Proposed Rule Change to Amend Rule A-14, on Annual Fees
On July 3, 2003, the Municipal Securities Rulemaking Board (“Board” or “MSRB”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) a proposed rule change to amend Rule A-14, on annual fees.[1] The purpose of the proposed rule change is to help provide sufficient revenues to fund Board operations and to allocate fees among dealers in a manner that, compared to the current fee structure, more accurately reflects each dealer’s involvement in the municipal securities market. The proposed rule change would accomplish these purposes by amending Rule A-14 to increase the annual fee assessed to dealers from $200 to $300 per dealer. The MSRB requests that the proposed rule change become effective prior to the beginning of the Board’s fiscal year of 2004 (October 1, 2003).
The MSRB currently levies three types of fees that are generally applicable to dealers. Rule A-12 provides for a $100 initial fee paid once by a dealer when it enters the municipal securities business. Rule A-13 provides for an underwriting fee of $.03 per $1000 par value of bonds and $.01 per $1000 par value of notes, and a transaction fee of $.005 per $1000 par value. Rule A-14 provides for an annual fee of $200 from each dealer who conducts municipal securities activities. The annual fee imposed by Rule A-14 was last increased from $100 to $200 in 1996.
The MSRB has reviewed its revenue structure on a number of occasions in the past to ensure that the fee structure reflects a firm’s activity within the industry. The MSRB believes that its fees are not levied for a single purpose but for general purposes, since MSRB regulatory activities affect all participants in the dealer community. Over the last six years, the proportion of MSRB revenues derived from the underwriting assessment and the transaction fee has grown dramatically while the proportion from the annual fee has declined. A number of dealers that do not participate in traditional municipal securities underwriting activities or are not actively involved in the trading of traditional municipal securities effectively only pay a small annual fee of $200 to the MSRB. For example, firms that primarily effect transactions in a new product, municipal fund securities, only pay the annual fee because such transactions are exempt from underwriting and transaction fees. The MSRB believes that these firms should pay a higher proportion of the regulatory fees.
To redress this imbalance, the MSRB has determined to raise the annual fee from $200 to $300. We anticipate that the proposed rule change will result in an increase of $250,000 to the MSRB’s revenues in fiscal year 2004. The proposed rule change will enhance the equitable distribution of fees among dealers in the municipal securities market and increase the MSRB’s revenue to accommodate the increased costs associated with regulating municipal fund securities activities.
Below is the text of the proposed rule change. Proposed new language is underlined, deletions are in brackets.
July 3, 2003
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Rule A-14: Annual Fee
In addition to any other fees prescribed by the rules of the Board, each broker, dealer and municipal securities dealer shall pay an annual fee to the Board of [$200] $300, with respect to each fiscal year of the Board in which the broker, dealer or municipal securities dealer conducts municipal securities activities. Such fee must be received at the office of the Board no later than October 31 of the fiscal year for which the fee is paid, accompanied by the invoice sent to the broker, dealer or municipal securities dealer by the Board, or a written statement setting forth the name, address and Commission registration number of the broker, dealer or municipal securities dealer on whose behalf the fee is paid.
[1] SR-MSRB-2003-06. Comments on the proposed rule change should be submitted to the SEC and should reference this file number.
