Broker-dealer groups support SEC approval of MSRB’s multi-year rate card filing

Broker-dealer groups support Securities and Exchange Commission approval of the Municipal Securities Rulemaking Board’s multi-year rate card proposal, while the National Association of Municipal Advisors doesn’t oppose the MSRB’s filing, Oct. 24 comment letters to the SEC show. 

“BDA supports the proposal and we encourage the commission to approve it,” the Bond Dealers of America said in its comment letter. “While not without flaws, the proposal is consistent with statute and generally represents a reasonable approach to a sustainable MSRB funding plan.” 

The Securities Industry and Financial Markets Association supports the SEC’s approval of the MSRB’s filing and “proposes to continue to meet with the MSRB to advocate for additional incremental changes to its fee structure,” SIFMA’s letter said. 

The MSRB filed its proposed rate card for dealers and municipal advisors with the SEC Sept. 30. The MSRB’s proposal would establish rate card fees for the next four calendar years. The multi-year rate card replaces the MSRB’s annual rate card model.

“Over the past 18 months we have listened to feedback from our stakeholders and worked to address their concerns regarding our budget, reserves and fees following the suspension of our proposed 2024 rate card,” MSRB CEO Mark Kim said in the release. “The new multi-year rate card provides greater transparency, stability and certainty in fees for regulated entities, resulting in a more predictable, rate-setting model for MSRB.” 

The MSRB, a self-regulatory organization overseen by Congress and the SEC, doesn’t receive federal appropriations and is funded primarily via fees paid by regulated entities. The board established its current rate card model in 2022. In November 2023, the MSRB filed with the SEC proposed amendments to MSRB Rules A-11 and A-13 to institute rate card fees for 2024. 

However, comment letters submitted to the SEC regarding the 2024 rate card proposal cited concerns  “related to the MSRB’s rate setting processes and the volatility and unpredictability of rates under the current rate card model,” the Sept. 30 filing said. The SEC subsequently suspended the MSRB’s proposed 2024 rate card. 

In response, the MSRB withdrew its proposed 2024 rate card “and began conducting extensive stakeholder outreach to solicit feedback prior to proposing the next iteration of its rate card,” according to FAQs on its website which were updated on Sept. 30 to address questions concerning the new rate card proposal.

In its Oct. 24 letter, BDA said it appreciated the MSRB’s “responsiveness to our concern that the previous annual rate card system resulted in excessive fee rate volatility.” 

While BDA’s letter encouraged the SEC to approve the MSRB’s multi-year rate card proposal, it also said that as BDA gains experience with the new rate card system, the group expects “to continue pressing” the MSRB in three areas. 

One such area is the “relative contributions of broker-dealers and municipal advisors,” BDA’s letter, signed by Michael Decker, senior vice president for research and public policy at BDA. 

“As we have argued before the commission and the board numerous times before, the contribution of regulated municipal advisors (MAs) to the MSRB’s budget is too small,” BDA’s letter said, adding that the MSRB’s proposal would raise the municipal advisor professional fee by 6.6% in 2026 and by roughly 6% a year in each of the following three years. 

“Even with these increases, however, [broker-dealers] will still pay nearly 90 percent of MSRB revenue derived from fees imposed on regulated entities,” BDA’s letter said. “There is no justification for this gap in contribution 15 years after MAs became regulated.” 

In its letter, BDA pointed to a portion of the MSRB’s rate card filing which says “the MSRB believes that it would be appropriate, over the course of this upcoming multi-year period, to undertake a review of municipal advisory activities and any potential mechanisms for gauging levels and types of such activities that might be appropriate for use in future municipal advisor rate settings under the multi-year rate card process.” 

BDA concurs “and welcomes this review,” its letter said. 

“We believe a market-activity based fee for MAs would be an appropriate means of addressing the gap between dealer and MA contributions,” BDA’s letter to the SEC said. “We look forward to working with the board on this.” 

SIFMA also expressed support for a market activity-based fee on MAs in its letter, signed by Leslie Norwood, managing director and associate general counsel at SIFMA. 

“SIFMA urges the MSRB to consider a municipal advisor market activity fee on competitively sold new issues as an additional revenue source,” Norwood said in the letter. “SIFMA also would like the MSRB to continue to increase municipal advisor fees, as such fees still only represent 8% of the MSRB’s budget…” 

NAMA, which represents municipal advisory firms and individual MAs from across the nation, “does not oppose the filing or the establishment of the four-year rate card,” its comment letter to the SEC said. 

The new approach of setting fees for four years as opposed to annually affords MAs and broker-dealers “the opportunity to plan accordingly over this time horizon,” NAMA’s letter, signed by Susan Gaffney, NAMA’s executive director, said. 

“While that is positive, we are concerned with how the MSRB will develop its budgets in these same four years, ensuring that expenses are in line with its regulatory mandate so that the fees are assessed on a reasonable basis,” NAMA’s letter said.  

NAMA believes the per-MA fee remains “the only viable solution to collect fees on municipal advisors,” and it appreciates the MSRB’s support for that approach, NAMA’s letter said.

In follow-up comments provided to The Bond Buyer, Gaffney said NAMA has stated many times that a market activity-based fee is inappropriate and unworkable for many reasons, including the variety of services that MAs provide and how they are paid for those services. 

“The MSRB has spent considerable time discussing how to assess fees on MAs and continues to conclude that per-MA fees are the most appropriate,” Gaffney said in an Oct. 25 email. 

A second area where BDA plans to continue pressing the board is the four-year fee-setting window, according to its letter, which said that such a window is likely too long. 

“We recognize that the proposal includes a means of using temporary credits in the future against over-collection by the MSRB similar to the 45-percent credits that will apply to BD market activity fees in 2026 and 2027,” the letter said. “But a better solution would be to not collect more money than is needed from the industry in the first place.”

A two-year window would perhaps be a better compromise, BDA said in its letter, adding that it would “continue to engage with the board on this question as we gain experience with the new rate card system.”

Finally, BDA in its letter said while it appreciates that the MSRB will undertake periodic reviews of its revenue during the proposed four-year fee-setting window, it is urging the board to formalize an annual review process.