MSRB to forgo $19 million with fee reduction

After reporting a surplus of $3.3 million dollars at the end of fiscal year 2020, the Municipal Securities Rulemaking Board has decided to temporarily reduce certain market-based fees by 40% for a year and a half.

The MSRB announced that decision Jan. 29 after its quarterly board meeting earlier in the week. The move will cost the MSRB an estimated $19 million in revenue.

“While the board has approved fee rebates and reductions in the past, this is the most substantial move yet to return excess money to the dealer community, whose fees account for over 75% of the MSRB’s revenues,” said Patrick Brett, chair of the board’s finance committee. “This decisive action puts money back in the hands of those who contributed it, and it does so quickly and efficiently.”

That 40% fee reduction will apply to underwriting, transaction and technology fees assessed for dealer activity from April 1, 2021 through September 30, 2022. The MSRB plans to file the fee reduction with the Securities and Exchange Commission in the next few weeks.

In 2019, the MSRB reduced underwriting, transaction and technology fees for dealers as a way to draw down on its reserves. That was temporary from April 1 to Sept. 30, 2019 and caused the MSRB to forgo $5.2 million in revenue.

The low-interest rates that resulted fromthe COVID-19 pandemic caused high levels of municipal issuance and high levels of market activity, resulting in the MSRB’s fiscal 2020 revenue significantly outperforming projections and driving up its reserves.

Dealer groups were pleased to see the fee reduction.

“This is the longest and deepest fee reduction the board will have implemented, and it is a welcome step towards stabilizing and right-sizing the MSRB’s finances,” said Michael Decker, senior vice president of policy and research at Bond Dealers of America. “Still, it is a temporary solution, and we look forward to working with the board to find a permanent MSRB fee structure which appropriately balances the contributions of dealers and municipal advisors and which does not result in unplanned surplus revenue.”

The Securities Industry and Financial Markets Association cited figures in the MSRB’s 2020 annual report where expenses were $43.8 million and total financial assets were $71.8 million.

“SIFMA feels that level is outsized for a regulator,” said Leslie Norwood, SIFMA’s head of muncipals and associate general counsel. “Today’s announcement is a material step towards addressing these long-standing issues on which SIFMA has long advocated.”

The filing will not have a request for comment and the MSRB expects to create a new fee structure at the end of the 18 months.

The MSRB also announced that it has named Deputy General Counsel Jacob Lesser to serve as general counsel starting on Monday.

“The organization has greatly benefitted from Jake’s leadership and legal acumen, and with his promotion to general counsel, our senior leadership team is well-positioned to carry out our important mission,” said Mark Kim, MSRB CEO.

MSRB’s legal team experienced significant turnover in the past two years. Then-General Counsel Michael Post left in 2019, and following that former MSRB Board Member and Chief Legal Officer Robert Fippinger and Lesser filled that general counsel spot. Fippinger is no longer serving as counsel to the board.

The MSRB also decided to issue a request for comment on MSRB Rule G-27 on supervision to respond to the pandemic.

“While we know we’re going to come out of the pandemic at some point, the way people work will have been changed as a result so we want to get comments on that and see what changes the rule should have to reflect the new business model that firms will have in place,” said Gail Marshall, MSRB chief regulatory officer.

COVID-19 has changed the dynamic of dealer supervision, said Gail Marshall, MSRB chief regulatory officer.

The board also plans to have a strategic planning workshop next week, which is not open to the public. There, the board will continue to analyze comment letters from stakeholders to develop a new vision and mission statement for the next few years.

This week, the MSRB released its 2020 Municipal Bond Market in Review. The MSRB has been reporting the number of COVID-19 disclosures and received over 38,000 COVID-19 related disclosures between February and December 2020. Those accounted for 21% of all primary market and continuing disclosure submissions.

More than 26,000 COVID-19 related continuing disclosures were received, representing 16% of all continuing disclosures submitted.

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