MSRB waives fees for Municipal Liquidity Facility

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Market activity fees will be temporarily waived for dealers conducting transactions through the Federal Reserve’s short-term muni note purchase program.

The Municipal Securities Rulemaking Board filed Thursday to amend its Rule A-13, on underwriter and transaction assessments for dealers. The change, filed for immediate effectiveness, will temporarily waive fees associated with the Fed’s Municipal Liquidity Facility.

“The MSRB remains committed to supporting the industry during the COVID-19 crisis,” said Nanette Lawson, MSRB interim CEO. “Waiving fees for MLF transactions is a meaningful way to be helpful at a time of unprecedented financial strain around the country. Meanwhile, we continue to provide timely data, market expertise and responsive regulation to help states, communities and all municipal market participants.”

Waiving dealer fees for MLF transactions is a way for the MSRB to be helpful during governments' financial strain, said Nanette Lawson, MSRB interim CEO.

The MLF was created in April and is designed to provide up to $500 billion in purchases of short-term notes. The MSRB’s waiver will keep pace with the MLF and will end on December 31, 2020 — the same date the MLF will cease to exist.

Dealer groups supported the MSRB’s move to temporarily waive market fees.

“This fee waiver will remove a disincentive for firms assisting state and local governments seeking to borrow from the MLF,” wrote Leslie Norwood, the Securities Industry and Financial Markets Association’s head of municipals, in a statement.

“We are pleased to see the MSRB propose to waive market activity fees for transactions with the Municipal Liquidity Facility,” wrote Mike Nicholas, Bond Dealers of America CEO, in a statement. “MLF placements will not be market transactions, and for that reason it is appropriate for the MSRB to waive fees.”

The American Securities Association supported the MSRB’s proposed rule change.

“We look forward to continuing to work with policymakers to ensure America’s municipalities get through this crisis and come out of it stronger,” wrote Chris Iacovella, ASA CEO, in a statement.

Last week, the Fed’s Kent Hiteshew said the MLF was open.

“Once we begin getting notices of interests and approving applications then we should begin purchasing notes in the very near future, certainly within the next several weeks,” Hiteshew said during a Government Finance Officers Association webinar last week. Hiteshew said he expected to have very quick approvals of those applications, assuming that issuers propose straightforward credits that are consistent with released MLF frequently asked questions.

The Fed is also considering a bipartisan request from a group of senators to create a second municipal lending facility to help municipalities in the medium and long term.

The MLF is less than two weeks from being operational, Fed Chair Jerome Powell said during a Senate Banking Committee hearing last week.

The MLF garnered some criticism from stakeholders critical of the Fed charging what some view as a large premium, though they recognized that the Fed intended for the program to be used as a backstop. Earlier this month, the Fed announced a baseline cost of 150 basis points for triple-A issuers to 590 points for below investment-grade-rated issuers to use the MLF.

The MSRB’s Chief Market Structure Officer John Bagley started temporarily working directly with the Fed in April to provide expertise on the MLF program.

The MSRB also said it has been in contact with the Fed and has been providing data and expertise as needed.

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