Municipal Securities Rulemaking Board

Initial fees of MSRB. You inquire whether your firm is subject to the initial fee imposed by rule A-12 of the Municipal Securities Rulemaking Board ("MSRB"). In that letter, you argue that the fee would constitute a substantial portion of the income of the [company name omitted.] from the sale of a municipal securities and that firms with a low volume of business should not be required to pay this fee.

The MSRB was established by the Securities Acts Amendments of 1975 as the primary rulemaking authority with respect to the activities of municipal securities brokers and dealers and transactions in municipal securities. All municipal securities brokers and dealers, regardless of the volume of their municipal securities business, are subject to the rules promulgated by the MSRB.

MSRB rule A-12 provides for an initial assessment upon all municipal securities brokers and dealers to defray a portion of the MSRB's costs and expenses. In approving this rule, the Commission determined that such an assessment does not impose an undue burden and is consistent with the statutory requirement that the MSRB be self-funding. Thus, we can find no reason to recommend that the Commission exempt the Company from the provisions of MSRB rule A-12. SEC interpretation of January 6, 1977 by Anne E. Chafer, Attorney, Office of Legal Policy and Municipal Securities.

Initial fees of MSRB. We have received a copy of your letter of December 17, 1976, addressed to the Municipal Securities Rulemaking Board ("MSRB"), in which you question the applicability of MSRB Rule A-12 to [name of company omitted], a registered broker-dealer which, in 1976, engaged in occasional municipal securities transactions involving securities which totaled under $12,000 in face amount.

The MSRB was established by the Securities Acts Amendments of 1975 (the "Amendments") as the primary rulemaking authority with respect to the activities of municipal securities brokers and dealers and with respect to transactions in municipal securities. All municipal securities brokers and dealers, regardless of whether they were registered broker-dealers prior to the Amendments and regardless of the volume of their municipal securities business, are subject to the rules promulgated by the MSRB.

MSRB Rule A-12 provides for a single, initial assessment of $100 upon all municipal securities brokers and dealers to defray a portion of the MSRB's costs and expenses in carrying out its Congressionally mandated function of devising a system of rules and regulations applicable to all municipal securities professionals. The bulk of those costs and expenses are currently defrayed by revenues from fees assessed pursuant to Rule A-13 which applies to underwriters of municipal securities.

In approving MSRB Rule A-12, the Commission determined that such an assessment does not impose an undue burden and is consistent with the statutory requirement that the MSRB be self-funding. Therefore, we would not recommend that the Commission consider exempting [name of company omitted] from the provisions of MSRB Rule A-12. SEC interpretation of January 4, 1977 by John M. McNally, Attorney, Office of Legal Policy and Municipal Securities.

Initial Fees of MSRB. Thank you for your letter [name and date deleted] which has been referred to me for response. The letter relates to the Municipal Securities Rulemaking Board's rule A-12, which imposes an initial fee of $100 on municipal securities brokers and municipal securities dealers.

We note that the terms "municipal securities broker" and "municipal securities dealer" are not restricted under the Securities Acts Amendments of 1975 (the "1975 Amendments") to securities firms and banks effecting transactions exclusively in municipal securities. Many municipal securities brokers and municipal securities dealers (other than bank dealers) were registered with the Securities and Exchange Commission (the "Commission") as brokers or dealers prior to the 1975 Amendments. Municipal securities brokers and municipal securities dealers already registered with the Commission were not required to re-register with respect to their municipal securities activities, but nevertheless are subject to payment of the Board's initial fee. In addition, many municipal securities brokers and municipal securities dealers have been and are members of the national securities exchanges and the National Association of Securities Dealers, Inc.

We are unable to conclude from the information set forth in your letter that the initial fee imposed by the Board's rule A-12 is inapplicable to your firm. MSRB interpretation of June 16, 1976.

Initial fees of MSRB. Thank you for your letter [name and date deleted] which has been referred to me for response. Your letter relates to the Municipal Securities Rulemaking Board's rule A-12, which imposes an initial fee of $100 on municipal securities brokers and municipal securities dealers. More particularly, you question whether an introducing broker with respect to municipal securities transactions is a "municipal securities broker" subject to the Board's rule A-12.

We note that the term "broker" as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (the "Act") is not restricted to securities firms that directly effect transactions in securities for the account of others. We call your attention to various rules of the Securities and Exchange Commission governing the activities of "brokers" and "dealers" that recognize introducing brokers as "brokers" under the Act. See, e.g., rules 15c3-1(a)(2), 15c3-3(k)(2). The definition of the term "municipal securities broker" set forth in section 3(a)(31) of the Act incorporates the statutory definition of "broker" and therefore appears similarly not limited to firms directly effecting transactions in municipal securities for the account of others.

With respect to the portion of your business that relates to transactions in municipal securities, we note that the term "municipal securities broker" is not limited under the Act to brokers effecting transactions exclusively in municipal securities. Such transactions need not constitute a principal part of a municipal securities broker's business. Pursuant to rule D-1 of the Board, which incorporates the definition of terms used in the Act for purposes of the Board's rules, the term "municipal securities broker" as used in rule A-12 has the same meaning as set forth in section 3(a)(31) of the Act. Accordingly, we are unable to conclude from the information set forth in your letter that the fee imposed by rule A-12 is inapplicable to your situation.

You may wish, however, to consult the staff of the Securities and Exchange Commission with respect to your status. If we may be of any further assistance to you, please do not hesitate to contact us. MSRB interpretation of June 11, 1976.

Your letter indicates that you acquired the firm of [firm's name deleted.] which is registered with the Securities and Exchange Commission as a broker-dealer, as of April 1, 1976. The acquired firm, which is now called [firm's name deleted] is a wholly-owned subsidiary of your firm.

We note that the Securities Exchange Act of 1934 (the "Act") defines the terms "municipal securities broker" and "municipal securities dealer" by reference to the types of activities engaged in by a "person," rather than by reference to the affiliation or ownership of the "person." Under section 3(a)(9) of the Act, parent and subsidiary corporations are considered to be separate "persons." Accordingly, we are unable to conclude from the information set forth in your letter that the initial fee imposed by the Board's rule A-12 is inapplicable to [the acquired firm] because of your ownership of that firm.

We should point out, however, that the applicability of the initial fee depends upon the nature of [the acquired firm's] activities. If [the acquired firm] was a municipal securities broker or municipal securities dealer prior to its acquisition by you, the initial fee would be payable in accordance with rule A-12 regardless of the nature of [the acquired firm's] present securities activities. Of course, the initial fee would also be payable if [the acquired firm] is presently acting as a municipal securities broker or municipal securities dealer. As your letter does not discuss the activities of [the acquired firm] prior to or after its acquisition by you, we are unable to conclude that the Board's initial fee is inapplicable. MSRB interpretation of June 11, 1976.

Initial fees of MSRB. We are in receipt of your letter dated March 23, 1976, concerning the Municipal Securities Rulemaking Board's initial fee of $100 payable by municipal securities brokers and municipal securities dealers.

We note that the term "broker" as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (the "Act") is not restricted to securities firms that directly effect transactions for the account of others. Rule 15c3-1(a)(2) of the Securities and Exchange Commission, which establishes the $5,000 minimum net capital requirement applicable to brokers that generally do not carry customer accounts, necessarily assumes that the introduction and forwarding of transactions and accounts "to another broker or dealer" is itself the performance of a brokerage function. The definition of the term "municipal securities broker" set forth in section 3(a)(31) of the Act incorporates the statutory definition of "broker" and therefore appears similarly not restricted to firms directly effecting transactions in municipal securities for the account of others.

Pursuant to rule D-1 of the Board, which incorporates the definitions of terms used in the Act for purposes of the Board's rules, the term "municipal securities broker" as used in rule A-12 has the same meaning as set forth in section 3(a)(31) of the Act. Accordingly, we are unable to conclude from the information set forth in your letter that the fee imposed by rule A-12 is inapplicable to your firm. MSRB interpretation of April 2, 1976.

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Interpretive Letter to Rule A-12