GFOA Seeks Info on Importance of MSRB Fee Hike

WASHINGTON — The Government Finance Officers Association is asking the Municipal Securities Rulemaking Board to more clearly explain the importance of its proposal to nearly double the transaction fees it collects from dealers in order to pay for its development of its EMMA system as well as its new oversight of municipal advisers.

The GFOA is the latest group to raise concerns about the proposal in comment letters filed with the Securities and Exchange Commission. Though the MSRB’s dealer-led board approved the proposal in late September, just before the MSRB was reconstituted as a majority-public self-regulator, industry groups and dealer firms also have criticized it in comment letters filed this week.

“We would like the MSRB to explain why it believes these new and increased fees are necessary and what impact they could have on market participants, especially those in the issuer community,” wrote Susan Gaffney, director of the GFOA’s federal liaison center here. “The proposed fee changes are significant, making more information and ongoing transparency on the MSRB’s use of funds essential.”

“While we recognize that the MSRB’s technology infrastructure is vital to the entire marketplace, there should be more thorough discussion and explanation as to the use of these increased and new fees, which is not included in this [proposal],” she wrote.

Specifically, the board is seeking SEC permission to impose a new $1 “technology fee” on each inter-dealer transaction as well as dealer sales to customers. The fee would generate $10 million annually, though it is designed to be “transitional,” according to the board’s September 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. Short-term debt would be exempt from the fee.

The additional $17 million will boost by nearly 84% the transaction fees the MSRB collects from dealers.

Those fee hikes, which would go into effect in January, would come on top of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permit 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 timely information.

The fee-splitting arrangements mandated by Dodd-Frank raise questions about whether additional fee hikes are needed, Gaffney wrote. He added that the GFOA is concerned any increased fees will be passed directly or indirectly onto issuers.

“Unfortunately, some of our members continue to see MSRB fees as line items on their transactions,” Gaffney wrote. “Moreover, even when MSRB fees are not itemized, we are concerned that state and local governments ultimately pay the fees indirectly.”

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