WASHINGTON — The Municipal Securities Rulemaking Board reported annual revenue of $39.9 million for the fiscal year ending in September, a 19% gain over last year’s $33.5 million, according to the MSRB’s annual report released Tuesday.

The board’s total assets — including investments, cash, fixed assets and accounts receivable — also increased year-over-year, climbing 37% to $50 million. Unrestricted net assets were $46.4 million.

But some industry members said too much of the MSRB’s revenue comes from dealers.

Mike Nicholas, chief executive officer of Bond Dealers of America, said fees paid dealers provide the bulk of the revenue, even though the board also oversees municipal advisors and has responsibility to protect issuers.

“Fees to fund the MSRB need to be spread out more equitably among the parties that are being regulated,” Nicholas said, adding that the BDA supports the MSRB’s work to improve the health and transparency in the municipal market.

The National Association of Independent Public Finance Advisors and the Securities Industry and Financial Markets Association declined to comment.

MSRB officials said that the growth reflects its new responsibilities under the Dodd-Frank Act and the need for more reserve funds.

They also noted that expenses remained largely unchanged year-over-year, increasing just 3% to $26.8 million.

Chief financial officer Elizabeth Wolfe said the board is seeking to shore up its reserve funds to ensure the organization can operate uninterrupted regardless of downturns in market volume.

In addition, the MSRB needs reserves to pay for needed technological improvements, she said.

The board’s reserve funds included $32.4 million in investments and almost $2.7 million in cash at the end of the fiscal year.

Wolfe said the board’s finance committee made the decision to boost its reserves after looking at fluctuations in muni bond volume going back to 1987. Fluctuations affect revenue, which is largely based on fees assessed on dealers for underwriting and trading municipal bonds. Dealers and muni advisors also pay registration and annual fees.

The board aims for reserves to equal annual revenue, but in 2010 they slipped to only nine months of revenue, Wolfe noted.

MSRB executive director Lynnette Kelly said increases in revenue reflects the board’s expanded responsibilities under the Dodd-Frank Act, which requires the MSRB to protect issuers and regulate municipal advisors, in addition to regulating muni dealers.

Those “fundamental” changes to the organization’s mission require the board create new education programs and outreach events, as well as new rules and professional standards for municipal advisors.

Kelly said the board also must spend millions of dollars maintaining and upgrading its electronic system. One of the largest projects, a revamp of the Real-time Transaction Reporting System, is in the works, she said. 

Despite revenue growth, the MSRB remains considerably smaller than the Financial Industry Regulatory Authority, which reported revenue of $880.1 million in 2011.

Roughly two-thirds of the MSRB’s 2012 revenue, or $13.7 million, came from “transaction” fees paid by dealers.

The report noted that last fiscal year was the first full year since the fees doubled in January 2011 from .5 cents per $1,000 of par value to 1 cent per $1,000 in par.

Transaction fees were up 20% from fiscal year 2011.

Another 32% of 2012 revenue, or $12.8 million, came from the board’s underwriting assessment, which is 3 cents per $1,000 of par value on most primary offerings.

Underwriting fees jumped 13% from 2011.

Technology fees accounted for $7.7 million, or 19%, of the board’s revenue. That fee is $1 per muni bond transaction and the revenue it generates is used to update, maintain and replace technology systems, the report said.

Revenue from fines collected for MSRB rule violations jumped 40% in fiscal 2012 to $2.8 million, up from roughly $2 million in 2011.

The report attributed that growth partly to the Dodd-Frank Act, which requires the Securities and Exchange Commission and the Financial Industry Regulatory Authority to share with the MSRB fine money collected for the board’s rule violations. The SEC must give the MSRB half of muni-related fines, and FINRA must share one-third of muni fines.

The board collected an additional $1.3 million in annual fees and initial registration fees and $1.5 million from data subscription fees, the report said.

Nearly half of the board’s $26.8 million in operating expenses in 2012 were for “market information transparency programs and operations.” Administrative expenses totaled $5.3 million, and rulemaking and policy development cost $4.3 million.

The board spent nearly $2 million on board governance and rulemaking oversight and $1.6 million on market outreach and education.

Wolfe said the board has been careful to manage expenses, keeping staff levels at about 100 employees in recent years despite new obligations under the Dodd Frank Act.

Roughly half of the board’s annual expenses are employee-related, Wolfe said.

The annual report reviewed the board’s activities during the fiscal year.

The board completed its interpretive notice to Rule G-17 on fair dealing, which took effect in August and clarifies underwriters’ fair-dealing obligations to issuers.

Also in 2012 the board finished rules requiring “brokers-brokers” to make reasonable efforts to obtain fair and reasonable prices when conducting secondary-market “bid-wanted” auctions. The rules also remind selling and bidding dealers of fair-pricing obligations to customers.

The board expanded its online education “toolkits” in 2012. It launched its Investor Toolkit, which aims to help investors understand munis, the municipal market and resources available on the online EMMA system, the report noted.

The board expanded its issuers’ toolkit with the launch of EMMA Trade Monitor, which allows issuers to export and analyze trade data on a desktop computer.

New MSRB rules in 2012 also restricted dealers from using the term “not reoffered” or “NRO,” unless they also disclose price and yield information.

The term, which indicated bonds had already been sold and would not be reoffered to potential investors, allowed dealers to avoid disclosing the price or yield of the bonds.

During the fiscal year, the board also expanded its resources related to 529 college savings plans, developing an interactive map on the EMMA system that allows users to find plan information by state, the report said.

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