temporarily expand to 21 from 15 members beginning Friday, the start of its new fiscal year.
The changes to the MSRB’s Rule A-3 on membership, which the board proposed Aug. 30, will last for two years and are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July.
Also late Thursday, the MSRB proposed a series of significant 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 bill.
Specifically, the MSRB is seeking SEC approval to impose on dealers a new $1.00 "technology fee" per transaction for all bond sales.
It also is seeking permission to increase for the first time in ten years the half-penny transaction fee per $1,000 par value of bonds, which would double that fee to one penny per $1,000 par value. It also is proposing to increase the price for two trade data subscription services.
The MSRB is asking that the fee changes take effect on Jan. 1, 2011.
Meanwhile, by Friday the board must seat 11 independent representatives not associated with bank or broker-dealer firms or advisory businesses for at least two years.
It also must tap 10 regulated representatives, with seven seats expected to go to existing representatives of banks and broker-dealers whose terms are not set to expire Thursday night.
In addition, three of the regulated representatives will consist of non-dealer municipal advisers who will be regulated by the MSRB for the first time.
The SEC’s approval notice incorporates two “clarifying amendments” to the board’s original proposal.
One requires that MSRB municipal adviser representatives not be affiliated with any bank or broker dealer. This goes beyond provisions in Dodd-Frank, which mandate that the board pick at least one adviser but allow him to be a dealer-adviser. Though the MSRB staff told the commission they expect three adviser seats to be filled by non-dealer advisers, the amendment “provides additional clarification that the adviser representatives on the board during the transitional period will be independent advisers not associated” with dealers,” the SEC said.
The second amendment requires that the MSRB’s nominating committee that will select new members for the board’s fiscal 2012 year, beginning Oct. 1, 2011, be composed of a majority of public representatives, to further assure the independence of the majority-public board in the future.
In its approval order, the SEC agrees with the MSRB that its requirement that public members not be associated with dealers or advisory firms for two years “is an appropriate standard for independence.”
“In particular ... the proposal is consistent with and indeed, stricter than, cooling-off periods required by other SROs in determining whether public members are independent,” the SEC said. “Further, the proposed two-year cooling off period is a minimum requirement and ... the proposal would allow the board ... to determine additional circumstances involving the individual that would constitute a 'material business relationship’ ” with a dealer or adviser.
While the MSRB’s new members have yet to be announced, the existing board has already elected officers for the coming year.
Michael Barolotta, vice chairman of First Southwest Co., a dealer financial advisory and underwriting firm, has been elected the new chairman, while John Young 2d, managing director of municipal underwriting and public finance marketing at Samuel A. Ramirez & Co., is to serve as co-chairman.
They succeed the current chairman, Peter Clarke, managing director at JP Morgan in New York, and current vice chairman, Alan Murphy, senior vice president at Stifel, Nicolaus & Co. in Denver.
