By Mark S. Nelson, J.D.
The Municipal Securities Rulemaking Board has withdrawn its proposed rate card that would have adjusted assessments for dealers and municipal advisors. The adjusted fees were put in place late last year and were briefly in effect, but criticism from the industry prompted the SEC to temporarily suspend the MSRB’s changes and to simultaneously institute proceedings to determine whether to approve or disapprove the MSRB’s revised fee structure.
Last summer the MSRB approved adjustments to the rate card that would allow for the MSRB to fund its operations. For FY24, the regulator sought an annual expense budget of $47.4 million, or about 4.8 percent above the FY23 amount. As a result, the underwriting fee would have increased from $0.0297 to $0.0371, and the municipal advisor professional fee would have increased from $1,060 to $1,160. The MSRB's withdrawal of the rate card means that fees will revert to the FY23 levels, at least until the MSRB submits a new funding proposal.
A public comment from a collection of industry groups said the MSRB’s budgeting process lacked transparency to a degree that it was difficult to understand if the proposed fees are reasonable under the applicable statute. The groups also expressed concern that the MSRB’s spending plans may not be sufficiently linked to its Congressional mandate.
“The MSRB's budgeting and rate-setting strategy is alarmingly opaque and troubling, particularly as it entails formulating spending plans before securing revenues to meet these financial targets,” said the groups. “Our interest in this area is great, since MSRB budget increases lead to underwriter and municipal advisor fee increases.”
The MSRB responded to industry comments shortly before the SEC temporarily suspended the rule proposal. Said the MSRB: “The MSRB understood when it first established the Rate Card Process that it would need to review its implementation to ensure that it was operating as intended and that the Rate Card Process would evolve over time. The MSRB will undertake such retrospective review of the Rate Card Process in light of the input received from commenters and the MSRB’s experience implementing the first rate adjustment to establish the 2024 Rate Card Fees.”
In a footnote to this passage, the MSRB observed that the rate card process was begun during a time when trade count was initially at record low levels (2021) but then surged to record high levels (2023).
The MSRB’s reply letter also said its retrospective review would consider public comments regarding a variety of topics, including: (1) the role of volatility and predictability with respect to rate setting and the potential that rates may have adverse effects; (2) achieving a balance between fees imposed on dealers and those imposed on municipal advisors; (3) financial transparency; and (4) outreach to the municipal securities industry. On this last point, the MSRB noted its Congressionally designated role in rate setting but suggested that it could mull a more formal process for seeking industry views on its final rate setting process.
The SEC’s suspension order acknowledged the MSRB’s attempt to provide more information about the reasonableness of the rate card process but also indicated that those efforts had come only recently. “However, due to the date of receipt of the MSRB Letter (i.e., late afternoon one business day before the suspension deadline), the Commission has not had sufficient time to evaluate the material included therein.” The temporary suspension, added the SEC’s order, will give the agency time to further assess the reasonableness of the MSRB’s rate card proposal.