The Municipal Securities Rulemaking Board (MSRB) plays a vital role in regulating the municipal securities market, ensuring that issuers and investors are protected. However, recent discussions surrounding the MSRB’s fee structures, particularly its rate card process, have sparked significant debate among stakeholders. The discrepancies in the assessment fees for municipal advisors (MAs) and dealers reveal a complicated landscape of interests and challenges that call for a thorough re-evaluation.
In response to an MSRB request for information (RFI), dealer groups voiced strong opinions about the current rate card system. They argue that the existing fee structure disproportionately burdens them and have proposed shifting to an activity-based fee model targeting municipal advisors. This proposition, however, has been met with resistance from the National Association of Municipal Advisors (NAMA). NAMA’s Executive Director, Susan Gaffney, highlighted the complexity of the municipal advisory sector, noting the vast diversity in business models and the impracticality of adopting a uniform fee assessment for MAs.
The essence of the argument lies in fairness and practicality. Where dealers believe that MAs should contribute similarly to the costs associated with MSRB’s oversight, MAs contend that their varied operations and client engagements make it unfeasible to impose a uniform fee structure. This backlash underscores the disparity between the assessments of financial burden and responsibility across different sectors of the municipal securities market.
At the heart of the technical discussions surrounding the MSRB’s fee structures is the method for assessing municipal advisors. The traditional practice of basing fees on the number of personnel working with MAs could disadvantage smaller firms, potentially driving them out of the market. Gaffney’s letter asserts that any changes in fee structure must consider the immense variety of operations among MAs. Importantly, this perspective aligns with the MSRB’s core mission of protecting issuers and ensuring market integrity.
Conversely, organizations like the Bond Dealers of America (BDA) and the Securities Industry and Financial Markets Association (SIFMA) have echoed calls for a re-evaluation of fee structures, advocating for a more transparent and predictable method of fee assessment. They highlight that an overly complex fee-setting approach results in confusion and unease among market participants. For instance, the dramatic shifts proposed in the 2024 fee rates, including a potential 25% increase in underwriting fees, raised alarms about the sustainability and rationality of these adjustments.
The variance in fee structures is not purely an academic debate; it has real-world implications for the health of the municipal securities market and its stakeholders. A more balanced approach to fee assessment, one that acknowledges both the contributions of MAs and dealers, is essential for fostering a fair regulatory environment.
As discussions continue, the primary recommendation from various dealer groups is for increased transparency in the MSRB’s budgeting process. The current model imposes a heavy reliance on dealer fees, raising questions about equity and fairness. Concerns have been voiced regarding the low contribution of municipal advisors to MSRB revenue, particularly given their extensive use of MSRB’s services. The disparity within the fee structure implies that dealers shoulder a disproportionate share of regulatory costs, while MAs benefit from the existing framework without making a commensurate financial contribution.
The sheer scale of the challenge ahead becomes evident; the MSRB is at a crossroads. A potential solution may lie in recalibrating the fee assessment model to factor in the volume of bond issuance handled by MAs, aligning their contribution more closely with their market activity. Such adjustments would not only promote fairness but could also ensure that all stakeholders remain adequately invested in the regulatory framework governing the municipal securities market.
The ongoing dialogue about the MSRB’s rate card process illustrates the intricate balance between regulatory oversight and market equity. Stakeholders must move beyond merely expressing discontent and work collaboratively towards a comprehensive understanding of the issues at play. As the MSRB considers its next steps, acknowledging the diverse business models of MAs while maintaining rigorous regulatory standards will be critical. Ensuring that the financial contributions from all sectors of the municipal market are equitable can foster a healthier environment for both advisors and dealers, ultimately benefiting issuers and investors alike.