WASHINGTON — Three municipal bond groups are warning the Depository Trust & Clearing Corp.’s plan to restructure fees for municipal securities with multiple CUSIPs would increase costs for some muni issuers and potentially hurt small state and local governments.
The Securities Industry and Financial Markets Association, Government Finance Officers Association and National Association of Independent Public Finance Advisors issued the warning in a letter sent to DTCC last month in response to concerns that its board of directors was preparing to discuss a new fee structure.
A DTCC spokesperson said no decision has been made about revising fees for municipal securities and the company "continues to work collaboratively with our members in industry organizations — including the GFOA, SIFMA, and NAIPFA — to determine next steps."
DTCC staff have been displaced from the company’s lower Manhattan headquarters as a result of damage caused by Hurricane Sandy.
The letter, dated Oct. 16, said DTCC was considering doing away with the $500 flat fee charged by its subsidiary Depository Trust Company for municipal securities with multiple CUSIPs. A CUSIP is nine numbers and letters that identify each maturity of a new issue of municipal securities.
In its place, DTCC is considering charging a registration fee of $200 for the first CUSIP of an issuance and $150 for each additional CUSIP, the letter said.
Sources noted that DTCC has not formally proposed the fee increase with the Securities and Exchange Commission, which must approve any fee changes.
It’s unclear when the fee change could take effect, but the last fee increase — from $200 to $500 — was proposed in December 2010 and took effect in early January 2011.
“It can happen pretty fast,” said Nathan Howard, an attorney with Kodner Watkins & Kloecker LLC, who represents NAIPFA.
Howard called the groups’ letter a “preemptive” response to rumors about the new fees. He said further action by the DTCC on the issue has likely been delayed because of the hurricane.
The letter said DTCC’s plan could increase by five-fold some of the fees state and local governments pay for CUSIPs. An issuer of bonds with 20 different maturities, for instance, would pay $3,050 under the plan, not the current $500, the groups said.
The changes would particularly affect small issuers, they said.
“A smaller government with a $700,000 20-year issue with 20 separate maturities would face a significant increase in cost,” the said. That issuer’s cost would be the same as a larger government that issued a $700 million 20-year issue with 20 maturities.
The groups urged DTCC to reconsider or “table entirely” the board’s discussion of the fee changes pending input from issuers, underwriters and financial advisors.
DTCC could also consider scaling fees based on the size of the issue, the letter said. The groups suggested that fee changes be phased in slowly.
The letter was signed by Jeanine Rodgers Caruso, NAIPFA’s board president, Susan Gaffney, director of GFOA’s federal liaison center, and SIFMA managing director David Cohen.
Gaffney said in an email that the letter responds to concerns about “a possible proposal that DTCC was discussing internally.”
“They have reached out to us and want to discuss any changes to their fee schedule,” Gaffney said of DTCC. “We welcome the opportunity to talk with them more about this issue.”
SIFMA’s manager of public affairs Liz Pierce said the group would not comment on the letter, which is posted on its website.
