MSRB expects a surplus of up to $6 million for fiscal 2020

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The Municipal Securities Rulemaking Board plans to end its fiscal year 2020 with a surplus of about $6 million following heavy issuance in the municipal market.

That is what new MSRB CEO Mark Kim said during The Bond Buyer’s California Public Finance Conference Tuesday. The surplus is due to elevated levels of primary issuance and secondary market trading following market volatility in March due to the pandemic.

The MSRB intended to be in a deficit in FY 2020, not a surplus, said Mark Kim, MSRB CEO.

“We are still closing out the books for our fiscal year that ended a few weeks ago, but it looks like we will end this year with a surplus rather than a deficit in the neighborhood of even five or six million dollars on top of our fully funded reserves,” Kim said.

The MSRB runs mostly on market-based fees. In FY 2021, 77% of the MSRB’s revenue is projected to be market-based fees.

Kim said the MSRB intended to be in a deficit in FY 2020, not a surplus. In its 2020 budget, the MSRB projected an operating deficit of $2.3 million.

The board plans to look at its fee structure this coming year.

“One of the priorities of our board this year is to look not only at our fees, but make sure our fees are right-sized for our budget,” Kim said. “Our goal is to have a balanced budget.”

This comes as the number of MSRB-registered broker dealers continues to dwindle. In 2009, the MSRB had close to 2,000 broker-dealers on its books. As of 2020, that number has dropped to 1,100, Kim said on Tuesday.

“A large number of them have been through mergers and acquisitions, but we’ve also seen a large number of exits from the industry,” Kim said.

Kim said a large number of less active broker-dealers are exiting such as those that don’t generate a lot of trade activity.

Earlier this month, MSRB CFO Nanette Lawson said the MSRB was considering making changes to fees charged to broker-dealers.

In 2019, the MSRB reduced rates temporarily for broker-deals from April 1 to Sept. 30. That move caused the MSRB to forgo about $5.2 million in revenue. MAs’ professional fees increased over two years to $750 from $500 in FY 2020 and to $1,000 in FY 2021. That was done to create more equity in fees between MAs and broker-dealers, the MSRB said.

In FY 2019, dealer fees accounted for more than 80% of the MSRB’s revenue.

On Tuesday, the MSRB said it was seeking volunteers for two of its board advisory groups — the Compliance Advisory Group and the Municipal Fund Securities Advisory Group. The MSRB is also looking for input on potential topics for those groups.

CAG was created in FY 2018 to give outside expertise and input to the MSRB on its long-term strategic goal to create an industry understanding of compliance of MSRB rules.

MFSAG was created in FY 2019 to give input on municipal market rules, practices, transparency and education related to 529 savings plan and Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE) programs.

The MSRB is accepting volunteer submissions through Dec. 15, 2020.

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