[Federal Register Volume 76, Number 3 (Wednesday, January 5, 2011)]
[Notices]
[Pages 604-609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-33269]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63621; File No. SR-MSRB-2010-10]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of Proposed Rule Change Consisting of
Amendments to Rule A-13 To Increase Transaction Assessments for Certain
Municipal Securities Transactions Reported to the Board and to
Institute a New Technology Fee on Reported Sales Transactions
December 29, 2010.
I. Introduction
On September 30, 2010, the Municipal Securities Rulemaking Board
(``MSRB'' or ``Board''), filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change which consists of amendments to
Rule A-13 to increase transaction assessments for certain municipal
securities transactions reported to the Board and to institute a new
technology fee on reported sales transactions. The proposed rule change
was published for comment in the Federal Register on October 19,
2010.\3\ The Commission received fifteen comment letters regarding the
proposed rule change, the MSRB's response, and a supplemental response
to the MSRB's response.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 34-63095 (October
13, 2010), 75 FR 64372 (the ``Commission's Notice'').
\4\ See e-mail from Coastal Securities, Inc., dated November 8,
2010 (``Coastal Securities Letter''); letter from Bond Dealers of
America, dated November 9, 2010 (``BDA Letter I''); letter from
Hartfield Titus & Donnelly, LLC, dated November 9, 2010 (``HTD
Letter''); letter from the Securities Industry and Financial Markets
Association, dated November 9, 2010 (``SIFMA Letter I''); e-mail
from RW Smith Associates, Inc., dated November 9, 2010 (``RW Smith
Letter''); letter from Southwest Securities, Inc., dated November 9,
2010 (``Southwest Securities Letter''); letter from the Government
Finance Officers Association, dated November 9, 2010 (``GFOA
Letter''); letter from TD Ameritrade Holding Corporation, dated
November 9, 2010 (``TD Ameritrade Letter''); letter from Edward
Jones, dated November 9, 2010 (``Edward Jones Letter I''); letter
from BMO Capital Markets, dated November 9, 2010 (``BMO Letter'');
letter from Morgan Stanley Smith Barney LLC, dated November 10, 2010
(``Morgan Stanley Letter''); letter from Lawrence P. Sandor, Senior
Associate General Counsel, MSRB, dated November 19, 2010 (``MSRB
Response Letter''); letter from Jeffries & Company, Inc., dated
November 29, 2010 (``Jeffries Letter''); letter from the Securities
Industry and Financial Markets Association, dated December 2, 2010
(``SIFMA Letter II''), letter from Bond Dealers of America, dated
December 14, 2010 (``BDA Letter II''); letter from Edward Jones,
dated December 14, 2010 (``Edward Jones Letter II''); and letter
from Lawrence P. Sandor, Senior Associate General Counsel, MSRB,
dated December 28, 2010 (``Supplemental MSRB Response Letter'').
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This order approves the proposed rule change.
II. Background and Description of Proposal
A. Current Sources of MSRB Revenue
Section 15B(b)(2)(J) of the Exchange Act states that the MSRB's
rules should ``provide that each municipal securities broker, municipal
securities dealer, and municipal advisor shall pay to the Board such
reasonable fees and charges as may be necessary or appropriate to
defray the costs and expenses of operating and administering the
Board.'' \5\ The MSRB currently levies four types of fees that are
generally applicable to dealers pursuant to three separate rules.
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\5\ 15 U.S.C. 78o-4(b)(2)(J).
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MSRB Rule A-12 provides for a $100 fee paid once by a dealer when
it first begins to engage in municipal securities activities. MSRB Rule
A-13 provides for a) an underwriting fee of $.03 per $1000 par value of
municipal securities purchased in a primary offering (with specified
exceptions), and b) a transaction fee (the ``transaction fee'') of
$.005 per $1000 par value of sale transactions of municipal securities
(with specified exceptions). Finally, MSRB Rule A-14 provides for an
annual fee of $500 from each dealer who conducts municipal securities
activities. In addition, since this proposed rule was filed, the MSRB
has amended Rule A-12 to establish an initial fee of $100
[[Page 605]]
payable by municipal advisors prior to engaging in municipal advisory
activities and amended Rule A-14 to establish an annual fee of $500 for
municipal advisors.\6\
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\6\ See Securities Exchange Act Release No. 63313 (File No. SR-
MSRB-2010-14) (November 12, 2010).
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According to the MSRB, the transaction fee was last modified in
2000 when the Board commenced assessments on customer sale transactions
reported by dealers. The transaction fee has not been increased since
that date. The MSRB stated in its proposal that approximately 90% of
its revenue is generated through its underwriting and transaction fees.
According to the MSRB, in fiscal year 2009, approximately 55% of its
revenue was generated by underwriting fees and approximately 36% of its
revenue was generated by transaction fees. The MSRB also stated that
the underwriting and transaction fees assessed pursuant to Rule A-13
are generally proportionate to a dealer's activity within the industry,
as based on the par value amount of underwriting and customer and
inter-dealer transactions during the year.
B. Proposal
The MSRB proposes to increase the amount of the transaction fee
assessed on the par value of inter-dealer and customer sale
transactions reported to the MSRB by dealers under MSRB Rule G-14(b),
except for transactions currently exempted from the transaction fee as
provided in MSRB Rule A-13(c)(iii), from $.005 per $1000 par value to
$.01 per $1000 par value of such sale transactions. Transactions
exempted from the transaction fee consist of sale transactions in
municipal securities that have a final stated maturity of nine months
or less or that, at the time of trade, may be tendered at the option of
the holder to an issuer of such securities or its designated agent for
redemption or purchase at par value or more at least as frequently as
every nine months until maturity, earlier redemption, or purchase by an
issuer or its designated agent. The MSRB expects that its proposed
increase in the transaction fee would generate an estimated $7 million
in revenue annually.
In addition, the MSRB proposes to impose a technology fee, assessed
at $1.00 per transaction for each sale transaction reported to the MSRB
by dealers, under MSRB Rule G-14(b) (the ``technology fee''). The
exemptions from the transaction fee, as described above, would not
apply to the technology fee. The MSRB expects that the new technology
fee would generate an estimated $10 million in revenue annually. The
technology fee would be transitional in nature and would be reviewed by
the MSRB annually to determine whether it should continue to be
assessed.\7\ The MSRB proposes to use the technology fee to establish a
technology renewal fund, which would be segregated for accounting
purposes.
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\7\ See Supplemental MSRB Response Letter.
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C. Purpose of the Proposed Rule
1. Transaction Fee
In the proposal, the MSRB stated that the purpose of the proposed
increase in the transaction fee is to assess reasonable fees necessary
to defray the costs and expenses of operating and administering the
MSRB.\8\ Specifically, the MSRB stated that the expenses of the MSRB
are increasing and additional revenue is necessary to meet projected
expenses associated with ongoing operations. The MSRB indicated that
several factors have contributed to the recent, large increase in
operating expenses. First, over the last two years, the MSRB has
significantly improved transparency in the municipal securities market
by developing and implementing market information transparency systems
including the Short-Term Obligation Rate Transparency (``SHORT'')
system for interest rate resets and the Electronic Municipal Market
Access (``EMMA'') system for display of disclosures and trade data.
Second, effective October 1, 2010, amendments to Section 15B of the
Exchange Act contained in the Dodd-Frank Wall Street Reform and
Consumer Protection Act \9\ (the ``Dodd-Frank Act') expanded the MSRB's
mission to include regulation of municipal advisors and the protection
of municipal entities. Third, pursuant to the Dodd-Frank Act, the MSRB
has also been given additional responsibilities in connection with
providing enforcement and examination support to the Commission, the
Financial Industry Regulatory Authority (``FINRA''), and the Federal
bank regulators.
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\8\ See Commission's Notice, supra note 3.
\9\ Public Law 111-203, 124 Stat. 1376 (2010).
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2. Technology Fee
In its proposal, the MSRB stated that it intends to use the
technology renewal fund to fund replacement of aging and outdated
technology systems and to fund new technology initiatives. In
particular, the MSRB stated that funding is needed to ensure the
operational integrity of the MSRB's information systems, retire and
update computer hardware and software, and conduct ongoing risk
management including business continuity activities and system
maintenance.
In the proposal, the MSRB stated that it will continue to review
its assessments on the market participants it regulates to ensure that
costs of rulemaking are appropriately allocated among the entities it
regulates. Although the MSRB recognizes that an appropriate allocation
of such regulatory costs may not be feasible during the transition of
the MSRB to its broader mission, it stated that it expects to revisit
the manner in which its activities are funded in the coming years, as
appropriate. The MSRB also restated its commitment to ensure that its
assessments are balanced based in large measure on the level of
activity of all of its regulated entities.
A more complete description of the proposal is contained in the
Commission's Notice.\10\
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\10\ See supra note 3.
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The MSRB has requested an effective date for the proposed rule
change of January 1, 2011.
III. Discussion of Comments and MSRB's Response
The Commission received fifteen comment letters and two responses
from the MSRB to the comment letters.\11\ The comment letters and the
MSRB's responses are discussed in greater detail below.
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\11\ See supra note 4.
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A. Comments Requesting More Transparency in the Budget Process and
Additional Justification for the Size and Timing of Revenue Increase.
Several commenters asked for more transparency in the MSRB's budget
process and noted that the fee increases were sought without industry
input prior to the filing of the proposed rule change and that
additional dialogue with industry participants should have been
undertaken before determining the appropriate funding levels and manner
of assessing fees.\12\In the MSRB Response Letter, the MSRB noted that
``a number'' of the technology systems creating the need for additional
operating revenue and the technology fee ``are well known to the
municipal securities industry through the MSRB's prior notice and
comment process and its filings with the Commission.''\13\ The MSRB
further explained in the MSRB Response Letter that ``externally facing
technology initiatives normally must be undertaken through the normal
MSRB rulemaking process, which includes
[[Page 606]]
extensive opportunity for public comment. The MSRB believes that this
is the appropriate process for receiving input from industry
participants with regard to its regulatory and information system
initiatives, rather than through a process whereby industry
participants could seek to influence which initiatives the MSRB pursues
by attempting to limit the resources available to it.''\14\
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\12\ See GFOA Letter, HTD Letter, Morgan Stanley Letter, RW
Smith Letter, SIFMA Letter I, Jeffries Letter and Southwest
Securities Letter.
\13\ See MSRB Response Letter.
\14\ Id.
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Commenters also stated that the MSRB did not provide sufficient
justification for the size of the proposed transaction fee increase and
the imposition of the technology fee,\15\ with several commenters
stating that the MSRB should have provided details on matters such as
projections of operational costs, plans for demonstrating controlling
such costs, expected revenue in future years, projected budgets,
financial forecasts, and planned technology initiatives in requesting
the increased transaction fee and the new technology fee.\16\ Several
commenters stated that the MSRB should be required to give more detail
on the magnitude of its planned technology upgrade.\17\
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\15\ See BDA Letter I, Coastal Securities Letter, GFOA Letter,
HTD Letter, Morgan Stanley Letter, RW Smith Letter, SIFMA Letter I,
Southwest Securities Letter and TD Ameritrade Letter. Some
commenters calculated the size of the increase in MSRB revenues over
the previous year to be approximately 80% without distinguishing
between the proposed uses of the separate fees. See BDA Letter I,
HTD Letter, RW Smith Letter, SIFMA Letter I and TD Ameritrade
Letter.
\16\ See BDA Letter I, Coastal Securities Letter, GFOA Letter,
HTD Letter, RW Smith Letter, SIFMA Letter I and TD Ameritrade
Letter.
\17\ See, e.g., HTD Letter and BDA Letter I.
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Although the MSRB did not provide detailed revenue or budget
projections, the MSRB noted in the proposal and in the MSRB Response
Letter that, ``the MSRB's 2009 audited financial statement reflected an
increase in expenses from $18.6 million for the fiscal year ended
September 30, 2008 to $21.3 million for the fiscal year ended September
30, 2009, representing an increase of 14.5%.'' \18\ The MSRB further
noted that it ``expects that expenses for [fiscal year 2010] to be
approximately $23.1 million, representing an additional increase of
8.5% over the previous year, including an increase in market
information transparency program expenses of 13%.'' \19\ From fiscal
year 2008 to fiscal year 2010 the operating expenses of the MSRB have
increased approximately 25%.\20\ Furthermore, the MSRB ``forecasts
total operating expenses to increase to approximately $29.2 million in
fiscal year 2011, which would be a 26% increase in expenses over 2010,
and approximately $31.8 million in fiscal year 2012, which would be a
38% increase in expenses over fiscal year 2010.'' \21\ According to the
MSRB, this increase in expenses ``reflects the many recent MSRB
initiatives in support of the MSRB's investor protection mandate,
including the development and launch of the primary market disclosure
electronic library, the collection of secondary market disclosures,
establishment of our [SHORT] system for interest rate resets, the
[EMMA] system for display of disclosures and trade data, and other
enhancements to our information systems.'' \22\ The MSRB also stated
that it needs additional funding ``to satisfy its obligations under the
[Dodd-Frank Act], which requires the MSRB to draft rules regarding the
activities of municipal advisors as well as rules for the protection of
municipal entities and obligated persons.'' \23\
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\18\ See MSRB Response Letter.
\19\ Id. See also, Supplemental MSRB Response Letter confirming
that fiscal year 2010 expenses were approximately $23.1 million.
\20\ See Supplemental MSRB Response Letter. Expenses for market
information transparency programs (EMMA, SHORT and RTRS) and
operations alone increased approximately 57% from fiscal year 2008
to fiscal year 2010. Id.
\21\ Id.
\22\ Id.
\23\ Id.
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In addition, in discussing the need for the technology fee, the
MSRB asserted that ``[m]aintaining the EMMA and SHORT systems, together
with the Real-Time Transaction Reporting System (``RTRS''), ensuring
their operational stability, and employing sound risk management
practices, including adequate redundancies, must be a priority.'' \24\
The MSRB further noted that the technology fee is needed because ``[i]n
undertaking its various information systems, the MSRB has not
previously set aside reserves for replacement of these systems, instead
relying on its general operating reserves to fund all development and
any systems upgrades and replacements. Certain of the existing public
information systems operated by the MSRB, including RTRS and the public
access system for Forms G-37 under Rule G-37, on political
contributions and prohibitions on municipal securities business, now
rely on dated technology and can be expected to need comprehensive re-
engineering in the coming years.'' \25\
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\24\ Id.
\25\ Id.
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Commenters \26\ also noted that the MSRB has not fully explained
why the proposed fees must become effective on January 1, 2011, given
the lack of justification for the fee increases and the size of the
MSRB surplus.
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\26\ See, e.g., BDA Letter I.
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Two commenters stated that the MSRB should include consideration of
revenues from fine sharing with FINRA in determining whether to
increase the transaction fee and impose a technology fee.\27\ In
response, the MSRB stated that ``any revenues derived from such
provision [of the Dodd-Frank Act] would, of course, be taken into
account as the MSRB prepares future budgets and reviews its sources of
revenue and the appropriate levels of assessments in future years,
although the Board would establish appropriate budgeting safeguards
against allowing the prospects of realizing fine revenue from
influencing its rulemaking activities.'' \28\
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\27\ See GFOA Letter and SIFMA Letter I.
\28\ See MSRB Response Letter.
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B. Comments Regarding Municipal Advisors' Share of the Cost of
Regulation
Several commenters raised concerns about what they referred to as
the disproportionate and inequitable cost of regulation borne by
dealers, noting that the MSRB recently obtained jurisdiction over
municipal advisors and that those advisors should bear not only the
entire cost of their own regulation, but also part of the cost of
maintaining the MSRB's information systems.\29\ One commenter suggested
that the MSRB should first assess fees on municipal advisors, beyond
the establishment of an initial and annual fee,\30\ and only afterwards
consider dealer fees.\31\
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\29\ See BDA Letter I, Coastal Securities Letter, HTD Letter,
Morgan Stanley Letter, RW Smith Letter, Jeffries Letter and SIFMA
Letter I.
\30\ See supra note 6, and accompanying text.
\31\ See RW Smith Letter.
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In response, the MSRB stated that the ``fairness of assessments on
all classes of regulated entities is to be viewed on a long-term basis
and not within a narrow window of time or on a per-rule basis.'' \32\
The MSRB noted that it ``firmly believes that it must be adequately
funded to undertake all necessary rulemaking in the service of
protecting investors, municipal entities, obligated persons and the
public interest with rules applicable to dealers, municipal advisors or
both without the constraint of determining whether such rulemaking
bears a close relationship to the level of funding obtained from each
constituency at a particular point in
[[Page 607]]
time.'' \33\ The MSRB further noted that it ``expects to continuously
review its fee structure to ensure that, over the long-run, there is a
reasonable relationship between the amounts assessed to a specific
constituency and the level of rulemaking, system development and
operational activities undertaken by the MSRB in connection with such
constituency, to the extent consistent with the Dodd-Frank Act.'' \34\
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\32\ See MSRB Response Letter.
\33\ Id.
\34\ Id.
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C. Comments Regarding the Effect on Retail Dealers, Retail Clients,
Brokers' Brokers and Issuers
Several of the commenters expressed concern that the burden of the
proposed rule change and, in particular, the technology fee, will be
borne disproportionately by retail firms and their customers since the
technology fee of $1 applies to all sales transactions, regardless of
size.\35\ One commenter estimated that the combination of the proposed
transaction fee and proposed technology fee assessed on retail trades
of $25,000 would represent an increase of 900% over the current
transaction fee,\36\ while another commenter stated that its total MSRB
fees for orders it processes for its clients would increase by over
11,000% per month.\37\ The MSRB responded that ``the combination of
increasing the existing transaction fee based on par value of trades
and imposing the new technology fee on individual transactions,
regardless of trade size, provides for a mix of assessment measurements
that in general further reduces the MSRB's reliance on a circumscribed
group of regulated entities for the bulk of its revenues.'' \38\ The
MSRB further noted with respect to the technology fee that ``[w]hile
the proposed technology fee would, as a percentage of the entire
transaction, be larger for retail-size transactions, the MSRB observes
that the large percentage increases for small transactions noted by
some commenters, if assumed to be accurate, fail to take into account
that, under the current formula based solely on trade size, the actual
amount of the assessment is extremely small and will continue to be
small and likely would have only a negligible effect on overall
transaction costs for retail investors even after such increases.
Further, every transaction, regardless of size, draws equally on MSRB
information systems and, therefore, it is appropriate that at least a
portion of the MSRB's revenues reflect this universal usage of such
resources.'' \39\
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\35\ See BDA Letter I, Coastal Securities Letter, Morgan Stanley
Letter, SIFMA Letter I, Southwest Securities Letter and TD
Ameritrade Letter.
\36\ See SIFMA Letter I.
\37\ See TD Ameritrade Letter.
\38\ Id.
\39\ Id.
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One commenter noted that the proposed rule change, if approved,
would mean a fundamental shift in the cost of operating the MSRB from
being largely borne by primary market participants to secondary market
participants.\40\ Two commenters stated that broker's brokers would be
disproportionately affected because their activities typically involve
a large number of retail-sized transactions.\41\ Another commenter
stated that affiliate-to-affiliate transfers used to fill some customer
orders would result in duplicative assessments.\42\ One commenter
suggested further raising the existing transaction fee or basing the
technology fee on par value as potential alternatives to the $1.00 per
transaction technology fee included in the proposed rule change.\43\ In
its response, the MSRB stated that it ``specifically intended that the
proposed rule change would shift the source of its dealer-based
revenues toward market participants engaged in sales and trading of
municipal securities. As among dealers, the MSRB views this shift as
broadening the universe of dealers that share the burden of funding
MSRB activities since the underwriting fee is assessed against a
significantly narrower group of dealers--that is, those that act as
underwriters of new issues--than the group of dealers that engage in
sales and trading of municipal securities, which includes firms active
in both the secondary and primary market.'' \44\
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\40\ See HTD Letter.
\41\ See HTD Letter and RW Smith Letter. These commenters also
suggest that transactions routed through broker's brokers tend to
involve a chain of two or more sales transactions that would result
in multiple assessments on the various professionals involved in
moving bonds from one investor to another.
\42\ See Morgan Stanley Letter.
\43\ See Edward Jones Letter I.
\44\ See MSRB Response Letter.
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Several commenters \45\ expressed concern regarding the imposition
of transaction-based assessments on situations where multiple separate
transactions may occur to effect a movement of a position in a
security. In its response, the MSRB noted that such situations are
reflective of the existing structure of the transaction fee and do not
arise anew as a result of the proposed rule change. The MSRB further
stated that the ``rule proposal is more equitable to market
participants in that the transaction fee exemptions that apply to
short-term securities would not apply to the technology fee, thereby
broadening the base on which such fee is assessed.'' In addition, the
MSRB acknowledged that the proposed rules shift the cost burden more
towards the broader sales and trading market, and that firms engaging
solely or primarily in sales and trading activities, and not in
underwriting activities, may view this shift as having a greater affect
on such firms. As noted above, however, the MSRB stated that it
specifically intended such a shift and believes that any such shift is
appropriate as it would broaden the universe of market participants
that share the burden of funding MSRB activities.\46\
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\45\ See, e.g., BDA Letter I, Coastal Securities Letter, Edward
Jones Letter I, SIFMA Letter I, Southwest Securities Letter and TD
Ameritrade Letter.
\46\ See supra note 44, and accompanying text.
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Another commenter urged the MSRB to ensure that fees assessed on
dealers are not passed, directly or indirectly, to issuers, stating
that some issuers see MSRB fees as line items on their
transactions.\47\ In its response, the MSRB noted that MSRB Rule A-
13(e) provides that no dealer shall charge or otherwise pass through
the fee required under the rule to an issuer of municipal securities,
but also that Rule A-13(e) would most logically apply to the
underwriting assessment imposed under such rule, which is not the
subject of the current rule filing.\48\ The MSRB urged any issuer of
municipal securities that believes a dealer is violating this rule
provision to contact the appropriate enforcement agency with any
relevant information regarding such potential rule violation.\49\
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\47\ See GFOA Letter.
\48\ See MSRB Response Letter.
\49\ Id.
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D. Comments Regarding use of MSRB's Existing Surplus
Some commenters stated that they believe the MSRB has an
excessively large surplus that should be utilized to fund projects,
regulation, and technology renewal prior to implementation of any fee
increases or new fees.\50\ Two commenters suggested that non-profit
organizations only need 25% or three months of reserve to cover
expenses.\51\
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\50\ See HTD Letter, RW Smith Letter, SIFMA Letter I and
Southwest Securities Letter.
\51\ See RW Smith Letter and SIFMA Letter I.
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In its response, the MSRB noted that other ``non-profit
organizations active in the municipal securities market as well as
other self-regulatory organizations have reserves of comparable
relative size.'' \52\ The MSRB also responded that
[[Page 608]]
its ``cash and liquid reserves are projected to decrease significantly
over the next three years, if additional funding is not approved and
underwriting and transaction activity remains level.'' \53\
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\52\ See MSRB Response Letter. Specifically, the MSRB noted that
the National Futures Association, a ``self-regulatory organization
similar in size and structure to the MSRB * * * [also] maintains
cash and liquid reserves equivalent to approximately one year's
expenses.'' See Supplemental MSRB Response Letter.
\53\ Id.
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E. Comments Regarding Alternative Revenue Models
Two commenters suggested that the MSRB consider an entirely new
revenue model, where firms are assessed based on their gross income
from municipal securities activities, including underwriting, trading,
sales, and advisory services.\54\ Another commenter noted, however,
that there is not industry consensus for this approach and further
analysis would be needed.\55\
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\54\ See HTD Letter and SIFMA Letter I. SIFMA Letter I also
included a suggestion that the Commission consider imposing a fee on
mutual funds and Commission registered investment advisers with
municipal market clients and remit the revenue from such fees to the
MSRB.
\55\ See Morgan Stanley Letter.
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In response, the MSRB stated that ``any such change could not
realistically be effected in a sufficiently timely manner to ensure
that the MSRB could continue to operate effectively given its current
resource base and operational commitments, as well as its statutory
mandate.'' \56\ The MSRB further noted that ``[u]nlike FINRA, which has
jurisdiction over its members that encompasses (with limited
exceptions) their entire scope of activities, the MSRB's regulatory
jurisdiction is limited to the [activities] specified in Section 15B of
the Exchange Act. Thus, in imposing its revenue-based assessment, FINRA
does not face some of the same constraints and need for clearly
defining the extent of activities subject to such an assessment as
would the MSRB.'' \57\ The MSRB explained that ``[f]or dealers, sales
and trading transactions and underwriting activities are the key types
of activities from which they derive revenues that are clearly tied to
the MSRB's statutory mandate. The other type of activity * * * that is
clearly tied to the MSRB's statutory mandate is * * * municipal
advisory activities.'' \58\ The MSRB asserted that ``assessments based
on the MSRB's current model [of assessing sales and trading activities
and underwriting activities], together with an appropriate assessment
to be developed on municipal advisory activities, serve as a reasonable
approximation of the type of assessments that would ultimately be
imposed under a revenue-based system.'' \59\
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\56\ See MSRB Response Letter.
\57\ Id.
\58\ Id.
\59\ Id.
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IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change,
the comment letters received, and the MSRB's responses to the comment
letters and finds that the proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to the MSRB \60\ and, in particular, the
requirements of Section 15B(b)(2)(J) of the Exchange Act \61\ and the
rules and regulations thereunder. Section 15B(b)(2)(J) of the Exchange
Act requires, among other things, that the MSRB's rules be designed to
provide that each municipal securities broker, municipal securities
dealer, and municipal advisor shall pay to the Board such reasonable
fees and charges as may be necessary or appropriate to defray the costs
and expenses of operating and administering the Board.\62\
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\60\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
\61\ 15 U.S.C. 78o-4(b)(2)(J).
\62\ Effective October 1, 2010, pursuant to the Dodd-Frank Act,
the applicability of Section 15B(b)(2)(J) of the Exchange Act was
extended to municipal advisors.
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The Commission believes that the proposed rule change is consistent
with the Exchange Act because the proposed increase in the transaction
fee and the imposition of the new technology fee will help defray the
costs and expenses of administering the Board. In particular, the
increase in the transaction fee will help offset the MSRB's expected
increase in expenses due to, among other things, the additional
regulatory requirements imposed on it by the Dodd-Frank Act.\63\
Similarly, the new technology fee will help offset expenses the MSRB
expects to incur due to the MSRB's expanding technology requirements
and the need to replace and update existing technology, including the
MSRB's EMMA and SHORT systems, the RTRS, as well as other enhancements
to its disclosure and information systems. The need for an increase of
the transaction fee and imposition of the technology fee is further
supported by the substantial increases in the costs incurred by the
Board in fiscal years 2009 and 2010--aggregating approximately 25% over
a two year period \64\--and the MSRB's expectation that its costs will
continue to increase due to its amplified responsibilities and need to
fund the replacement of aging and outdated technology systems and new
technology initiatives.
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\63\ See supra note 9, and accompanying text.
\64\ See supra note 20, and accompanying text.
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The Commission recognizes the concerns raised by some commenters
that the increase in transaction fees and the new technology fee will
be used to subsidize municipal advisor regulation. As noted above,
however, the MSRB has already taken a first step to assess fees on
municipal advisors to account for a portion of the costs of needed
regulatory activity.\65\ The MSRB also stated that it expects to assess
other fees on municipal advisors as is appropriate.\66\ Furthermore,
the MSRB has proposed to account for technology fee collections in a
separate technology renewal fund, which should help to ensure that such
funds are used only for the replacement and renewal of outdated
technology systems and to fund new technology initiatives.
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\65\ See supra note 6, and accompanying text.
\66\ See MSRB Response Letter.
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The Commission also notes that all fees assessed by the MSRB are
reviewed by the Board on an on-going basis to help ensure that they
continue to be appropriately assessed, meet the resource needs of the
MSRB, and are appropriate from the standpoint of the fair allocation of
burdens for supporting MSRB activities.\67\ In addition, with respect
to the new technology fee in particular, the MSRB stated that it will
annually review whether this fee should continue to be assessed and, if
so, at what level and indicated that ``[s]uch review will take into
consideration, among other things * * *, issues of equity among
regulated entities.'' \68\
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\67\ Id.
\68\ Id.
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Further, the Commission believes that the broadening of the MSRB's
proposed fees to all types of dealers--in order to more equitably
assess all entities regulated by the MSRB--is consistent with the
MSRB's pledge to continue to review all of its fees to ensure that
their impact is reasonable and appropriate among its different types of
regulated entities.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\69\ that the proposed rule change (SR-
[[Page 609]]
MSRB-2010-10), be, and it hereby is, approved.
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\69\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\70\
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\70\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-33269 Filed 1-4-11; 8:45 am]
BILLING CODE 8011-01-P