MSRB Audited Financial Statements

    Municipal Securities 
Rulemaking Board
Financial Statements as of and for the 
Years Ended September 30, 2024 and 2023

   

Municipal Securities Rulemaking Board

TABLE OF CONTENTS


		Page
REPORT OF INDEPENDENT AUDITORS		1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2024 AND 2023:
Statements of Financial Position		3
Statements of Activities		4
Statements of Functional Expenses		5-0
Statements of Cash Flows		7
Notes to Financial Statements		8-18

GRANT THORNTON LLP REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

445 Broad Hollow Road, Suite 300

Melville, NY 11747

D +1 631 2496001

F +1 631 249 6144

To the Board of Directors

The Municipal Securities Rulemaking Board

Opinion

We have audited the financial statements of The Municipal Securities Rulemaking Board (the “MSRB”), which comprise the statement of financial position as of September 30, 2024, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the MSRB as of September 30, 2024, and the change in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for opinion

We conducted our audit of the financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the MSRB and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Other matter

The financial statements of the MSRB for the year ended September 30, 2023 were audited by other auditors who expressed an unmodified opinion on those financial statements in their report dated December 21, 2023.

Responsibilities of management for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the MSRB’s ability to continue as a going concern for one year after the date the financial statements are available to be issued.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with US GAAS, we:

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the MSRB’s internal control. Accordingly, no such opinion is expressed.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

•

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the MSRB’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Melville, New York

December 17, 2024



STATEMENTS OF FINANCIAL POSITION


	September 30, 2024 and 2023	2024		2023

	ASSETS

	Cash and cash equivalents	$	3,867,525	$	3,494,056
	Accounts receivable, net of allowance for credit losses of $205,520 and $158,576,respectively.		8,361,685		6,716,651
	Prepaid and other assets		2,276,125		2,063,241
	Accrued interest receivable		294,420		229,576
	Investments		44,576,454		39,476,522
	Operating lease right-of-use asset		6,473,953		7,108,454
	Fixed assets, net of accumulated depreciation of $44.5 million and $40.5 million, respectively		18,214,981		17,133,695

	TOTAL ASSETS	$	84,065,143	$	76,222,195

	LIABILITIES AND NET ASSETS

	Accounts payable and accrued liabilities	$	4,650,484	$	4,028,668
	Accrued vacation payable		1,257,154		1,195,938
	Data subscription contract liabilities		336,070		359,508
	Capital lease liability		1,187		2,151
	Operating lease liability		10,810,635		11,929,529

	Total liabilities		17,055,530		17,515,794

	Undesignated net assets		64,755,896		51,870,550

	Board designated, systems modernization fund		2,253,717		6,835,851


	Net assets — without restrictions		67,009,613		58,706,401

	TOTAL LIABILITIES AND NET ASSETS	$	84,065,143	$	76,222,195

The accompanying notes are an integral part of these financial statements.



STATEMENTS OF ACTIVITIES


	For the years ended September 30, 2024 and 2023	2024		2023

	REVENUE:

	Underwriting fees	$	14,991,982	$	10,886,294
	Transaction fees		18,494,388		17,714,887
	Trade count fees		11,572,792		10,507,502
	Annual and initial fees		1,433,000		1,494,000
	Data subscriber fees		2,623,706		2,386,429
	Municipal advisor professional fees		2,997,680		3,030,360
	529 plan underwriting fees		1,454,429		1,269,753
	Rule violation fine revenue		920,264		153,694
	Other income		2,990,316		1,631,452

	Total Revenue		57,478,557		49,074,371

	EXPENSES:

	Program services expense
	Information Technology Services		11,413,244		9,963,367
	Market Transparency Products and Services		17,486,406		17,859,705
	Market Regulation and Market Structure		7,645,413		6,959,263
	External Relations		2,366,101		2,559,864
	Total program services expense		38,911,164		37,342,199
	Supporting services expense
	Governance and Leadership		5,358,147		4,937,577
	Finance, Risk, Human Resources and Administration		4,906,034		4,600,211
	Total supporting services expense		10,264,181		9,537,788
	Total Operating Expenses		49,175,345		46,879,987

	CHANGE IN NET ASSETS		8,303,212		2,194,384

	NET ASSETS — Beginning of year		58,706,401		56,512,017

	NET ASSETS — End of year	$	67,009,613	$	58,706,401

The accompanying notes are an integral part of these financial statements.



STATEMENTS OF FUNCTIONAL EXPENSES


Year ended September 30, 2024

	Program Activities										Supporting Activities
	Information Technology Services		Market Transparency Products and Services		Market Regulation and Market Structure		External Relations		Program Totals		Governance and Leadership		Finance, Risk, Human Resources and Administration		Total Expenses
Compensation of current officers, directors, other salaries and employee benefits	$	4,302,621	$	7,731,289	$	6,113,240	$	1,283,390	$	19,430,540	$	4,158,985	$	3,299,751	$	26,889,276
Fees for services		1,122,123		1,973,312		134,154		581,931		3,811,520		178,484		601,070		4,591,074
Information technology		4,083,621		2,355,983		253,069		167,194		6,859,867		148,052		227,642		7,235,561
Occupancy		461,282		798,847		529,796		108,010		1,897,935		276,837		275,340		2,450,112
Travel and meetings		5,151		12,576		248,908		50,867		317,502		251,522		75,487		644,511
Depreciation and amortization		91,857		4,181,954		115,326		23,512		4,412,649		60,262		59,936		4,532,847
Insurance		36,444		68,991		45,755		9,328		160,518		179,605		23,779		363,902
Data and information services		1,139,591		—		98,304		9,649		1,247,544		—		—		1,247,544
Dues, registration and training		33,890		18,074		14,585		5,638		72,187		43,804		51,231		167,222
Property and other taxes		51,213		207,254		10,191		16,156		284,814		7,175		15,702		307,691
Office and other expenses		85,451		138,126		82,085		110,426		416,088		53,421		276,096		745,605
Total Expenses	$	11,413,244	$	17,486,406	$	7,645,413	$	2,366,101	$	38,911,164	$	5,358,147	$	4,906,034	$	49,175,345

The accompanying notes are an integral part of these financial statements.



STATEMENTS OF FUNCTIONAL EXPENSES


As conformed to current year presentation, Year ended September 30, 2023

	Program Activities										Supporting Activities
	Information Technology Services		Market Transparency Products and Services		Market Regulation and Market Structure		External Relations		Program Totals		Governance and Leadership		Finance, Risk, Human Resources and Administration		Total Expenses
Compensation of current officers, directors, other salaries and employee benefits	$	3,485,292	$	8,423,231	$	5,408,229	$	1,389,391	$	18,706,143	$	3,516,810	$	3,190,942	$	25,413,895
Fees for services		1,329,553		1,930,128		244,899		603,539		4,108,119		486,874		422,471		5,017,464
Information technology		3,116,765		2,338,466		199,425		172,798		5,827,454		114,215		199,571		6,141,240
Occupancy		452,048		755,921		482,313		123,716		1,813,998		237,342		274,087		2,325,427
Travel and meetings		9,132		2,954		271,246		48,381		331,713		244,681		88,710		665,104
Depreciation and amortization		97,032		3,935,832		110,731		28,403		4,171,998		54,490		62,926		4,289,414
Insurance		38,739		69,287		44,208		11,340		163,574		176,699		25,123		365,396
Data and information services		1,174,706		—		88,144		7,689		1,270,539		—		—		1,270,539
Dues, registration and training		42,797		13,627		10,752		3,853		71,029		32,268		61,800		165,097
Property and other taxes		120,604		288,424		15,870		77,112		502,010		9,250		21,640		532,900
Office and other expenses		96,699		101,835		83,446		93,642		375,622		64,948		252,941		693,511
Total Expenses	$	9,963,367	$	17,859,705	$	6,959,263	$	2,559,864	$	37,342,199	$	4,937,577	$	4,600,211	$	46,879,987



STATEMENTS OF FUNCTIONAL EXPENSES


As previously presented, Year ended September 30, 2023

	Program Activities										Supporting Activities
	Market Regulation		Market Transparency and Technology		Market Structure and Data		External Relations		Program Totals		Governance and Leadership		Finance, Human Resources and Administration		Total Expenses
Compensation of current officers, directors, other salaries and employee benefits	$	4,037,063	$	9,448,276	$	3,672,352	$	1,420,374	$	18,578,065	$	3,576,248	$	3,259,582	$	25,413,895
Fees for services		177,876		2,668,205		644,253		606,314		4,096,648		492,196		428,620		5,017,464
Information technology		106,596		5,455,016		137,424		164,154		5,863,190		97,630		180,420		6,141,240
Occupancy		355,426		981,331		340,759		126,203		1,803,719		242,112		279,596		2,325,427
Travel and meetings		270,531		9,756		3,137		48,363		331,787		244,647		88,670		665,104
Depreciation and amortization		81,600		3,980,833		78,233		28,974		4,169,640		55,583		64,191		4,289,414
Insurance		32,578		87,253		31,234		11,568		162,633		177,135		25,628		365,396
Data and information services		29,141		1,174,706		59,003		7,689		1,270,539		—		—		1,270,539
Dues, registration and training		10,169		45,147		12,207		3,785		71,308		32,139		61,650		165,097
Property and other taxes		10,475		351,846		63,831		76,868		503,020		8,781		21,099		532,900
Office and other expenses		50,739		169,288		60,888		93,847		374,762		65,352		253,397		693,511
Total Expenses	$	5,162,194	$	24,371,657	$	5,103,321	$	2,588,139	$	37,225,311	$	4,991,823	$	4,662,853	$	46,879,987

The accompanying notes are an integral part of these financial statements.



STATEMENTS OF CASH FLOWS


	For the years ended September 30, 2024 and 2023	2024			2023

	CASH FLOWS FROM OPERATING ACTIVITIES:

	Change in net assets	$	8,303,212		$	2,194,384
	Adjustments to reconcile change in net assets to net cash provided by operating activities:
	Depreciation and amortization		4,532,847			4,289,414
	Net loss on disposal of long-lived assets		39,975			7,864
	Unrealized gains on investments		(1,404,035	)		(492,866	)
	Realized gains on investments		(29,005	)		(30,105	)
	Bad debt expense		68,272			25,744
	Changes in assets and liabilities:
	Accounts receivable		(1,713,306	)		(2,646,906	)
	Prepaid and other assets		(228,884	)		(273,637	)
	Accrued interest receivable		(64,844	)		(85,968	)
	Operating lease activity		(484,393	)		(503,871	)
	Accounts payable and accrued liabilities		757,603			(945,848	)
	Accrued vacation payable		61,216			50,390
	Data subscription contract liabilities		(23,438	)		68,661


	Net cash provided by operating activities		9,815,220			1,657,256

	CASH FLOWS FROM INVESTING ACTIVITIES:

	Purchases of long-lived assets		(5,773,895	)		(6,294,438	)
	Purchases of investments		(20,466,892	)		(13,682,057	)
	Maturities of investments		16,800,000			17,939,375

	Net cash used in investing activities		(9,440,787	)		(2,037,120	)

	CASH FLOW FROM FINANCING ACTIVITIES:

	Payments of lease obligation		(964	)		(854	)

	Net cash used in financing activities		(964	)		(854	)

	NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		373,469			(380,718	)

	CASH AND CASH EQUIVALENTS, Beginning of year		3,494,056			3,874,774

	CASH AND CASH EQUIVALENTS, End of year	$	3,867,525		$	3,494,056

	SCHEDULE OF NONCASH INVESTING ACTIVITIES
	Accrual of long-lived assets	$	183,451		$	319,238

The accompanying notes are an integral part of these financial statements.

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED September 30, 2024 AND 2023

NATURE OF OPERATIONS

The Municipal Securities Rulemaking Board (MSRB) was created by Congress under the 1975 Amendments to the Securities Exchange Act of 1934, and the authority of the MSRB was expanded by further amendments to the Exchange Act under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (as amended, the Exchange Act). The MSRB is incorporated as a not-for-profit, non-stock corporation pursuant to the laws of the Commonwealth of Virginia. Under the Exchange Act, the MSRB is a self-regulatory organization (SRO) with authority to adopt rules regulating the municipal securities activities of brokers, dealers and municipal securities dealers, and the municipal advisory activities of municipal advisors (collectively referred to as “regulated entities”), to promote fair and efficient markets and to protect investors, municipal entities, obligated persons and the public interest. The MSRB collects and disseminates market information, operates the Electronic Municipal Market Access (EMMA®) website to promote transparency and widespread access to information, and also engages with stakeholders on a variety of topics.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation — The MSRB’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and are presented pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 958, Not-for-Profit Entities (ASC 958). The MSRB is required to report the following net asset classifications:

•

Net assets without restrictions: Net assets that are not subject to donor-imposed restrictions and may be expended for any purpose in performing the primary objectives of the MSRB. These net assets may be used at the discretion of the MSRB’s management and the Board.

•

Net assets with restrictions: Net assets subject to stipulations imposed by donors and grantors. The MSRB does not have donor restricted net assets.

Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments--Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. It requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The MSRB adopted ASU 2016-13 as of October 1, 2023, under the modified retrospective transition method. An allowance for credit losses under the current expected credit losses (CECL) methodology is determined using the loss rate approach and measured on a collective (pool) basis when similar risk characteristics, such as financial asset type and the historical or expected credit loss pattern, exist. The allowance for credit losses is based on relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. The change in the allowance for credit losses on the date of adoption was not material to the financial statements. The allowance for credit losses as of September 30, 2024 was $205,520, of which $70,623 related to underwriting fees, transaction and trade count fees, municipal advisor per professional fees, and, data subscribers, and $134,897 related to annual, late and finance fees which are receivables with similar risk characteristics.

Prior to the adoption of ASC 326, the MSRB maintained an allowance for doubtful accounts to reserve for potentially uncollectible receivables. The allowance for doubtful accounts as of September 30, 2023 was $158,576.

Fair Value Measurement — The MSRB measures fair value in accordance with the provisions of Financial Accounting Standards Board (FASB) ASC 820, Fair Value Measurement, which provides a common definition of fair value for GAAP, establishes a framework for measuring fair value, provides a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements.

Cash Equivalents — Highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents. Included in cash equivalents are short term money market mutual funds fully invested in securities backed by the full faith and credit of the United States (U.S.) Government with a total fair market value of approximately $2.7 million and $2.6 million at September 30, 2024 and 2023, respectively.

Investments — Investments are stated at fair value. Investments consist of U.S. Treasury notes, obligations of U.S. government sponsored enterprises that are fully guaranteed by the U.S. Government, and certificates of deposit that are FDIC insured.

Accounts Receivable, Net of Allowance for Credit Losses — Accounts receivable are recorded at invoiced amounts and do not bear interest. Accounts receivable are reported net of an allowance for credit losses in the statements of financial position. Management’s estimate of the allowance for credit losses is based on consideration of credit risk and analysis of receivables aging, specific identification of certain receivables that are at risk of not being paid, past collection experience, current conditions, and reasonable and supportable forecasts. Account balances are written off against the allowance once the potential for recovery is considered remote.

Concentration of Credit Risk — Financial instruments that potentially subject the MSRB to a concentration of credit risk consist principally of cash, cash equivalents, accounts receivable and investments. The MSRB maintains cash primarily in non-interest-bearing accounts with FDIC insurance up to $250,000 with balances at one financial institution exceeding the FDIC limit by approximately $855,000 and $647,000 at September 30, 2024 and 2023, respectively. Investments of the MSRB are backed by the full faith and credit of the U.S. Government, or its fully guaranteed government sponsored enterprises. Accounts receivable consist of fees due from regulated entities and data subscribers. At times, there are certain significant balances due from regulated entities but the MSRB does not believe it is exposed to any significant credit risk on these balances. Six regulated entities accounted for approximately one-third of total fee revenue in fiscal year 2024 and eight regulated entities accounted for approximately one-third of total fee revenue in fiscal year 2023.

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things, realization of accounts receivable, the carrying value of investments, the impairment of long-lived assets, and the capitalization of internally developed software costs. Actual results could differ from those estimates.

Fixed Assets — Computer and office equipment, as well as furniture and fixtures and capitalized software costs, are recorded at cost and are depreciated using the straight-line method over three years and five years, respectively. Acquisition costs include all expenses necessary to prepare the asset for its intended purpose including direct labor related costs. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease period or the estimated useful life of the improvement. Improvements and replacements of fixed assets are capitalized. Maintenance and repairs that do not improve or extend the lives of fixed assets are charged to expense as incurred.

When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts, and any gain or loss is recognized in the statements of activities.

Capitalized Software Costs — The MSRB capitalizes certain costs associated with computer software developed or obtained for internal use as part of the MSRB information systems. The MSRB’s policy provides for the capitalization of external direct costs of materials and services and direct payroll-related costs incurred during the application development stage as well as costs related to upgrades and enhancements to this software provided it is probable that these expenditures will result in additional functionality. Costs associated with preliminary project stage activities, training, maintenance and post implementation stage activities are expensed as incurred.

After all substantial testing and deployments are completed and the software is ready for its intended use, internally developed software costs are amortized using the straight-line method over three or five years, depending upon the expected useful life.

Software as a Service Implementations— As the MSRB continues to modernize systems and advances its Strategic Plan goals of Market Data and Market Transparency, costs to implement software licensed or hosted by a third-party vendor in cloud computing environments offered as a service are incurred. Implementation costs incurred during the onboarding or customization stage are generally capitalized and amortized over the term of the software service or hosting arrangement on a straight-line basis. For the years ended September 30, 2024 and 2023, the MSRB capitalized $13,400 and $3,180, respectively, of costs incurred to implement software as a service arrangement. Amortization expense of capitalized implementation costs for cloud computing arrangements totaled approximately $24,000 and $19,200 for the years ended September 30, 2024 and 2023, respectively, which is included in computer licenses, maintenance and supplies within the statement of functional expenses. The net deferred cloud implementation costs of approximately $19,300 and $32,700 are included on the statements of financial position within prepaid expenses and other assets at September 30, 2024 and 2023, respectively, and will be expensed over the term of the related cloud computing arrangements.

Impairment of Long-Lived Assets — The MSRB’s policy is to review its long-lived assets, such as fixed assets and capitalized software costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment, if any, is recognized in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset.

Leases — The MSRB determines whether an arrangement constitutes a lease at the inception of the contract. This determination aligns with the guidelines specified in ASC 842 and involves evaluating various factors. Key considerations include assessing its own ability to control and direct the use of the asset and determining whether the counterparty holds a substantive substitution right.

The MSRB leases office space under a non-cancelable operating lease which includes options that permit renewals for additional periods as well as a one-time option to terminate with a significant termination penalty. The lease agreement does not contain any material residual value guarantee, restrictive covenant, or variable lease payments that would be included in the operating lease liability.

Under ASC 842, right-of-use assets (ROU) represent the MSRB's entitlement to utilize underlying assets for the lease term, while lease liabilities represent MSRB's commitment to make lease payments throughout the lease period. The recognition of ROU assets and lease liabilities occurs on the lease's commencement date, based on the present value of lease payments over the agreed-upon lease term. The MSRB employs the implicit rate when it is readily determinable to discount lease cash flows. In cases where the implicit rate cannot be determined, the MSRB uses its collateralized interest rate.

ROU assets and lease liabilities resulting from operating leases are disclosed on the statements of financial position. The MSRB has one finance lease and it is included in fixed assets, and capital lease liabilities in the statements of financial position.

Data Subscription Contract Liabilities — Data subscription contract liabilities relates to payments received in advance of the satisfaction of performance under the data subscription contract which is the delivery of the data feeds. The MSRB receives payments from data subscribers based upon the terms established in its contracts.

Functional Allocation of Expenses — The costs of providing the various organizational activities and programs have been summarized on a functional basis in the statements of activities. Certain categories of expenses are attributable to more than one program or supporting function. Therefore, these expenses require allocation determined by management on a reasonable basis that is consistently applied. The expenses that are allocated include depreciation and amortization, occupancy, internal information technology, office expenses, general insurance, and personal property taxes, which are allocated based upon a percentage of total salaries. Certain salaries were allocated based upon estimated efforts.

Functional Descriptions:

Information Technology Services — The Information Technology Services team operates, maintains and enhances the MSRB’s technology infrastructure, ensuring secure and resilient systems for both the market and MSRB internal systems.

Market Transparency Products and Services — The Market Transparency Products and Services team develops, builds and maintains mission-driven market transparency and regulatory products that provide access to municipal market data and value-added services for all market participants and the public with the goal of promoting market intelligence, transparency, and efficiency.

Market Regulation and Market Structure — The Market Regulation team works to maintain a prudent and practical regulatory framework for the municipal market through rulemaking, regulatory coordination and enforcement support, and professional qualifications of municipal market professionals.

The Market Structure group provides research, economic analysis and expertise to inform the MSRB regulatory and other activities and to assist market participants, policymakers and the public in developing a deeper understanding of the municipal securities market.

External Relations — The External Relations team builds the bridges that connect the MSRB with its diverse community of stakeholders through communication, stakeholder engagement and education.

Governance and Leadership — The Board of Directors, in partnership with an executive team led by the MSRB’s CEO, is responsible for the overall management and governance of the MSRB.

Finance, Risk, Human Resources and Administration — The Finance, Risk, Human Resources and Administration teams provide essential internal functions, including financial operations and transparency, effective internal controls and risk management, staff recruitment and professional development, and a safe and well-equipped work environment.

Reclassifications—Certain amounts in the fiscal year 2023 financial statements have been reclassified to conform to the fiscal year 2024 presentation. For the fiscal year 2023 functional expense reporting, functional areas have been redefined to align with the MSRB’s allocation of resources to strategic goals to deploy the tools of regulation, technology and data in impactful ways that strengthen the municipal securities market and serve the public trust. Redefining functional areas required certain salaries and expenses attributable to the function, be reallocated based upon estimated efforts and expenses that are allocated based upon a percentage of total salaries being reallocated.

Reciprocal Transactions — The MSRB receives municipal credit ratings data for municipal securities in exchange for its data subscription service feeds. The revenue and expenses are recognized in the statements of activities at the same data subscription fee rate that other data subscribers pay for similar services. Revenue and expenses recognized totaled $137,500 for each of the years ended September 30, 2024 and 2023.

Revenue Recognition:

As the self-regulatory organization for the municipal market, the MSRB's performance obligations under the Exchange Act include the adoption of rules regulating the municipal securities activities of brokers, dealers and municipal securities dealers, and the municipal advisory activities of municipal advisors, collecting and disseminating market information, and operating the Electronic Municipal Market Access (EMMA®) website. In addition, the MSRB engages in outreach and provides education to stakeholders and provides enforcement support to other regulators who enforce MSRB rules. Circumstances may exist where such revenue could be variable, the estimate of variable consideration is not typically constrained, as any effects of such variable consideration are known to the MSRB at year end.

Underwriting Fees — The underwriting fee on municipal securities dealers acting as underwriters is required to be paid per Rule A-13 and is equal to $0.0297 per $1,000 of the par value of municipal securities purchased by underwriters from an issuer as part of a new issue for the period October 1, 2022 through September 30, 2024 except for the period January 1, 2024 through January 28, 2024 at which time the fee is $.0371 per $1,000 of par.

The performance obligation associated with underwriting fees is satisfied in the month the underwriter files the offering document with the MSRB at which time revenue is recognized.

Transaction Fees — The transaction fee on municipal securities dealers is required to be paid per Rule A-13 and is $0.0107 per $1,000 par value of bonds sold and is levied on both customer and interdealer transactions as specified in Rule A-13 for the period October 1, 2022 through September 30, 2024 except for the period January 1, 2024 to January 28, 2024 at which time the fee is $.0091 per $1,000 of par. As described in this rule, certain transactions are exempt from this fee.

The performance obligation associated with transaction fees is satisfied as transactions are settled at which time revenue is recognized.

Trade Count Fees — The trade count fee on municipal securities dealers is required to be paid per Rule A-13 and is $1.10 per municipal security trade for all customer and interdealer sales transactions for the period October 1, 2022 through September 30, 2024 except for the period January 1, 2024 through January 28, 2024 at which time is $.57 per municipal security trade.

The performance obligation associated with trade count fees is satisfied as sales transactions are settled at which time revenue is recognized.

Data Subscriber Fees — For a fee, the MSRB provides access to the MSRB subscription services that collect, store and provide information pertaining to the municipal securities market. The MSRB Primary Market Disclosure subscription service includes official statements, advance refunding documents and related data. The MSRB Continuing Disclosure subscription service includes continuing disclosure documents and related data from municipal securities issuers, obligated persons and their agents. The Real Time Transaction Reporting subscription service covers data on all municipal securities transactions for purposes of price transparency and surveillance. Finally, the Short-term Obligation Rate Transparency subscription service covers short-term obligation rate reset data and related documents.

Information processed by these systems is sold to subscribers on an annual basis and the performance obligations associated with these data subscriptions are satisfied over-time as services are rendered with revenue recognized straight-line over the period of service. In addition, the MSRB sells annual historical data sets from these systems, with the fee billed and recognized at the time of purchase.

Municipal Advisor Professional Fees — Each municipal advisor that is registered with both the SEC and the MSRB is required to pay an annual per professional fee of $1,060 for fiscal year 2024 and fiscal year 2023 per Rule A-11.

The performance obligation associated with municipal advisor professional fees is satisfied when the number of associated persons for whom the firm has filed a Form MA-1 with the Securities and Exchange Commission (SEC) as of January 31 is confirmed and billed in April at which time revenue is recognized.

529 Plan Underwriting Fees — Underwriters to 529 savings plans must pay an annual fee of $.005 per $1,000 of the total aggregate plan assets as of December 31 of each year as reported on MSRB Form G-45, and as required to be paid per Rule A-13.

The performance obligation associated with 529 plan underwriting fees is satisfied when the total aggregate plan assets as of December each year are reported on MSRB Form G-45 are processed and billed in May at which time revenue is recognized.

Annual and Initial Fees — With respect to each fiscal year of the MSRB in which a regulated entity conducts business, the regulated entity is required to pay an annual fee of $1,000 per Rule A-12. Revenue is recognized when regulated entities are billed annually in October, or when received upon initial registration with the MSRB to conduct business. The initial fee is a

one-time fee of $1,000 which is to be paid by every regulated entity upon registration with the MSRB under Rule A-12. Initial fee revenue is recognized when received.

Rule Violation Fine Revenue — The Dodd-Frank Act provides that fines collected by the SEC for violations of the rules of the MSRB shall be equally divided between the SEC and the MSRB, and that one-third of fines collected by the Financial Industry Regulatory Authority (FINRA) allocable to violations of the rules of the MSRB will be paid to the MSRB, although the portion of such fines payable to the MSRB may be modified at the direction of the SEC upon agreement between the MSRB and FINRA. The performance obligation associated with fine revenue is satisfied when the fines are paid to the SEC or FINRA at which time the MSRB's allocable portion is recognized as revenue.

Professional Qualification Examination Fees — Rule A-16 establishes the examination fee on persons taking certain qualification examinations of $150 per exam. These examinations include the Series 50 (Municipal Advisor Representative Qualification Examination), Series 51 (Municipal Fund Securities Limited Principal Qualification Examination), Series 52 (Municipal Securities Representative Qualification Examination), Series 53 (Municipal Securities Principal Qualification Examination) and Series 54 (Municipal Advisor Principal Qualification Examination).

Professional qualification examination fees are recognized in the month the exams are administered and totaled $287,805 and $281,700 for the years ended September 30, 2024 and 2023, respectively. Professional qualification examination fees are included in other income in the accompanying statements of activities.

INVESTMENTS

Investments as of September 30, 2024 and 2023, consist of the following:


	2024		2023
U.S. Treasury notes	$	36,407,348	$	31,531,428
Certificates of deposit		7,668,808		7,451,270
Government-guaranteed agency securities		500,298		493,824
Total investments	$	44,576,454	$	39,476,522

Government-guaranteed agency securities include Federal National Mortgage Association and Federal Home Loan Mortgage Corporation bonds, government sponsored enterprises fully guaranteed by the U.S. Government.

In September 2014, a letter of credit in the amount of $130,000 was accepted as a security deposit by the landlord under the terms of the new office lease in Washington, D.C. The MSRB purchased a certificate of deposit for the same amount to collateralize the letter of credit. This holding is included in certificates of deposit and is valued at $139,403 as of September 30, 2024 and 2023.

Net investment returns disclosed net of internal direct investment expenses of $15,888 and $12,548 in 2024 and 2023, respectively are included in other income in the accompanying statements of activities for the fiscal years ended September 30, 2024 and 2023 and consists of the following:


	2024		2023
Interest and dividends	$	1,034,928	$	647,066
Unrealized gain		1,404,035		492,866
Realized gain		29,005		30,105
Total net investment return	$	2,467,968	$	1,170,037

FAIR VALUE MEASUREMENTS

The carrying amounts of financial instruments, including cash and cash equivalents not subject to fair value measurements, receivables, accounts payable and accrued expenses, approximate fair value as of September 30, 2024 and 2023 because of the relatively short duration of these instruments.

The MSRB carries certain financial instruments at fair value which it defines as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The MSRB is responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions.

The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. The MSRB maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing

observability, and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, and the characteristics specific to the transaction, liquidity and general market conditions.

The MSRB’s policy uses the GAAP framework for measuring fair value, which provides a fair value hierarchy based on observable inputs. The hierarchy reflects three levels based on the transparency of inputs as follows:

Level 1 — Fair value measurements that are based on quoted prices (unadjusted) in active markets that the MSRB has the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.

Level 2 — Fair value measurements based on inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 — Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, the MSRB would make assumptions about the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The MSRB considers observable market data to be readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the entity’s perceived risk of that instrument.

The MSRB’s Level 2 investments include U.S. Treasury notes, obligations of U.S. government sponsored enterprises fully guaranteed by the U.S. Government and certificates of deposit.

The MSRB bases the fair value on pricing obtained from the MSRB’s investment brokers. The MSRB does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from its brokers. The brokers’ pricing is compared to industry standard data providers or current yields available on comparable securities for reasonableness. The MSRB considers this the most reliable information available for the valuation of investments.

Investments were recorded at fair value as of September 30, 2024 and 2023, based on the following levels of hierarchy:


2024	Level 1		Level 2		Level 3		Total
U.S. Treasury notes	$	-	$	36,407,348	$	-	$	36,407,348
Certificates of deposit		-		7,668,808		-		7,668,808
Government-guaranteed agency securities		-		500,298		-		500,298
Total investments	$	-	$	44,576,454	$	-	$	44,576,454


2023	Level 1		Level 2		Level 3		Total
U.S. Treasury notes	$	-	$	31,531,428	$	-	$	31,531,428
Certificates of deposit		-		7,451,270		-		7,451,270
Government-guaranteed agency securities		-		493,824		-		493,824
Total investments	$	-	$	39,476,522	$	-	$	39,476,522

ACCOUNTS RECEIVABLE

Accounts receivable as of September 30, 2024, and 2023 consist of the following:


	2024			2023
Billed accounts receivable	$	5,750,972		$	4,404,335
Unbilled accounts receivable		2,816,233			2,470,892
		8,567,205			6,875,227
Less: allowance for credit losses		(205,520	)		(158,576	)
Total accounts receivable — net	$	8,361,685		$	6,716,651

Changes in the MSRB's allowance for credit losses for accounts receivable are as follows:


	Year ended September 30, 2024

	Broker-dealer fees			Municipal advisor fees		Data subscriber fees			Annual fees			Late Fees			Total

Beginning of period balance	$	9,769		$	36,102	$	8,711		$	40,666		$	63,328		$	158,576

Provision for / (recovery of expected credit losses)		5,080			17,958		913			15,254			29,557			68,762

Write-offs		(1,035	)		-		(6,875	)		(10,000	)		(3,908	)		(21,818	)

End of period balance	$	13,814		$	54,060	$	2,749		$	45,920		$	88,977		$	205,520

Unbilled receivables at September 30, 2024, 2023 and 2022 consist primarily of September transaction and trade count fees billed in early November. Beginning receivables at October 1, 2022 were $4,245,206 including billed accounts receivable and unbilled receivables of $2,651,605 and $1,593,601, respectively.

PREPAID AND OTHER ASSETS

Prepaid and other assets as of September 30, 2024 and 2023 consist of the following:


	2024		2023
Prepaid assets	$	2,260,914	$	2,040,358
Deposits		15,211		22,883
Total prepaid and other assets	$	2,276,125	$	2,063,241

FIXED ASSETS

Fixed assets as of September 30, 2024 and 2023 consist of the following:


	2024			2023
Capitalized software costs	$	55,014,453		$	49,687,576
Leasehold improvements		4,443,677			4,397,760
Computer and office equipment		1,483,904			1,777,866
Furniture and fixtures		1,737,163			1,729,884
Total fixed asset acquisition costs		62,679,197			57,593,086
Less accumulated depreciation and amortization:
Capitalized software costs		(39,016,145	)		(35,148,993	)
Leasehold improvements		(2,567,958	)		(2,269,682	)
Computer and office equipment		(1,293,404	)		(1,489,283	)
Furniture and fixtures		(1,586,709	)		(1,551,433	)
Total fixed asset accumulated depreciation and amortization		(44,464,216	)		(40,459,391	)
Total fixed assets - net	$	18,214,981		$	17,133,695

Depreciation expense and amortization expense during fiscal years 2024 and 2023 are as follows:


	2024		2023
Depreciation expense	$	226,509	$	226,766
Amortization expense for capitalized software cost and leasehold improvements		4,306,338		4,062,648
Total depreciation and amortization expense	$	4,532,847	$	4,289,414

Impairment of long-lived assets — Through regular review of long-lived assets, in fiscal years 2024 and 2023 no estimated impairment loss was recognized.

Leasehold improvements — In conjunction with the Washington, D.C. office lease, the landlord provided up to $4.4 million in landlord incentives, of which $4.03 million funded leasehold improvements and $323,000 offset future rent payments.

Capitalized software costs — For the fiscal years ended September 30, 2024 and 2023, $10.5 million and $5.4 million, respectively, of internally developed work-in-process costs for software not yet implemented are included in capitalized software costs.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of September 30, 2024 and 2023 consist of the following:


	2024		2023
Accounts payable and accrued expenses	$	1,518,033	$	1,710,593
Salaries, taxes and benefits payable		3,132,451		2,318,075
Total accounts payable and accrued liabilities	$	4,650,484	$	4,028,668

LEASES

Operating Leases — The MSRB leases office space under operating lease arrangements. The MSRB moved to new office space in Washington, D.C. in December 2015 and the lease will expire in fiscal year 2031.

As of October 1, 2022, the MSRB recognized an operating lease ROU asset of $7.6 million, inclusive of a $5.3 million deferred rent adjustment, and an operating lease liability of $12.9 million.

The MSRB elected certain practical expedients when implementing the standard. These expedients allow the MSRB to avoid reassessing whether expired or existing contracts constitute leases, the lease classification of such leases, and the initial direct costs of existing leases as of the effective date. The MSRB also elected to combine lease and related non-lease components and to exclude a ROU asset or liability for short-term contracts, defined as those with a term of twelve months or less.

Maturities of operating lease liabilities are as follows:


Years Ending September 30
2025	$	1,918,188
2026		1,966,188
2027		2,015,352
2028		2,065,692
2029		2,117,388
2030 and beyond		3,269,070
Total operating lease payments	$	13,351,878
Less interest		(2,541,343	)
Operating lease liability	$	10,810,635

Included in fiscal years 2024 and 2023 furniture and fixtures is the capitalized lease of a postage meter with a cost of $4,536 and recognized amortization expense of $864 in fiscal year ended September 30, 2024 and 2023.

Maturities of capital lease liabilities are as follows:


Years Ending September 30
2025	$	1,164
2026		97
2027		-
2028		-
2029		-
2030 and beyond		-
Total capital lease payments	$	1,261
Less interest		(74	)
Present value of lease payments	$	1,187

Supplemental information related to leases is presented in the table below:


Years ended September 30	2024		2023

Amortization of right-of-use assets - finance lease	$	877	$	877
Interest on lease liabilities - finance lease		200		310
Operating lease cost		1,386,953		1,386,953
Variable lease cost (common charges)		1,015,643		1,035,521
Total Lease Cost	$	2,403,673	$	2,423,661

Finance lease - operating cash flows	$	200	$	310
Operating lease - operating cash flows (fixed payments)		1,871,346		1,825,674
Operating lease - operating cash flows (liability reduction)	$	1,118,894	$	1,007,152

As of September 30	2024		2023
Weighted Average Lease Term - Finance Leases	1.00 yrs		2.01 yrs
Weighted Average Lease Term - Operating Leases	6.50 yrs		7.50 yrs
Weighted Average Discount Rate - Finance Leases	12.25%		12.25%
Weighted Average Discount Rate - Operating Leases	6.65%		6.65%

10.

RETIREMENT PLAN

The MSRB has a defined contribution retirement plan for all employees. Participation commences upon date of hire as described in the plan document. For all active participants employed on the first day of the calendar quarter, the MSRB makes a quarterly contribution as required by the plan document. The contribution percentage ranges from 7% to 9% depending on the length of service as set forth in the plan document.

Each employee is fully vested upon being credited with three plan years of service. Employees may also make voluntary contributions to the plan. The MSRB made contributions to the plan totaling $1,617,338 and $1,487,108 for the years ended September 30, 2024 and 2023, respectively.

All administrative expenses of the plan are paid by the MSRB. Administrative expenses total $1,250 and $1,750 for the years ended September 30, 2024 and 2023, respectively.

11.

INCOME TAXES

The MSRB is exempt from federal and state taxes on income (other than unrelated business income) under Section 501(c)(6) of the Internal Revenue Code (IRC) and applicable income tax regulations of the Commonwealth of Virginia and District of Columbia. The MSRB files an annual informational tax form, Form 990, with the Internal Revenue Service.

The MSRB addresses uncertain tax positions in accordance with ASC Topic 740, Income Taxes, which provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. During the years from 2021 to 2024, which represent the years management considers to be open for examination by taxing authorities, management did not identify the existence of any uncertain tax position.

12.

AVAILABILITY OF RESOURCES AND LIQUIDITY

The following represents the MSRB’s financial assets at September 30, 2024 and 2023:


	2024		2023
Cash and cash equivalents	$	3,867,525	$	3,494,056
Investments		44,576,454		39,476,522
Accounts receivable - net		8,361,685		6,716,651
Accrued interest receivable		294,420		229,576
Total financial assets		57,100,084		49,916,805
Less amounts not available to be used within one year:
Certificate of deposit held as collateral for lease letter of credit		139,403		139,403
Board designated net assets		2,253,717		6,835,851
		2,393,120		6,975,254
Financial assets available to meet general expenditures over the next twelve months	$	54,706,964	$	42,941,551

Organizational reserves are maintained to ensure the MSRB has appropriate resources to support mission objectives, respond to regulatory requirements and pursue opportunities, to enable the organization to be fiscally prepared regardless of economic conditions, to provide the MSRB with the requisite level of liquidity to fund ongoing operations, and to ensure the long-term financial sustainability of the organization. The MSRB determines the target for organizational reserves by conducting a detailed and comprehensive analysis of the liquidity needs in four categories: Working Capital, Risk Reserves, Strategic Investment Reserves and Regulatory Reserves.

Certain funding priorities exist based on the MSRB’s responsibilities as an SRO. These priorities include:

•

funding to maintain modern and informed regulation of dealers and municipal advisors that reflects current market practices and protects investors, issuers and the public interest, including by conducting economic analysis, establishing and maintaining a professional qualifications program, and providing coordination and support to the regulatory authorities that examine compliance with and enforce the MSRB rules;

•

funding to establish, maintain, and enhance information systems for the municipal securities market and provide market transparency for issuers, institutions, and the investing public, including transaction-related data and documents and data related to bond issuances;

•

funding to provide high quality market data to enable comprehensive analysis of the municipal securities market, including developing data products and services that provide value for investors, issuers and all market participants to strengthen market efficiency and fairness;

•

funding to ensure the MSRB fulfills its obligation to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products, and, in general, to protect investors, municipal entities, obligated persons, and the public interest, including by fostering dialog and working collaboratively with all market participants and the broader community we serve;

•

funding for stakeholder engagement activities and education, including receiving information from municipal market participants and other stakeholders to provide input that informs the rulemaking process, as well as ensuring that these stakeholders are aware of regulatory developments that may affect them and are educated on the MSRB rules;

•

funding to support the internal administrative functions of the MSRB and to administer the activities of the Board and its committees; and

•

funding sufficient to maintain a prudent level of liquid reserves, taking into consideration a range of reasonably foreseeable market conditions and expected expenditures over a three-year time horizon.

As discussed in note 13, certain unrestricted net assets have been designated by the Board for specific strategic objectives. These assets are restricted to use by self-imposed limits by action of the Board and are not available for general expenditures. The Board designation can be changed by the Board and the net assets can be made available for general expenditures.

13.

BOARD DESIGNATED NET ASSETS

In July 2020, in conjunction with the fiscal year 2021 budget recommendation, the Board approved a $10 million designation of undesignated net assets to fund a multi-year strategic investment to modernize its market transparency systems to leverage the power of the cloud. In July 2021 and 2023, the Board approved an additional $7.5 million and $3.5 million, respectively, to increase this designation and provide sufficient funds to cover the planned spend of systems modernization initiatives.


	2024			2023
Designated, systems modernization fund — balance beginning of year	$	6,835,851		$	9,123,285
Additional Board designation		-			3,500,000
Systems modernization spend		(4,582,134	)		(5,787,434	)
Designated, systems modernization fund	$	2,253,717		$	6,835,851

14.

DATA SUBSCRIPTION CONTRACT LIABILITIES

Data subscription contract liabilities relate to payments received in advance of the satisfaction of performance under the data subscription contract. The MSRB receives payments from data subscribers based upon the terms established in its contracts.

The following table provides information about significant changes in the data subscription contracts paid in advance at September 30, 2024 and 2023.


	2024			2023
Data subscription fees paid in advance, beginning of year	$	359,508		$	290,847

Revenue recognized that was included in data subscription contract liabilities at the beginning of the year		(359,508	)		(290,847	)
Increase in data subscription contract liabilities due to cash received during the period		336,070			359,508

Data subscription fees paid in advance, end of the year	$	336,070		$	359,508

15.

SUBSEQUENT EVENTS

The MSRB evaluated its September 30, 2024 financial statements for subsequent events through December XX, 2024, the date the financial statements were available to be issued. The MSRB is not aware of any subsequent events that would require recognition or disclosure in the financial statements.