As the regulatory landscape of municipal securities evolves, an ongoing debate has emerged regarding the fee structure imposed by the Municipal Securities Rulemaking Board (MSRB). Dealer groups have voiced their concerns about the perceived inequities in the current fee system, particularly emphasizing the financial strain imposed on dealers compared to municipal advisors (MAs). In responding to a request for information issued by the MSRB regarding its rate card process, contrasting opinions have surfaced, revealing deep divisions among stakeholders and highlighting the need for a more nuanced approach to fee assessment.
The MSRB, operating as an independent self-regulatory organization, depends on revenue generated from fees levied on regulated entities to fund its operations. This financial model raises questions about the fairness of the fee distribution, especially as the MSRB navigates through various stakeholder interests. The divide became evident when dealer groups, including the Securities Industry and Financial Markets Association (SIFMA), the Bond Dealers of America (BDA), and the American Securities Association (ASA), called for a reassessment of fees for municipal advisors. Their proposal emphasized a fee structure based on activity rather than fixed rates tied to personnel or revenue.
On the other hand, the National Association of Municipal Advisors (NAMA) rejected these calls, arguing that the diversity in business models among MAs complicates the establishment of a standardized fee assessment. NAMA’s Executive Director, Susan Gaffney, highlighted the holistic challenges in determining an equitable basis for fee assessments, warning that any fundamental shift in the current model could disproportionately burden smaller firms, potentially driving them out of business. This response underlined a critical consideration: the need to ensure that regulatory fees do not stifle the very sector they aim to govern.
The contention over whether to transition to fees based on market activity or to maintain the status quo has become a pivotal topic in this discourse. BDA’s Michael Decker suggested that it may be more equitable to reevaluate the way municipal advisor fees are levied, positing that a fee structure tied to the volume of bond issuance for which the MA provides advice could align more closely with the practices established for dealers. This perspective argues for a symmetry between how dealer fees and MA fees are assessed, promoting a fairer playing field for all market participants.
However, this proposition raises questions about the practical implementation of market-based fee structures. For instance, the proposal to tie fees to market activity could elevate dependency on factors outside the control of the advisors. Further, if MAs are not systematically reporting their involvement in bond issuances, establishing a transparent relationship between activity levels and fees becomes a logistical hurdle.
One of the most significant concerns articulated by various dealer groups is the increasing burden borne by dealers amid a disproportionate fee distribution. As reflected in multiple letters submitted to the MSRB, regulatory costs predominantly fall on dealers, who generate most of the revenue through their fees, while MAs contribute a significantly smaller percentage. This disparity raises fundamental questions concerning the cost-benefit ratio of the services provided by the MSRB to these distinct groups.
Jessica R. Giroux, the general counsel of ASA, encapsulated these sentiments in her communication to the MSRB, underscoring the regulatory imbalances that leave dealers with a greater financial load while MAs continue to access regulatory services at relatively low costs. This situation calls into question the justification for the current fee structure and whether it reflects a fair distribution of regulatory responsibilities within the municipal securities landscape.
The MSRB’s commitment to reassessing its fee structure—a process catalyzed by stakeholder feedback—signals a potential turning point in the regulatory framework governing municipal securities. As the agency considers input from the Request for Information (RFI) responses, balancing the need for a sustainable funding model with the equitable treatment of all market participants will be paramount.
While discussing potential fee adjustments, the MSRB must also take into account the broader implications of these regulatory changes on the market’s health. The withdrawal of the 2024 rate card filing and the suspension of forthcoming fees highlight the urgency for a transparent and predictable budgeting process that can satisfy the diverse array of stakeholders reliant on municipal securities. Establishing clearer guidelines on fee assessments—particularly in relation to market activity—could pave the way for a more equitable and sustainable regulatory landscape, ultimately benefiting the integrity of the municipal securities market as a whole.
The ongoing dialogue around MSRB’s fee assessment reveals a complex interplay of interests and poses pertinent questions about fairness, transparency, and the future structure of regulatory fees in the municipal securities market. Only by addressing these challenges holistically can stakeholders ensure that the regulatory framework serves the best interests of all parties involved.