MSRB proposes fee for dealers underwriting 529 savings plans

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WASHINGTON – Dealers acting as underwriters for 529 college savings plans would have to begin paying a fee to the Municipal Securities Rulemaking Board under a proposal the board filed with the Securities and Exchange Commission on Wednesday.

The proposed fee, which must be approved by the SEC to take effect, would amend MSRB Rule A-13 on dealer underwriting and transaction assessments to include a fee of $0.005 per $1,000 of the total aggregate assets for a 529 plan underwritten as of Dec. 31 each year. The amount of aggregate assets would be determined using a dealer's Form G-45, which is used to report information on municipal fund securities.

Section 529 plans are set up by states under the Section 529 of the Internal Revenue Code for parents or others to invest funds used to pay for college for children or other beneficiaries. The interests from these funds are considered to be municipal securities and are called municipal fund securities.

Under the board's fee proposal, dealers would be prohibited from passing the fee through to issuers of the plans. In cases where there are multiple underwriters, the term “underwriter” will only apply to the primary distributor in the official statement for the primary offering submitted under Rule G-32 on disclosures in connection with primary offerings.

The proposed changes to Rule A-13 received MSRB board approval during the self-regulator’s April meeting.

The MSRB, which has been regulating dealers that underwrite for 529 plans for roughly the last 18 years, first requested a comment on a fee for work on the plans in 1999. That fee would have been assessed at the same level as the fee that underwriters for municipal offerings were assessed at the time and was strongly opposed. The board ultimately did not pursue that fee.

If the currently proposed fee were to go into effect, it would be assessed at a much lower level than the underwriting fee, which is $0.0275 per $1,000 of the par value paid by a dealer on all munis purchased from an issuer by or through that dealer, whether acting as principal or agent as part of a primary offering.

Dealers are also subject to: an initial registration fee of $1,000, an annual registration fee of $1,000; a transaction fee of .001% of the total par value of the transaction fee; a technology fee of $1 per transaction; and a $150 fee for each MSRB examination.

The board said that it started to do holistic reviews of its fees in 2015 to assess the fees with a goal of better aligning revenue sources with operating expenses and capital needs.

“The board strives to diversify funding sources among regulated entities and other entities that fund MSRB services in a manner that ensures long-term sustainability, while continuing to strike an equitable balance among regulated entities and a fair allocation of the expenses of the regulatory activates, systems development and operational activities undertaken by the MSRB,” the MSRB said in its filing.

It added that it believes that its rules “provide for reasonable dues, fees, and other charges among regulated entities.”

Leslie Norwood, co-head of municipal securities and a managing director and associate general counsel with the Securities Industry and Financial Markets Association, said the group is still reviewing the filing with members but they anticipate commenting on it in the future.

"One issue we will focus on is ensuring that brokers and dealers that distribute 529 plans are not inappropriately grouped into the term ‘underwriters’,” Norwood said.

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529 plans Financial regulations MSRB Washington DC