In the complex world of municipal securities, the Municipal Securities Rulemaking Board (MSRB) plays a pivotal role in developing rules and regulations for market participants, including dealers and municipal advisors (MAs). A recent request for information (RFI) issued by the MSRB elicited a range of responses regarding the fee structures that the board levies on these groups, with scrutiny on the fairness and sustainability of this system. The feedback from industry associations reveals a significant divide in perspectives concerning how fees should be assessed, particularly between dealers and MAs.
The proposal to impose activity-based fees specifically on municipal advisors garnered immediate support from several dealer groups. They argued that the existing fee structure unfairly burdens them, while MAs enjoy lower fees for what they believe are comparable services. In their correspondence with the MSRB, the Securities Industry and Financial Markets Association (SIFMA), the Bond Dealers of America (BDA), and the American Securities Association (ASA) expressed the view that re-evaluating how municipal advisors are assessed could lead to a more equitable distribution of regulatory costs.
On the contrary, the National Association of Municipal Advisors (NAMA) voiced strong opposition to the idea of shifting away from a per-person basis for fee assessment. NAMA Executive Director Susan Gaffney argued that due to the diverse business practices and models of MA firms, establishing a fair basis for fees is complex and should retain the common denominator of “covered persons.” This stark contrast in perspectives illustrates not only the challenges of creating a fair fee structure but also highlights the inherent tensions between different stakeholders in this ecosystem.
The MSRB operates as an independent self-regulatory organization, relying on fees from regulated entities to fund its operations. However, the current predicament facing the MSRB’s fee structure is compounded by escalating concerns from stakeholders about the unpredictability of fee assessments. Gaffney’s assertion that the proposed changes could disproportionately impact small firms resonates with many who fear that increased regulatory costs could stifle market competition and innovation.
The MSRB’s recent attempts to introduce a new rate-setting framework faced considerable pushback, leading to the withdrawal of proposed fee rates for 2024. This decision showcases the board’s willingness to reassess its approach in light of stakeholder feedback, yet the subsequent outreach efforts reflect the ongoing struggle to balance the needs of various market participants while maintaining a sustainable operational budget.
Among the voices advocating for change, the BDA specifically called for increased transparency and predictability in fee setting. With radical shifts in fee structures—like a 25% increase in underwriting fees juxtaposed against a 48% decrease in trade count fees—the BDA highlighted the need for tighter caps on annual changes to prevent drastic fluctuations that can burden businesses unevenly.
Michael Decker of the BDA noted the shortcomings of the existing model that disproportionately relies on dealer fees, which amounted to approximately $45 million in 2024, compared to the mere $3 million raised from municipal advisor headcount fees. This disparity raises crucial questions about the fairness of the regulatory regime, further suggesting that MAs benefit from a regulatory structure designed primarily for dealers without adequately contributing to its costs.
The discussions surrounding alternative assessment methods have not gone unnoticed. The idea of tying MA fees to measurable activities, such as the volume of bond issuance on which they advise, represents a forward-thinking approach aimed at creating a level playing field. Such a transformation could reflect a more accurate alignment of fees with the services provided, encouraging transparency and engagement from MAs while alleviating the financial strain on dealers.
Endorsed by several industry groups, this proposal emphasizes not only the need for fair revenue distribution but also suggests that if MAs were made to report their market activity, the entirety of municipal securities regulation could benefit from improved fidelity to actual participation levels.
As the MSRB navigates these complex discussions, the path forward will require robust engagement across all sectors involved in municipal securities. Addressing the concerns surrounding fee imposition and seeking equitable solutions should not only prioritize transparency but also ensure that the regulatory framework remains both fair and functional for all stakeholders. Practitioners in the municipal advisory space must advocate for their interests while recognizing the vital role regulation plays in protecting issuers and the integrity of the market. Finding common ground will be essential in crafting a responsive and responsible regulatory environment that serves both dealers and advisors effectively.