The ongoing discussion about the Municipal Securities Rulemaking Board’s (MSRB) fee structure has elicited varied responses from dealer groups and municipal advisors. This debate highlights underlying tensions in the municipal securities market, where calls for a restructuring of how fees are levied raise concerns about fairness and regulatory efficacy. At the crux of this dispute is the burden associated with the current fee assessment, where dealers argue for a more equitable approach that imposes activity-based fees on municipal advisors (MAs), while MAs contend this notion is impractical.
In response to a recent request for information (RFI) from the MSRB regarding its rate card process, several organizations, including the Securities Industry and Financial Markets Association (SIFMA), the Bond Dealers of America (BDA), and the American Securities Association (ASA), voiced their opinions advocating for changes in how MAs are assessed fees. They argue that the current framework places an “unfair” financial load on dealers, who are responsible for a significant portion of the revenue that funds MSRB operations. Conversely, the National Association of Municipal Advisors (NAMA) firmly opposed the proposed shift towards activity-based fees, citing the diverse operational models of municipal advisors as a primary challenge.
NAMA’s Executive Director, Susan Gaffney, articulated that the only consistent factor across MA firms is the number of covered individuals, maintaining that this metric remains the most appropriate basis for calculating fees. The concern is that deviating from this historical method could disproportionately impact smaller MA firms and potentially drive them away from the sector. This aligns with NAMA’s overarching mission to protect issuers while ensuring that regulations do not inadvertently stifle smaller players in the market.
The responses to the MSRB’s RFI indicate a significant disconnect between dealers and municipal advisors regarding operational realities. As highlighted in BDA’s correspondence, some stakeholders suggest that aligning fees more closely with market activity would enhance fairness and transparency. Michael Decker, BDA’s Senior Vice President for Research and Public Policy, noted the need for a more predictable fee structure, arguing that substantial year-to-year fluctuations—such as a 25% increase in underwriting fees coupled with a drastic 48% decrease in trade count fees—should be more tightly controlled. He proposed limiting fee increases to a 10% threshold to prevent market instability and ensure fairness in how fees are levied.
The issue of how fees are distributed across different regulated entities was also prominently discussed. Decker pointed out that municipal advisors contribute a mere 6% of the overall fees collected by the MSRB, raising questions about equity in fee structures. The relative lack of financial contribution by MAs to the overall funding of MSRB operations has raised eyebrows among dealer groups, who perceive this disparity as placing an undue regulatory burden on themselves while MAs benefit from services without assuming a commensurate share of the costs.
The MSRB has acknowledged the need for improvements, leading to its recent announcement of a pause in the implementation of new rate card fees for the upcoming calendar year. This decision reflects an understanding of the concerns raised by stakeholders, allowing the board to revisit its fee-setting process and integrate the feedback received. The focus appears to be on soliciting a more constructive dialogue that could lead to a model that is both fair and sustainable for all parties involved.
Notably, the correspondence from organizations such as SIFMA underscores the need for greater transparency in the MSRB’s budgeting process. The underlying sentiment is that the current funding model disproportionately relies on dealer fees without adequate justification, raising questions about long-term viability and fairness.
As this debate continues, the MSRB faces the challenge of reconciling the divergent views of dealers and municipal advisors. The goal must be to establish a regulatory framework that not only funds the board’s operations but also fosters an equitable environment for all participants in the municipal securities market.
The ongoing discourse surrounding the MSRB’s fee assessment process encapsulates a broader narrative about the future of municipal securities regulation. It invites stakeholder collaboration to find a balance that honors the diverse operational realities of both dealers and municipal advisors. As the MSRB gathers feedback and strategizes for future fee structures, it is imperative that all voices are considered in this multifaceted dialogue. Only through constructive engagement can the municipal securities market evolve towards a model that is perceived as fair, transparent, and beneficial for all parties involved.