Document ID: SEC-2010-1595-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2010-10-19T04:00Z

[Federal Register: October 19, 2010 (Volume 75, Number 201)]
[Notices]               
[Page 64372-64375]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc10-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63095; File No. SR-MSRB-2010-10]

 
Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing 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

October 13, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``the Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 30, 2010, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
by the MSRB. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB has filed with the Commission a proposed rule change 
relating to assessments for brokers, dealers, and municipal securities 
dealers (``dealers'') under MSRB Rule A-13. The proposed rule change 
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 would amend Rule A-13 to (a) Increase the existing 
transaction assessments for inter-dealer and customer sales from .0005% 
to .001% of the total par value of inter-dealer sales and sales to 
customers that are reported by dealers to the MSRB (the ``transaction 
fee''), and (b) impose a technology fee of $1.00 per transaction for 
inter-dealer and customer sales reported to the Board (the ``technology 
fee''). The technology fee would be transitional in nature and would be 
reviewed by the Board periodically to determine whether it should 
continue to be assessed. The MSRB proposes an effective date for this 
proposed rule change of January 1, 2011.
    The text of the proposed rule change is available on the MSRB's Web 
site at http://www.msrb.org/Rules-and-Interpretations/SEC-Filings/2010-
Filings.aspx and at the Commission's Public Reference Room.

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 MSRB 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 these statements may be examined at the places specified in 
Item IV below. The Board has

[[Page 64373]]

prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to assess reasonable 
fees necessary to defray the costs and expenses of operating and 
administering the MSRB. The proposed rule change would amend Rule A-13 
to (a) Increase the existing transaction assessments for inter-dealer 
and customer sales from .0005% to .001% of the total par value of 
inter-dealer sales and sales to customers that are reported by dealers 
to the MSRB (the ``transaction fee''), and (b) impose a technology fee 
of $1.00 per transaction for inter-dealer and customer sales reported 
to the Board (the ``technology fee''). The technology fee would be 
transitional in nature and would be reviewed by the Board periodically 
to determine whether it should continue to be assessed.
Current Sources of Revenue
    The MSRB currently levies four types of fees that are generally 
applicable to dealers. Rule A-12 provides for a $100 initial fee paid 
once by a dealer when it first begins to engage in municipal securities 
activities. Rule A-13 provides for an underwriting fee of $.03 per 
$1000 par value of municipal securities purchased in a primary offering 
(with specified exceptions), and a transaction fee of $.005 per $1000 
par value of sale transactions of municipal securities (with specified 
exceptions). Finally, Rule A-14 provides for an annual fee of $500 from 
each dealer who conducts municipal securities activities.
    At present, approximately 90% of the Board's revenue is generated 
through underwriting fees and transaction fees. In fiscal year 2009, 
approximately 55% of the Board's revenue was generated by underwriting 
fees and approximately 36% of its revenue was generated by transaction 
fees. 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. Underwriting fees are 
based on a dealer's participation in the underwriting of municipal 
securities, and transaction fees are based on a dealer's participation 
in the municipal securities market in terms of par value sold.
    The transaction assessment 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, 
despite the additional activities undertaken by the MSRB over the last 
ten years. The amount of the underwriting assessment has not been 
increased since 1992, although in December 2009 the MSRB eliminated 
certain exemptions from the underwriting assessment.
Rationale for Proposed Rule Change
    The Board is proposing to increase the transaction fee and 
establish a new technology fee for three reasons. First, the expenses 
of the MSRB are increasing and additional revenue is necessary in order 
to meet projected expenses associated with ongoing operations. Second, 
the MSRB needs additional revenue to cover anticipated expenses 
associated with its new regulatory responsibilities mandated by the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 
111-203, 124 Stat. 1376 (2010) (the ``Dodd-Frank Act''). Third, the 
MSRB needs additional revenue to replace aging and outdated information 
technology software and hardware. In particular, 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. The new technology fee would be used to establish a new 
technology renewal fund, which would be segregated for accounting 
purposes. The technology renewal fund is intended to fund replacement 
of aging and outdated technology systems and to fund new technology 
initiatives.
    As reflected in the 2009 audited financial statement, revenue 
decreased from fiscal year 2008 to 2009 from approximately $22.2 
million to approximately $19.6 million, while expenses increased from 
approximately $18.6 million to approximately $21.3 million. Although 
revenue has increased in fiscal year 2010, primarily due to the 
elimination of certain exemptions from underwriting fees, expenses have 
also continued to increase. Moreover, the MSRB has not set aside 
separate reserves for major technology systems that will need 
replacement or upgrades in the near future.
    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 
for the (a) Collection and dissemination of electronic official 
statements and other primary market documents and information, allowing 
dealers, in most instances, to discontinue sending paper copies of 
official statements to new issue customers; (b) collection and 
dissemination of electronic continuing disclosure documents and related 
information from issuers and their agents; (c) collection and 
dissemination of current interest rates and other information on 
auction rate securities and variable rate demand obligations (the 
``SHORT'' system); (d) production and publication of statistical 
information on the municipal securities market; and (e) display on a 
publicly available, user-friendly Web site of the documents and 
information described above, as well as real-time trade information, 
which are made continuously available to the general public (the 
Electronic Municipal Market Access System or ``EMMA'' Web site).
    The EMMA and SHORT systems were initially developed and launched 
using general revenue and cash reserves. Since inception, significant 
demand from users of these systems and regulatory requirements 
established by the SEC have resulted in the development of new 
functionality, with an attendant rise in development and operating 
costs. Additionally, the rapid adoption by the marketplace of these 
systems as key sources for market disclosures, trade prices and 
interest rate information has resulted in an accelerated investment in 
resources to support the technology systems.
    In addition, Congress recently passed, and the President signed 
into law, comprehensive financial reform legislation, the Dodd-Frank 
Act. Effective October 1, 2010, the Dodd-Frank Act expands the MSRB's 
mission in a number of ways that will require a more substantial 
commitment of staff and technical resources. The expansion of the 
MSRB's jurisdiction to include regulation of municipal advisors will 
require additional rulemaking capabilities. The MSRB will also need to 
focus additional resources on establishing regulatory protections for 
municipal entities. 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, and 
the MSRB has been authorized to develop information systems with other 
Federal

[[Page 64374]]

regulators in furtherance of their missions.
    Given the significant resource commitments needed to further 
develop its information systems, and the additional statutory 
obligations imposed on the MSRB by the Dodd-Frank Act, the MSRB must 
generate sufficient revenue to ensure that these systems operate in a 
continuous, reliable manner while at the same time devoting substantial 
staff resources to developing an extensive new body of regulatory 
requirements.
Description of Proposed Rule Change
    In order to address the projected revenue shortfall, the MSRB 
proposes to increase revenue in two ways. First, 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. This increase in the transaction fee is expected to 
generate an estimated $7 million in revenue annually.
    The second fee proposed by the MSRB would consist of 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 exemptions 
from the transaction fee, as described above, would not apply to the 
technology fee. The technology fee is expected to generate an estimated 
$10 million in revenue annually, and would be transitional in nature, 
in that it would be reviewed periodically by the MSRB in relation to 
the level of funding needed for capital expenditures and to maintain 
the technology renewal fund. The funds accumulated in the technology 
renewal fund would be solely dedicated to funding capital expenses for 
technology investments.
    As noted above, the bulk of the MSRB's revenue is derived from the 
underwriting and transaction fees, which 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. The proposed new technology fee would help to 
establish a more balanced assessment of overall fees paid by dealers 
since it would be based on a dealer's participation in the market as 
measured by the total number of inter-dealer and customer sale 
transactions reported to the MSRB, rather than par value, and therefore 
would help to more evenly distribute the burden of dealer assessments. 
The MSRB believes these fees are fair and balanced, based on the 
activities of regulated market participants.
    Finally, with regard to the expansion of the MSRB's regulatory 
mandate to include regulation of municipal advisors and the protection 
of municipal entities, the MSRB 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 expects to revisit the manner in which its 
activities are funded in the coming years, as appropriate. The MSRB is 
committed to ensuring that its assessments are balanced based in large 
measure on the level of activity of all of its regulated entities.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(J) of the Act,\3\ which requires, in pertinent part, 
that the MSRB's rules shall:
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    \3\ 15 U.S.C. 78o-4(b)(2)(J).

    Provide that each municipal securities broker and each municipal 
securities dealer 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. Such rules shall 
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specify the amount of such fees and charges.

The proposed rule change provides for commercially reasonable fees to 
partially offset costs associated with operating RTRS \4\ and producing 
and disseminating transaction reports to subscribers.
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    \4\ RTRS refers to the MSRB's Real-time Transaction Reporting 
System.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Board does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act since it would apply equally to 
all market participants that chose to subscribe to the services.\5\
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    \5\ The Commission notes that this filing does not appear to 
relate to a subscription service.
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C. Self-Regulatory Organization's Statement on Comments Received on the 
Proposed Rule Change by Members, Participants, or Others

    Written comments were neither solicited nor received on the 
proposed rule change.

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

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2010-10 on the subject line.

Paper Comments

     Send paper comments 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 Number SR-MSRB-2010-10. 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 Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all

[[Page 64375]]

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 the MSRB's 
offices. 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 submissions should refer to File Number SR-
MSRB-2010-10 and should be submitted on or before November 9, 2010.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26278 Filed 10-18-10; 8:45 am]
BILLING CODE 8011-01-P