MSRB net assets grow as revenue sources diversify

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WASHINGTON — The Municipal Securities Rulemaking Board increased its net assets to $78.8 million and diversified its revenue sources during fiscal year 2018.

In its 28-page financial report released Wednesday, the board reported that its net assets increased by over $4.3 million year-over-year. In last year’s financial report, net assets also rose by about $5 million.

The MSRB took in about $41.7 million during its fiscal year, which ended Sept. 30 2018, staying stagnant compared to fiscal year 2017 when it brought in $40.9 million. Over the course of a year, underwriting assessment fees didn’t change much, with a small decrease from $11.62 million to $11.56 million. This year marked the first year for 529 plan underwriting fees, which brought in almost $1.3 million in revenue.

In 2017, dealers acting as underwriters for 529 college savings plans began paying a fee to the MSRB, amounting to $0.005 per $1,000 of total aggregate assets.

Municipal advisor professional fees increased from about $1.2 million to $1.5 million in fiscal year 2018. In 2018, municipal advisor professionals paid a $500 fee compared to $300 the prior year.

One of MSRB’s goals was to fairly assess fees across all regulated entities, said Nanette Lawson, MSRB chief financial officer.

The organization has reduced broker dealer fees from contributing about 82% to its overall revenue, down to 80%. Municipal advisors are paying a higher share than before, however Lawson said it was still relatively low.

“We’ve really worked on this very strongly over time and it used to be up in the high 80s, so we’re making headway and moving in the right direction,” Lawson said.

Expenses increased slightly from $35.8 million to $37.3 million. Market structure, transparency and operations took up the bulk of its expenses at $18.9 million, or 50% of its overall expenses.

The board designated $5 million in July 2018 to potentially transition to the cloud and by year’s end, they spent about $20,000, Lawson said. The cloud is a method used to deliver information through web-based tools and applications, instead of using a server

“We consider that obviously a high priority to make sure we have the resources we need to effectively continue supporting our market structure and transparency operations,” Lawson said.

In 2010, after heavy investment in technological infrastructure to launch its EMMA website, the MSRB’s financial reserve levels dropped below the target established by its board, Chief Financial Officer Nanette Lawson wrote in its 2018 budget.

Replenishing reserves became a priority, and in 2011 the MSRB adjusted transaction fees and introduced the technology fee. Over time, organizational reserves exceeded their target as a result of revenue exceeding budget and expense savings.

Reserves are an ongoing point of discussion by the MSRB Board of Directors. The board has been proactive in management of excess reserves, Lawson said, providing rebates to dealers twice in the past few years as well as a temporary fee reduction related to activity for underwriting, transaction and technology fees in the first quarter of FY 2019.

The board began reviewing MSRB’s reserves target in 2018, Lawson said, and plans to discuss the target at its January meeting. Its current target is 12 months of its operating expenses plus three times its annual capital needs.

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MSRB rules Municipal advisors Broker dealers Lynnette Kelly MSRB Washington DC
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