604 Federal Register / Vol. 76, No. 3 / Wednesday, January 5, 2011 / Notices 

9 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 34– 

63095 (October 13, 2010), 75 FR 64372 (the 

‘‘Commission’s Notice’’). 

4See 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’’). 

5 15 U.S.C. 78o-4(b)(2)(J). 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

such proposed rule change or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

• Electronic comments may be 

submitted by using the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml), or send 

an e-mail to rule-comment@sec.gov. 

Please include File No. SR–OCC–2010– 

19 on the subject line. 

• Paper comments should be sent in 

triplicate to Elizabeth M. Murphy, 

Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington DC 20549–1090. 

All submissions should refer to File No. 

SR–OCC–2010–19. This file number 

should be included on the subject line 

if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at OCC’s principal office and 

OCC’s Web site (http:// 

www.theocc.com/about/publications/ 

bylaws.jsp). All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. 

All submission should refer to File No. 

SR–OCC–2010–19 and should be 

submitted within January 26, 2011 days 

after the date of publication. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–33304 Filed 1–4–11; 8:45 am] 

BILLING CODE 8011–01–P 

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

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. 

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 


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6See Securities Exchange Act Release No. 63313 

(File No. SR–MSRB–2010–14) (November 12, 2010). 

7See Supplemental MSRB Response Letter. 8See Commission’s Notice, supra note 3. 9Public Law 111–203, 124 Stat. 1376 (2010). 

10See supra note 3. 

11See supra note 4. 

12See GFOA Letter, HTD Letter, Morgan Stanley 

Letter, RW Smith Letter, SIFMA Letter I, Jeffries 

Letter and Southwest Securities Letter. 

13See MSRB Response Letter. 

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

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. 

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. 

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

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. 

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.12In 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 


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14 Id. 

15See 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. 

16See BDA Letter I, Coastal Securities Letter, 

GFOA Letter, HTD Letter, RW Smith Letter, SIFMA 

Letter I and TD Ameritrade Letter. 

17See, e.g., HTD Letter and BDA Letter I. 

18See MSRB Response Letter. 

19 Id. See also, Supplemental MSRB Response 

Letter confirming that fiscal year 2010 expenses 

were approximately $23.1 million. 

20See 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. 

24 Id. 

25 Id. 

26See, e.g., BDA Letter I. 

27See GFOA Letter and SIFMA Letter I. 

28See MSRB Response Letter. 

29See BDA Letter I, Coastal Securities Letter, HTD 

Letter, Morgan Stanley Letter, RW Smith Letter, 

Jeffries Letter and SIFMA Letter I. 

30See supra note 6, and accompanying text. 

31See RW Smith Letter. 

32See MSRB Response Letter. 

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

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

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

In addition, in discussing the need for 

the technology fee, the MSRB asserted 

that ‘‘[m]aintaining the EMMA and 

SHORT systems, together with the RealTime 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

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. 

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

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

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 


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33 Id. 34 Id. 

35See BDA Letter I, Coastal Securities Letter, 

Morgan Stanley Letter, SIFMA Letter I, Southwest 

Securities Letter and TD Ameritrade Letter. 

36See SIFMA Letter I. 

37See TD Ameritrade Letter. 

38 Id. 

39 Id. 

40See HTD Letter. 

41See 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. 

42See Morgan Stanley Letter. 

43See Edward Jones Letter I. 

44See MSRB Response Letter. 

45See, e.g., BDA Letter I, Coastal Securities Letter, 

Edward Jones Letter I, SIFMA Letter I, Southwest 

Securities Letter and TD Ameritrade Letter. 

46See supra note 44, and accompanying text. 

47See GFOA Letter. 

48See MSRB Response Letter. 

49 Id. 

50See HTD Letter, RW Smith Letter, SIFMA Letter 

I and Southwest Securities Letter. 

51See RW Smith Letter and SIFMA Letter I. 

52See MSRB Response Letter. Specifically, the 

MSRB noted that the National Futures Association, 

Continued 

time.’’ 33 The MSRB further noted that it 

‘‘expects to continuously review its fee 

structure to ensure that, over the longrun, 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

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

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 affiliateto-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

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

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

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

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 


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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. 

54See 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. 

55See Morgan Stanley Letter. 

56See MSRB Response Letter. 

57 Id. 

58 Id. 

59 Id. 

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). 

62Effective 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. 

63See supra note 9, and accompanying text. 

64See supra note 20, and accompanying text. 

65See supra note 6, and accompanying text. 

66See MSRB Response Letter. 

67 Id. 

68 Id. 

69 15 U.S.C. 78s(b)(2). 

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

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

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

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 MSRB60 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

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. 

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. 

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

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– 


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70 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4The Exchange notes that parallel changes are 

proposed to be made to the rules of New York Stock 

Exchange LLC. See SR–NYSE–2010–84. 

5See Securities Exchange Act Release Nos. 59755 

(April 13, 2009), 74 FR 18009 (April 20, 2009) (SR– 

NYSEAltr–2009–15) (order granting approval of the 

Pilot); 60808 (October 9, 2009), 74 FR 53539 

(October 19, 2009) (SR–NYSEAmex–2009–70) 

(extending the operation of the Pilot to December 

31, 2009); 61265 (December 31, 2009), 75 FR 1094 

(January 8, 2010) (SR–NYSEAmex–2009–96) 

(extending the operation of the Pilot from December 

31, 2009 to March 1, 2010); 61611 (March 1, 2010), 

75 FR 10530 (March 8, 2010) (SR–NYSEAmex– 

2010–15) (extending the operation of the Pilot from 

March 1, 2010 to June 1, 2010); 62293 (June 15, 

2010), 75 FR 35862 (June 23, 2010) (SR– 

NYSEAmex–2010–50) (extending the operation of 

the Pilot from June 1, 2010 to December 1, 2010); 

and SR–NYSEAmex–2010–113 (filed November 30, 

2010) (extending the operation of the Pilot from 

December 1, 2010 to June 1, 2011). 

6 In addition, the Exchange proposes to make a 

technical change to the text of Rule 123C(9)(a)(1)(v). 

7See SR–NYSEAmex–2010–113 (filed November 

30, 2010) (extending the operation of the Pilot from 

December 1, 2010 to June 1, 2011). 

8Prior to implementation of this rule change, the 

Exchange will issue guidance in the form of an 

Information Memo that member organizations 

entering interest will be responsible for complying 

with Rule 123C(9)(a)(1)(iii). 

MSRB–2010–10), be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.70

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–33269 Filed 1–4–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63613; File No. SR– 

NYSEAmex–2010–121] 

Self-Regulatory Organizations; NYSE 

Amex LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Making Permanent NYSE 

Amex Equities Rule 123C(9)(a)(1) and 

Amending Rule 123C(9)(a)(1)(iii) 

December 29, 2010. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on December 

20, 2010, NYSE Amex LLC (the 

‘‘Exchange’’ or ‘‘NYSE Amex’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to make 

permanent NYSE Amex Equities Rule 

123C(9)(a)(1), which currently operates 

on a pilot basis. The Exchange also 

proposes to amend Rule 

123C(9)(a)(1)(iii) to eliminate the 

requirement that only Floor brokers can 

represent interest after 4 p.m. The text 

of the proposed rule change is available 

at the Exchange, the Commission’s 

Public Reference Room, www.sec.gov, 

and http://www.nyse.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to make 

permanent NYSE Amex Equities Rule 

123C(9)(a)(1),4 which has operated on a 

pilot basis and allows the Exchange to 

temporarily suspend certain rule 

requirements at the close when extreme 

order imbalances may cause significant 

dislocation to the closing price 

(‘‘Extreme Order Imbalances Pilot’’ or 

‘‘Pilot’’).5 The Pilot has recently been 

extended to June 1, 2011. In addition, in 

connection with proposing to make the 

rule permanent, the Exchange proposes 

to amend Rule 123C(9)(a)(1)(iii) to 

eliminate the requirement that only 

Floor brokers can represent interest after 

4:00 p.m. and to make technical 

amendments related to the obligations 

of member firms entering interest 

pursuant to Rule 123C(9)(a)(1).6

Background 

Pursuant to NYSE Amex Equities Rule 

123C(9)(a)(1), the Exchange may 

suspend NYSE Amex Equities Rule 52 

(Hours of Operation) to resolve an 

extreme order imbalance that may result 

in a price dislocation at the close as a 

result of an order entered into Exchange 

systems, or represented to a Designated 

Market Maker (‘‘DMM’’) orally at or near 

the close. NYSE Amex Equities Rule 

123C(9)(a)(1) was intended to be and 

has been invoked to attract offsetting 

interest in rare circumstances where 

there exists an extreme imbalance at the 

close such that a DMM is unable to 

close the security without significantly 

dislocating the price. 

As a condition of the approval to 

operate the Pilot, the Exchange 

committed to provide the Commission 

with information regarding: (i) How 

often an NYSE Amex Equities Rule 52 

temporary suspension pursuant to the 

Pilot was invoked during the six months 

following its approval; and (ii) the 

Exchange’s determination as to how to 

proceed with technical modifications to 

reconfigure Exchange systems to accept 

orders electronically after 4 p.m. As the 

Exchange has previously noted in filings 

with the Commission, the Pilot has been 

invoked only twice in NYSE Amexlisted securities.7

Proposal To Make Permanent the 

Operation of the Extreme Order 

Imbalance Rule 

The Exchange has completed and 

tested the system modifications 

necessary to accept orders electronically 

after 4 p.m. The Exchange therefore 

proposes to make Rule 123C(9)(a)(1), as 

amended, permanent beginning on 

January 3, 2011. 

Because the Exchange can now accept 

orders electronically after 4 p.m., the 

Exchange proposes to amend Rule 

123C(9)(a)(iii) to eliminate the 

restriction that only Floor brokers can 

represent offsetting interest in response 

to a solicitation of interest pursuant to 

the Rule. The Exchange further proposes 

to make technical changes to Rule 

123C(9)(a)(1)(iii) to identify what 

interest may be entered in response to 

a solicitation, i.e., it must be offsetting 

interest, a limit order priced no worse 

than the last sale, and irrevocable. 

Market participants sending in interest 

electronically in response to a 

solicitation after 4 p.m. are responsible 

for assuring compliance with all 

provisions of subsection (iii), including 

that such interest must be on the 

opposite side of the imbalance, must be 

limit priced no worse than the last sale, 

and must be irrevocable. Failure to 

abide by these requirements could 

subject a market participant to 

regulatory review and possible 

disciplinary action.8

The Exchange also proposes to amend 

Rule 123C(9)(a)(iv) to make clear that all 


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