We have audited the accompanying financial statements of The Municipal Securities Rulemaking Board (the "MSRB"), which comprise the statements of financial position as of September 30, 2023 and 2022, and the related statements of activities, functional expenses and of cash flows for the years then ended, including the related notes (collectively referred to as 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, 2023 and 2022, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

We conducted our audit 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 Auditors' 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.

As discussed in Note 2 to the financial statements, the MSRB changed the manner in which it accounts for leases in 2023. Our opinion is not modified with respect to this matter.

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.

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 auditors' 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

PricewaterhouseCoopers LLP, 655 New York Ave NW, Suite 1100, Washington, District Of Columbia 20001

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.

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.

PricewaterhouseCoopers LLP, 655 New York Ave NW, Suite 1100, Washington, District Of Columbia 20001

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 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 February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). This Standard was introduced to enhance transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on their financial statements. It also mandates the disclosure of essential information about leasing arrangements. Under this update, lessees are now obligated to include in their financial statements a liability for lease payments and a right-of-use asset (ROU) representing their right to use the leased asset, whether it's an operating or finance lease. Additionally, the statement of activities should now reflect lease expenses for operating leases and amortization plus interest expenses for financing leases.

In 2018, FASB issued ASU 2018-11, Targeted Improvements, which introduced an optional transition method. This method allows entities to adopt ASC 842 retrospectively at the start of the adoption period. The MSRB chose this transition method when adopting the standard on October 1, 2022. This adoption did not result in a cumulative-effect adjustment to the net assets without restrictions. Under this approach, comparative prior periods remain unaltered, in line with the MSRB's historical accounting policy.

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. As of September 30, 2023, the amortized balances of the operating lease ROU asset and the operating lease liability were $7.1 million and $11.9 million, respectively.

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.

The MSRB has adopted Accounting Standards Update (ASU) 2018-15 - Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 250-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The MSRB adopted the standard on October 1, 2021, using the prospective transition approach, under which we apply the guidance to all eligible costs incurred subsequent to adoption and therefore no changes to the previously issued audited financial statements were required.

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 $2.6 million and $2.1 million at September 30, 2023 and 2022, 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 and Allowance for Doubtful Accounts — Accounts receivable are recorded at invoiced amounts and do not bear interest. Accounts receivable are reported net of an allowance for doubtful accounts in the statements of financial position. Management’s estimate of the allowance for doubtful accounts is based on historical collection experience and ongoing account reviews. 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 $647,000 and $1,525,000 at September 30, 2023 and 2022, respectively. MSRB investments 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. Eight regulated entities accounted for approximately one-third of total fee revenue in fiscal years 2023 and 2022.

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, 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 we continue to modernize systems and advance our Strategic Plan goals of Market Data and Market Transparency, we incur costs to implement software licensed or hosted by a third-party vendor in cloud computing environments offered as a service. 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 year ended September 30, 2023 and 2022, we capitalized $3,180 and $65,000, respectively, of costs incurred to implement software as a service arrangement. These costs were primarily related to the implementation of a data extraction and transformation software service for PDF documents and a platform hosting service for the MSRB’s website hosting software. Amortization expense of capitalized implementation costs for cloud computing arrangements totaled approximately $19,200 and $16,000 for the years ended September 30, 2023 and 2022, respectively, which is included in computer licenses, maintenance and supplies, consulting expenses and professional services within the statement of functional expenses. The net deferred cloud implementation costs of approximately $32,700 and $49,000 are included on the statements of financial position within prepaid expenses and other assets at September 30, 2023 and 2022, 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 our 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, ROU assets represent the MSRB's entitlement to utilize underlying assets for the lease term, while lease liabilities represent our 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 statement 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.

Deferred Rent — Upon transition to ASC 842, deferred rent was recorded as an adjustment to the operating lease ROU assets for the office lease. Prior to the adoption of ASC 842 and for fiscal year 2022, rent was recognized on a straight-line basis over the term of the lease. The difference between rent expense recognized and rental payments made, as stipulated in the lease, was recognized as increases or decreases to deferred rent.

In addition, lease incentives were recorded as deferred rent when control of the office space was obtained. Deferred rent related to lease incentives was amortized on a straight-line basis over the lease term.

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. We receive payments from data subscribers based upon the terms established in our 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:

Market Regulation — This group is responsible for developing and maintaining the MSRB rules that establish responsibilities and standards for brokers, dealers, and municipal securities dealers affecting municipal securities transactions and for municipal advisors that engage in municipal advisory activities. These staff also maintain the MSRB’s professional qualifications program, create compliance and educational resources for regulated entities and provide assistance to other securities regulators that examine for compliance with and enforce MSRB rules.

Market Transparency and Technology — These groups are responsible for developing and operating the MSRB's market transparency and information systems that receive, process and disseminate data and documents relied on by the municipal securities market, supporting business operations and optimizing the business experience. Cybersecurity prevention, detection and incident response are also the responsibility of these staff.

Market Structure and Data — These groups are responsible for initiatives that provide insight into the municipal market through data, research and analysis. This includes a focus on the governance, quality and analysis of data collected by the MSRB's market transparency systems and providing economic analysis and research relating to regulatory and transparency projects. Economic analysis informs the regulatory approach to addressing an identified need for rulemaking and evaluates the cost of the regulation against the benefit to the market. Working with market transparency and technology, these groups also guide strategic development and ongoing improvements of MSRB's market transparency systems including the EMMA(R) website.

External Relations — This group is responsible for managing and supporting efforts to engage and communicate with external stakeholders, including investors, issuers, regulated entities, fellow regulators and policy makers responsible for oversight of the MSRB. The MSRB’s external relations staff oversee MSRB corporate communications, government relations events, education programs and related activities.

Governance and Leadership — This group consists of the members of the Board of Directors and certain staff, including executive leadership and internal legal and governance staff in supporting roles. The Board of Directors consists of a of majority public members, including issuers and investors, as well as members representing regulated entities, including municipal advisors, broker-dealers and banks. The Board exercises oversight of the operation and administration of the organization, makes policy decisions and authorizes rulemaking and market transparency initiatives.

Finance, Human Resources and Administration — These groups are responsible for the day-to-day financial, risk, people and facilities management at the MSRB ensuring appropriate spending, staffing and application of internal controls while supporting operations. These groups include accounting, administrative services, human resources, finance and risk management.

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 statement 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 the years ended September 30, 2023 and 2022.

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. Consistent with the Board’s stated approach to monitor and manage organizational reserve levels, the Board temporarily reduced the rate of assessment for municipal securities dealers’ underwriting during the third and fourth quarters of fiscal year 2021 extending until September 30, 2022 to $.0165 per $1,000 of the par value of municipal securities purchased by underwriters from an issuer as part of a new issue.

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. As described in this rule, certain transactions are exempt from this fee. Consistent with the Board’s stated approach to monitor and manage organizational reserve levels, the Board temporarily reduced the rate of assessment for municipal securities dealers’ transaction fees related to market activity during the third and fourth quarters of fiscal year 2021 extending until September 30, 2022 to $.0060 per $1,000 of the par value of bonds sold.

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. Consistent with the Board’s stated approach to monitor and manage organizational reserve levels, the Board temporarily reduced the rate of assessment for municipal securities dealers’ trade count fees related to market activity during the third and fourth quarters of fiscal year 2021 extending until September 30, 2022 to $0.60 per municipal security trade. Trade count fees were formerly named technology fees.

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 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 2023 and $1,000 for fiscal year 2022 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 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 $281,700 and $348,300 for the years ended September 30, 2023 and 2022, respectively. Professional qualification examination fees are included in other income in the accompanying statements of activities.

INVESTMENTS

Investments as of September 30, 2023 and 2022, consist of the following:


	2023		2022
U.S. Treasury notes	$	31,531,428	$	33,349,227
Certificates of deposit		7,451,270		9,861,642
Government-guaranteed agency securities		493,824		—
Total investments	$	39,476,522	$	43,210,869

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 and $139,375 as of September 30, 2023 and 2022, respectively.

Net investment returns disclosed net of internal direct investment expenses of approximately $12,548 and $10,400 in 2023 and 2022, respectively are included in other income in the accompanying statements of activities for the fiscal years ended September 30, 2023 and 2022 and consists of the following:


	2023		2022
Interest and dividends	$	647,066	$	658,836
Unrealized gain (loss)		492,866		(1,909,054	)
Realized gain (loss)		30,105		(15,604	)
Total net investment return (loss)	$	1,170,037	$	(1,265,822	)

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, 2023 and 2022 because of the relatively short duration of these instruments.

The MSRB carries certain financial instruments at fair value which we define 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, 2023 and 2022, based on the following levels of hierarchy:


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


2022	Level 1		Level 2		Level 3		Total
U.S. Treasury notes	$	-	$	33,349,227	$	-	$	33,349,227
Certificates of deposit		-		9,861,642		-		9,861,642
Government-guaranteed agency securities		-		-		-		-
Total investments	$	-	$	43,210,869	$	-	$	43,210,869

FIXED ASSETS

Fixed assets as of September 30, 2023 and 2022 consist of the following:


	2023			2022
Capitalized software costs	$	49,687,576		$	44,346,607
Leasehold improvements		4,397,760			4,384,685
Computer and office equipment		1,777,866			2,146,808
Furniture and fixtures		1,729,884			1,705,229
Total fixed asset acquisition costs		57,593,086			52,583,329
Less accumulated depreciation and amortization:
Capitalized software costs		(35,148,993	)		(32,345,860	)
Leasehold improvements		(2,269,682	)		(1,969,320	)
Computer and office equipment		(1,489,283	)		(1,773,965	)
Furniture and fixtures		(1,551,433	)		(1,509,547	)
Total fixed asset accumulated depreciation and amortization		(40,459,391	)		(37,598,692	)
Total fixed assets - net	$	17,133,695		$	14,984,637

Depreciation expense and amortization expense during fiscal years 2023 and 2022 are as follows:


	2023		2022
Depreciation expense	$	226,766	$	162,264
Amortization expense for capitalized software cost and leasehold improvements		4,062,648		3,520,673
Total depreciation and amortization expense	$	4,289,414	$	3,682,937

Impairment of long-lived assets — Through regular review of long-lived assets, in fiscal years 2023 and 2022 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. Included in fiscal year ended September 30, 2023 and 2022 leasehold improvements, is $0 and $42,000, respectively, of work-in-process costs for improvements not yet implemented.

Capitalized software costs — For the fiscal years ended September 30, 2023 and 2022, $5.4 million and $6.2 million, respectively, of internally developed work-in-process costs for software not yet implemented are included in capitalized software costs.

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. Maturities of operating lease liabilities are as follows:


Years Ending September 30
2024	$	1,871,346
2025		1,918,188
2026		1,966,188
2027		2,015,352
2028		2,065,692
2029 and beyond		5,386,458
Total operating lease payments	$	15,223,224
Less imputed interest		(3,293,695	)
Operating lease liability	$	11,929,529

Included in fiscal year 2023 and 2022 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, 2023 and 2022. Maturities of capital lease liabilities are as follows:


Years Ending September 30
2024	$	1,164
2025		1,164
2027		97
2026		0
2027		0
2028 and beyond		0
Total capital lease payments	$	2,425
Less imputed interest		(274	)
Present value of lease payments	$	2,151

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


Year ended September 30, 2023

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

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

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

Prior to the adoption of ASC 842, rent expense for the year ended September 30, 2022 was $2,237,527.

The following table presents the future minimum lease payments under the non-cancelable operating lease as of September 30, 2022 prior to the adoption of ASC 842:


Years Ending September 30
2023	$	1,825,674
2024		1,871,346
2025		1,918,188
2026		1,966,188
2027		2,015,352
2028 and beyond		7,452,150
Total minimum lease payments	$	17,048,898

12.

AVAILABILITY OF RESOURCES AND LIQUIDITY

The following represents MSRB’s financial assets at September 30, 2023 and 2022:


	2023		2022
Cash and cash equivalents	$	3,494,056	$	3,874,774
Investments		39,476,522		43,210,869
Accounts receivable - net		6,716,651		4,095,489
Accrued interest receivable		229,576		143,608
Total financial assets		49,916,805		51,324,740
Less amounts not available to be used within one year:
Certificate of deposit held as collateral for lease letter of credit		139,403		139,375
Board designated net assets		6,835,851		9,123,285
		6,975,254		9,262,660
Financial assets available to meet general expenditures over the next twelve months	$	42,941,551	$	42,062,080

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 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 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.


		Page
REPORT OF INDEPENDENT AUDITORS		1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2023 AND 2022:
Statements of Financial Position		3
Statements of Activities		4
Statements of Functional Expenses		5
Statements of Cash Flows		6
Notes to Financial Statements		7-17



STATEMENTS OF FINANCIAL POSITION


	September 30, 2023 and 2022	2023		2022

	ASSETS

	Cash and cash equivalents	$	3,494,056	$	3,874,774
	Accounts receivable, net		6,716,651		4,095,489
	Prepaid and other assets		2,063,241		1,773,604
	Accrued interest receivable		229,576		143,608
	Investments		39,476,522		43,210,869
	Operating lease right-of-use asset		7,108,454		-
	Fixed assets, net		17,133,695		14,984,637

	TOTAL ASSETS	$	76,222,195	$	68,082,981

	LIABILITIES AND NET ASSETS

	Accounts payable and accrued liabilities	$	4,028,668	$	4,806,635
	Accrued vacation payable		1,195,938		1,145,548
	Data subscription contract liabilities		359,508		290,847
	Capital lease liability		2,151		2,988
	Deferred rent		-		5,324,946
	Operating lease liability		11,929,529		-

	Total liabilities		17,515,794		11,570,964

	Undesignated net assets		51,870,550		47,388,732

	Board designated, systems modernization fund		6,835,851		9,123,285


	Net assets — without restrictions		58,706,401		56,512,017

	TOTAL LIABILITIES AND NET ASSETS	$	76,222,195	$	68,082,981



STATEMENTS OF ACTIVITIES


	For the years ended September 30, 2023 and 2022	2023		2022

	REVENUE:

	Underwriting fees	$	10,886,294	$	7,439,316
	Transaction fees		17,714,887		9,942,109
	Trade count fees		10,507,502		4,777,373
	Annual and initial fees		1,494,000		1,531,000
	Data subscriber fees		2,386,429		2,440,175
	Municipal advisor professional fees		3,030,360		2,937,000
	529 plan underwriting fees		1,269,753		1,497,483
	Rule violation fine revenue		153,694		761,500
	Other income (loss)		1,631,452		(849,892	)

	Total Revenue		49,074,371		30,476,064

	EXPENSES:

	Market Regulation		5,162,194		4,284,828
	Market Transparency and Technology		24,371,657		20,985,107
	Market Structure and Data		5,103,321		4,304,822
	External Relations		2,588,139		2,859,448
	Governance and Leadership		4,991,823		4,865,925
	Finance, Human Resources and Administration		4,662,853		4,258,820

	Total Expenses		46,879,987		41,558,950

	CHANGE IN NET ASSETS		2,194,384		(11,082,886	)

	NET ASSETS — Beginning of year		56,512,017		67,594,903

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



STATEMENTS OF FUNCTIONAL EXPENSES


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



STATEMENTS OF FUNCTIONAL EXPENSES


Year ended September 30, 2022

	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	$	3,491,985	$	8,696,963	$	3,307,397	$	1,444,906	$	16,941,251	$	3,584,533	$	2,965,776	$	23,491,560
Fees for services		72,703		2,352,130		297,383		837,636		3,559,852		425,986		428,699		4,414,537
Information technology		94,881		3,743,931		110,016		214,172		4,163,000		97,456		168,243		4,428,699
Occupancy		333,151		939,189		325,067		133,614		1,731,021		253,708		276,764		2,261,493
Travel and meetings		66,101		10,798		2,813		26,447		106,159		177,088		49,463		332,710
Depreciation and amortization		69,825		3,405,795		68,131		28,004		3,571,755		53,175		58,007		3,682,937
Insurance		30,581		84,368		29,839		12,265		157,053		176,335		25,405		358,793
Data and information services		28,347		1,173,884		40,159		6,583		1,248,973		—		—		1,248,973
Dues, registration and training		13,316		45,362		18,092		1,320		78,090		6,179		44,230		128,499
Property and other taxes		11,799		321,901		38,978		60,930		433,608		11,215		17,759		462,582
Office and other expenses		72,139		210,786		66,947		93,571		443,443		80,250		224,474		748,167
Total Expenses	$	4,284,828	$	20,985,107	$	4,304,822	$	2,859,448	$	32,434,205	$	4,865,925	$	4,258,820	$	41,558,950


	2023			2022
Billed accounts receivable	$	4,404,335		$	2,651,605
Unbilled accounts receivable		2,470,892			1,593,601
		6,875,227			4,245,206
Less allowance for doubtful accounts		(158,576	)		(149,717	)
Total accounts receivable — net	$	6,716,651		$	4,095,489


	2023		2022
Prepaid assets	$	2,040,358	$	1,691,866
Deposits		22,883		81,738
Total prepaid and other assets	$	2,063,241	$	1,773,604


	2023		2022
Accounts payable and accrued expenses	$	1,710,593	$	2,626,301
Salaries, taxes and benefits payable		2,318,075		2,180,334
Total accounts payable and accrued liabilities	$	4,028,668	$	4,806,635


	2023			2022
Designated, systems modernization fund — balance beginning of year	$	9,123,285		$	14,842,395
Additional Board designation		3,500,000			-
Systems modernization spend		(5,787,434	)		(5,719,110	)
Designated, systems modernization fund	$	6,835,851		$	9,123,285


	2023			2022
Data subscription fees paid in advance, beginning of year	$	290,847		$	214,700

Revenue recognized that was included in data subscription contract liabilities at the beginning of the year		(290,847	)		(214,700	)
Increase in data subscription contract liabilities due to cash received during the period		359,508			290,847

Data subscription fees paid in advance, end of the year	$	359,508		$	290,847