MSRB to amend fee structure to floating rates

The Municipal Securities Rulemaking Board has filed a proposal with the Securities and Exchange Commission to change its fee structure to account for prior year results, a move aimed at ensuring the board maintains sufficient operating revenue and avoids collecting excess cash reserves.

The new fee structure will establish a new Annual Rate Card Process which will determine the fees the board charges based on the total amount of revenue each fee was expected to contribute, expected volume of activity of each fee, as well as the amount of revenue generated from the fee in the previous fiscal year compared with its corresponding budget.

“Following an intensive evaluation by our Finance Committee and a careful review of input from our stakeholders, we have developed a more nimble and sustainable approach that positions us to continue to advance our mission of protecting investors, issuers and the public interest, and our long-term strategic goals of modernizing our rules, technology and data,” MSRB chair Patrick Brett said.

In Jan. 2021, the board voted to return $19 million in excess reserves via an 18-month, 40% fee reduction. The updated fee model is structured in order to avoid such large excess reserves in the future as well as a deliberate attempt to keep cash reserves untouched and to return the board into a balanced budget, said Frank Fairman, chair of the board’s Finance Committee.

“Is there a better way to do this that avoids the risk of missing the mark?” said Frank Fairman, chair of the board’s Finance Committee. “That’s really what this fee model is about.”

The MSRB has been projecting a structural budget deficit in recent years, the board said in a release, while the annual growth rate of expenses has been about 4.2% per year.

For the first time in a decade, the proposal would increase the MSRB’s market-based fees, which include an 8% increase to the underwriting fee, 7% increase to the transaction fee and a 10% increase to the technology fee, all described in MSRB Rule A-13. It would also increase the rate of assessment for the MSRB’s municipal advisor professional fee by 6% in MSRB Rule A-11.

These changes will be in effect for a 15 month operative period, however subsequent Annual Rate Card changes will typically be operative for a 12 month period beginning January 1 of a given year.

The board will formally propose new rates in new filings with the SEC each time.

The updated rates are to go into effect on Oct. 1, 2022, and remain operative until Dec. 31, 2023.

No changes are being made to other MSRB fees, including the initial and annual registration fees, municipal funds underwriting fee and examination fee.