MSRB Reduces Financial Reserve Target and Provides Temporary Reduction in Fees

Date: March 14, 2019

Contact: Jennifer A. Galloway, Chief Communications Officer


Washington, DC – The Municipal Securities Rulemaking Board (MSRB) today announced that it will provide a six-month rate reduction of assessment for the MSRB’s underwriting, transaction and technology fees for brokers, dealers and municipal securities dealers (collectively “dealers”). The temporary fee reduction is intended to reduce the MSRB’s financial reserve levels, which have exceeded the target level set by the MSRB Board of Directors.

The MSRB also is implementing a new construct for setting the level of financial reserves needed to mitigate fluctuations in the MSRB’s revenue stream, which is primarily market-driven, and provide a backstop for funding services essential to the integrity of the market. The new reserves construct precipitated a decision by the Board to reduce target reserve levels and also take prompt action to temporarily reduce fees for dealers.

“Evaluating reserve levels and their appropriate target has been a strategic priority for the Board this year,” said Board Chair Gary Hall. “Today’s announcement reflects the Board’s recognition that a reduction in that level was warranted in order to right-size reserves while ensuring that the MSRB has the ability to meet unexpected, unpredictable and strategic investment needs over the long-term.” Read Chair Hall's message to stakeholders.

The upcoming temporary reduction in the fee assessment applies to dealer activity for the period April 1 to September 30, 2019. Rates for underwriting, transaction and technology fees will be reduced by approximately one-third during the six-month period. The temporary fee reduction is expected to result in approximately $5.2 million in foregone revenue for the MSRB. The six-month duration of the fee reduction is expected to capture a representative portion of dealer activity, resulting in as equitable a reduction as possible. Read the rule filing with the U.S. Securities and Exchange Commission, which provides details on the temporary fee reduction.

While all MSRB regulated entities contribute to the revenue base, the fees included in the temporary reduction constitute approximately 79% of the MSRB’s fiscal year 2019 budgeted revenue and are market based and inherently unpredictable. They also have historically exceeded their respective budgeted amounts, thereby directly contributing to the excess reserves position. Other fees assessed by the MSRB contribute to the funding of the organization, however they have not contributed to excess reserves. Over time, as the MSRB has considered the reasonable fees and charges necessary to fund operations, it has continually strived to have an equitable balance of fees among dealers and municipal advisors, and continues to evaluate appropriate fee levels.

The reduction that begins in April follows an identical three-month reduction in underwriting, transaction and technology fees that occurred from October 1 to December 31, 2018, which was also undertaken to address excess reserves. The MSRB’s fiscal year 2019 budget includes projections showing reserves falling below the new target beginning in fiscal year 2021. "Depending on actual results, increases in current revenue sources or additional revenue sources will need to be considered to ensure sufficient revenue to fund operations and maintain the financial health of the organization," Hall said.

The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a self-regulatory organization governed by a 21-member board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.