(Volume 16, Number 2) JUNE 1996
Route To: Manager, Muni Department Underwriting Trading Sales Public Finance Compliance
The amendments to the fee schedule implement a new transaction fee of $.005 per $1,000 par value on inter-dealer sales transactions, effective March 1, 1996, and raise the $100 annual fee to $200, effective for the fiscal year that began on October 1, 1995.
Questions about the amendments may be directed to Christopher A. Taylor, Executive Director.
On May 10, 1996, the Securities and Exchange Commission approved amendments to change the fees assessed by the Board to all brokers, dealers and municipal securities dealers that conduct municipal activities regulated by the Board.[1] The amendments implement a new fee, under rule A-13, on each inter-dealer sales transaction in municipal securities, at a rate of one-half cent per $1,000 par value, and increase the annual fee levied under rule A-14 from $100 to $200. The new fee structure will help to allocate assessments on dealers based on dealer participation in the municipal securities market, and will generate additional revenue necessary for Board operations.[2]
Dealer Market Participation as a Basis for Fees Until recently, there has been no reliable information to measure municipal securities transaction activity of individual dealers, and therefore the only objective way to measure dealer participation has been the underwriting assessment of rule A-13. Phase I of the Board's Transaction Reporting Program, which began operation in January 1995, now includes data on essentially all inter-dealer trades in its surveillance database.[3] Accordingly, the Board intends to use this transaction data to allocate assessments on dealers.
The Board plans to implement additional phases of the Transaction Reporting Program in the next two years, during which the Program's scope will expand to include information on institutional customer trades and retail customer transactions. The Board intends to review its fee structure and make necessary revisions when customer transactions become subject to the reporting requirement, as this will allow transaction fees to be assessed in a manner that more accurately reflects each dealer's participation in the municipal securities market. Prior to that time, it may be necessary to increase the level of the transaction fee to meet revenue requirements.
Billing Procedures Since January 1995, rule G-14 has required dealers to report their inter-dealer transactions in municipal securities to the Board, in the course of submitting trade information for clearance and settlement purposes to National Securities Clearing Corporation (NSCC). Under the amendment to rule A-13, each dealer will be billed for its transactions based upon the information it has reported to the Board via NSCC.
Rule G-14 generally requires both the "buy" and "sell" sides of an inter-dealer transaction to report their transaction to the Board. Under the amended rule, the Board will bill the "sell side" of each transaction. The Board will bill only for those trades for which the buy and sell sides ultimately agree on trade details such as price, transaction amount and par value (i.e., trades that "compare" at NSCC).
The Transaction Reporting Procedures under rule G-14 place primary responsibility for trade reporting on each dealer that executes an inter-dealer transaction ("executing dealer"). However, the Rule G-14 Transaction Reporting Procedures allow executing dealers who are not direct members of NSCC to use other mechanisms to report transactions. Some executing dealers report transactions to NSCC through other firms that are members of NSCC ("clearing dealers"). This is typically the case in an introducing/clearing broker arrangement.[4] The clearing dealer will be responsible for timely payment of the entire fee to the Board on behalf of the executing dealers for which it reports transactions. The Board expects that clearing dealers may pass through these fees to executing dealers based upon transaction volume, which is provided for in the amendment to rule A-13.[5]
Effective Date The transaction fee applies to transactions that settled after March 1, 1996. Dealers will be billed in June for sales transactions that settled between March 1 and May 31, 1996. Thereafter, dealers will be billed monthly for their sales transactions that settled during the previous month.
The amendment to rule A-14, changing the annual fee from $100 to $200, is effective as of October 1, 1995, which was the beginning of the Board's 1996 fiscal year. In October 1995, the Board billed dealers for the annual fee at the then-current rate of $100. The remainder of the $200 annual fee mandated by the amended rule will be billed to dealers in June 1996.
Rule A-13. Underwriting and Transaction Assessments for Brokers, Dealers and Municipal Securities Dealers (a) *Underwriting Assessments - Scope.* Each broker, dealer and municipal securities dealer shall pay to the Board an underwriting fee as set forth in paragraph (b) for all municipal securities purchased from an issuer by or through such broker, dealer or municipal securities dealer, whether acting as principal or agent, as part of a primary offering, provided that this rule shall not apply to a primary offering of securities if all such securities in the primary offering: (i) - (iv) No change. If a syndicate or similar account has been formed for the purchase of the securities, the *underwriting* fee shall be paid by the managing underwriter on behalf of each participant in the syndicate or similar account. (b) *Underwriting Assessments - Amount.* For those primary offerings subject to assessment under section (a) above, the amount of the underwriting fee is: (i) - (iii) No change. (c) *Transaction Assessments. Each broker, dealer and municipal securities dealer shall pay to the Board a fee equal to .0005% ($.005 per $1,000) of the total par value of municipal securities sales that it reports to the Board under rule G-14(b). For those transactions reported to the Board by a broker, dealer or municipal securities dealer on behalf of another broker, dealer or municipal securities dealer, the transaction fee shall be paid by the broker, dealer or municipal securities dealer that reported the transaction to the Board. Such broker, dealer or municipal securities dealer may then collect the transaction fee from the broker, dealer or municipal securities dealer on whose behalf the transaction was reported.* *(d) Billing Procedure.* The Board periodically will invoice brokers, dealers and municipal securities dealers for payment of underwriting *and transaction* fees. The underwriting *and transaction* fee*s* must be paid within 30 days of the sending of the invoice by the Board. {(d) For purposes of this rule, the term "primary offering" shall mean an offering of municipal securities directly or indirectly by or on behalf of the issuer of such securities, including any remarketing of such securities directly by or on behalf of the issuer of such securities.} (e) No change. *(f) Definitions.* *(i) For purposes of this rule, the term "primary offering" shall mean an offering of municipal securities directly or indirectly by or on behalf of the issuer of such securities, including any remarketing of such securities directly by or on behalf of the issuer of such securities.*
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*, {$100} with respect to each fiscal year of the Board in which the broker, dealer or municipal securities dealer conducts a municipal securities business. Such fee must be received at the office of the Board in {Washington, D.C.} *Alexandria, Virginia* 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.
Rule G-14. Reports of Sales or Purchases (a) No change. (b) Each broker, dealer or municipal securities dealer shall report to the Board or its designee information about its transactions in municipal securities with other brokers, dealers or municipal securities dealers using the formats and within the time frames specified in Rule G-14 Transaction Reporting Procedures. Transaction information collected by the Board under this rule will be used to make public reports of market activity and prices *and to assess transaction fees. The transaction information* {and} will be made available by the Board to the Commission, securities associations registered under Section 15A of the Act and other appropriate regulatory agencies defined in Section 3(a)(34)(A) of the Act to assist in the inspection for compliance with and the enforcement of Board rules.
May 28, 1996
[1] Securities Exchange Act Release No. 34-37197 (May 10, 1996).
[2] For additional information on the background and rationale for the revised fee structure,see "Fee Assessments for Dealers: Rules A-13, A-14, and G-14," MSRB Reports, Vol. 15, No.3 (October 1995) at 27, and "Revisions to Board Fee Assessments: Rules A-13, A-14 and G-14," MSRB Reports, Vol. 16, No. 1 (January 1996) at 27.
[3] See "Reporting Inter-Dealer Transactions to the Board: Rule G-14," MSRB Reports, Vol. 14, No. 3 (December, 1994) at 3-6 for a description of Phase I of the Transaction Reporting Program.
[4] Some dealers also report transactions indirectly to NSCC through other clearing agencies registered with the Securities and Exchange Commission (i.e., Stock Clearing Corporation of Philadelphia).
[5] The Rule G-14 Transaction Reporting Procedures require each dealer to include the identity of both executing dealers in a report of a transaction (as well as the identity of both clearing dealers). See "Reporting executing Dealers Identities in Inter-Dealer Transactions to the Board: Rule G-14," MSRB Reports, Vol. 15, No.3 (October 1995) at 35. Compliance with the rule change, however, has not yet reached a level at which the executing dealers can always be reliably identified from the information reported to the Board. Therefore, the Board will bill clearing dealers directly. Each bill will include information on the transaction volume associated with each executing dealer that cannot be reliably identified based on the information submitted by the clearing dealer, as well as information about any residual transaction volume that cannot be reliably associated with any executing dealer. As improvements are made in the timely and correct reporting of transactions under rule G-14, including correct identification of executing dealers, the Board will consider revisions in this procedure to accomodate direct billing of executing dealers.