MSRB assets, revenues decline

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Net assets and revenue dropped in 2019 at the Municipal Securities Rulemaking Board, reflective of a slower underwriting market and a temporary reduction in dealer fees.

In a report released by the MSRB Friday morning, the self-regulatory organization disclosed that it decreased its net assets by $8.5 million in the 2019 fiscal year. Revenue also decreased from the prior fiscal year to $33.7 million from $41.7 million.


The underwriting volume including notes and bonds decreased from MSRB's fiscal year 2019 to $392.499 billion from $418.905 the fiscal year prior.

The board agreed in 2018 to temporarily reduce the assessment rates for underwriting, transaction and technology fees. The MSRB wanted to reduce target reserve levels and decided to temporarily reduce those fees.

Underwriting fees decreased to $8 million from $11.5 million the previous fiscal year. Transaction fees and technology fees also decreased with technology fees falling to $10.8 million from $14.1 million in fiscal year 2018.

Reducing those fees for dealers caused the MSRB to forgo about $8.2 million in revenue.

In fiscal year 2017, the MSRB's net assets rose to $74.4 million from $69.3 million the prior year with revenues totaling to $40.95 million. About $25 million of that was tied to underwriting assessment fees and transaction fees charged to dealer firms.

Technology fees in fiscal year 2017 brought in about $8 million, annual and initial fees about $2 million and data subscriber fees $1.9 million.

“As part of its 2019 priorities, the Board evaluated the organization’s reserve target and implemented a new construct for setting the level of financial reserves needed to mitigate fluctuations in the MSRB’s revenue stream, which is primarily market-driven, and provide a backstop for funding services essential to the integrity of the market,” Nanette Lawson, the rulemaking board's CFO and interim CEO, said in the report.

Post Dodd-Frank, regulations have increased for broker-dealer groups leading to mergers and exits from the business. The municipal market saw a 5.1% decrease in the number or MSRB registered dealers in 2018, according to an MSRB report from last year.

Regulations cause broker-dealer firms to hire more people, spend more time on regulatory issues and it will have an effect on regulators since they are dependent on broker-dealer fees, said Ronald Bernardi, principal and chief executive at Bernardi Securities.

Bernardi said the MSRB board has been aware of its significant reserves and wanted to look for ways to reduce it, partly returning it to its dues-paying members, such as broker-dealers. Broker-dealers make up the majority of muni market participants who pay towards the MSRB’s revenue.

“The broker-dealer business is challenged, not universally, but a lot of firms, they're revenues are under pressure and that is reflected directly in why the MSRB has reduced its reserves over the years,” Bernardi said.

The Securities Industry and Financial Markets Association sees the decrease in net assets as a reflection of MSRB’s review of its reserves, said Leslie Norwood, a managing director, associate general counsel and head of municipals at SIFMA.

“Ensuring fair and equitable fees remains top-of-mind for the Board and staff, and fees are a regular source of discussion and evaluation as we seek to balance resource needs and funding sources,” Lawson said.

Increasing the MA fees would generate about $760,000 in additional revenue for fiscal year 2020 and $1.5 million in additional revenue for fiscal year 2021, the board estimated. MAs will pay $750 a year in fiscal year 2020, increasing to $1000 in fiscal year 2021.

“Historically, the MSRB has been supported by and large by dealer fees and there's been a movement in the past few years to try to make those fees for the support of MSRB more equitable and to increase fees particularly for the municipal advisory community,” Norwood said.

The board is planning to spend up to $8.5 million from its reserves for cloud migration and related operational and governance transformations. In 2018, the board designated $5 million of reserves for cloud migration.

Rule violation fine revenues dropped to $151,183 from $317,792. Notably, the MSRB spent more on travel and meeting for market leadership, outreach and education, increasing to $242,918 from $160,473 in fiscal year 2018. Stakeholder outreach is one of the MSRB’s priorities.

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MSRB rules Budgets Broker dealers Municipal advisors MSRB SIFMA Washington DC
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