Fight Over CUSIP Fees Heats Up
WASHINGTON — The Securities and Exchange Commission should rein in the American Bankers Association’s CUSIP Service Bureau and prevent it from charging market participants unreasonable and unwarranted fees, according to three trade groups.
In a letter to SEC chairman Mary Schapiro Wednesday, the Bond Dealers of America, the Investment Adviser Association, and the Government Finance Officers Association called on the SEC to assert jurisdiction in the widening dispute over CUSIP fees, especially in cases where the use of CUSIP identifiers is mandated by federal regulators.
The CUSIP Service Bureau is operated by Standard & Poor’s under the direction of the ABA. Market participants commonly refer to the “CUSIP bureau,” though its name was formally changed two years ago to CUSIP Global Services.
The BDA raised similar concerns about the bureau in a letter to the SEC last June. Then called the Regional Bond Dealers Association, the industry group attacked the CUSIP bureau’s “aggressive campaign to extract licensing fees” from muni market participants and its attempt to “prohibit, restrict and exploit” the use of CUSIP numbers, which are purchased by issuers and required by the market.
Though issuers have always had to purchase CUSIPs, the groups said that other market participants such as bond dealers and investment advisers have used the numbers for years on trade confirmations, account statements, electronic data sources and in other instances without any requirement that they should pay to use them.
“In the last few years, however, S&P has begun contacting investment advisers, bond dealers and representatives of many financial institutions seeking to collect significant licensing fees for the use of CUSIP identifiers regardless of the source or use of such numbers,” the groups wrote in the letter, signed by BDA chief executive officer Mike Nicholas, IAA executive director David Tittsworth and GFOA debt panel chair Frank Hoadley, who is Wisconsin’s capital finance director.
An SEC spokesman declined to comment. Michael Privitera, vice president of public affairs at Standard & Poor’s, said the allegations made by the groups are “inaccurate and misleading,” though he had not seen the letter because news organizations were embargoed from distributing it until this morning.
“Our licensing and charging practices for these services are transparent and in line with data-provider industry norms and based on fair, reasonable and non-discriminatory terms,” he said in a statement.
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 the ABA in 1964 at the request of industry clearing corporations. Beside instances where the numbers are required by SEC and other regulators’ rules, the groups argue that CUSIP fees are inappropriate for clearing and settlement utilities or where CUSIPs are already widely used in the market.
Among their many uses, CUSIPs are routinely included in the final official statement tied to municipal bond offerings and provide a means for more precisely finding information filed with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access website.
They also must be included on the information returns for tax-exempt government obligations prepared by bond counsel and filed with the Internal Revenue Service, as well as on forms and letters of representation needed to register securities in book-entry form with the Depository Trust Co., the groups wrote.
“SEC-regulated securities market participants use CUSIP identifiers in an integrated way to help ensure the accurate identity of securities invested, traded and processed by broker-dealers, underwriters, investment advisers, investors and bond counsel,” the groups wrote. Yet a “rapidly increasing and non-transparent fee for the use and redistribution of CUSIP identifiers negatively impacts market transparency and liquidity.”
The groups said licensing fees vary from firm to firm but range from around $10,000 per year for an institutional user to hundreds of thousands of dollars per year for unlimited global licenses.
The CUSIP bureau contends that large, recurring fees are necessary to cover the costs of issuing and distributing CUSIP information. But the trade groups said this contention is “factually inaccurate” because issuing a CUSIP “is actually a simple administrative activity, requiring basic information technology.”
“The cost of administering the clerical activities of assigning identifiers to new issues is covered by the significant fees paid by securities issuers and others at the time new identifiers are created,” they said.
The groups also point to a formal objection by the European Commission last November, in which the regulatory body indicated that Standard & Poor’s may be abusing its monopoly position by aggressively pursuing CUSIP fees.