[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Notices]
[Pages 20237-20238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9326]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42658; File No. SR-MSRB-00-03]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval to Proposed Rule Change Relating to 
Underwiting and Transaction Assessments Imposed by the Municipal 
Securities Rulemaking Board Pursuant to Rule A-13

April 10, 2000.

I. Introduction

    On February 7, 2000, the Municipal Securities Rulemkaing Board 
(``MSRB'' or ``Board''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder, \2\ 
submitted to the Securities and Exchange Commission (``Commission'') a 
proposed rule change revising Rule A-13, Underwriting and Transaction 
Assessments for Brokers, Dealers and Municipal Securities Dealers. The 
proposed rule change was published for comment in the Federal Register 
on March 10, 2000.\3\ No comments were received on the proposal. This 
order aproves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \\ See Exchange Act Release No. 42492 (March 2, 2000), 65 FR 48 
(March 10, 2000).
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II. Description of the Proposal

A. Current Fee Structure

    Rule A-13(c) currently provides for a fee levied by the MSRB based 
on the total par value of a dealer's inter-dealer sales in municipal 
securities.\4\ Dealers report these transactions by submitting 
transaction information to the automated comparison system operated by 
the National Securities Clearing Corporation. The inter-dealer 
transaction fee assessment has been set at $.005 per $1,000 par value 
of sales since it was instituted in 1996.
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    \4\ The total par value of sales transactions will be referred 
to hereafter as ``transaction activity.''
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    The MSRB levies three other types of fees that generally apply to 
dealers. Rule A-12 requires each dealer to pay a $100 initial fee when 
it enters the municipal securities business. Rule A-14 requires each 
dealer that conducts municipal securities business during the year to 
pay an annual fee of $200. Rule A-13 requires each dealer to pay an 
assessment on underwriting activity based on the par value of the 
dealer's purchases from the issuer of primary offerings of municipal 
securities.

B. Proposed Fee Structure

    The MSRB is proposing to expand the transaction-based fee to take 
into account the dealer's sales to customers in addition to sales to 
dealers. The MSRB proposes to use a rate of $.005 per $1,000 par value 
to calculate assessments for both inter-dealer and customer 
transactions. The MSRB would exclude from the calculation of both 
inter-dealer and customer transaction-based fees certain transactions 
in very short-term instruments (i.e., securities that have a final 
stated maturity of nine months or less and securities that may be put 
to the issuer at least as frequently as every nine months).\5\ 
Transactions on these instruments are not excluded from the inter-
dealer transaction-based fee, but would be excluded from that fee under 
the MSRB's proposal.
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    \5\ The excluded categories of short-term issues are referred to 
hereafter as ``municipal commercial paper,'' ``short-term notes,'' 
and ''variable rate demand obligations.''
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    Under the proposed rule change, the MSRB would assess transaction 
fees on a monthly basis, based on transactions that dealers report to 
the MSRB's Transaction Reporting System, which supports market 
surveillance and price transparency functions for the municipal 
securities market. Dealer sales to customers (not purchases by the 
dealer from customers) would be used as the measure of transaction 
activity to avoid double counting when a dealer buys and sells a block 
of securities in the customer market.\6\
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    \6\ Similarly, the current inter-dealer transaction fee is 
assessed to the dealer on the ``sell side'' of each trade.

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[[Page 20238]]

    The proposed is intended to increase revenue to the MSRB to cover 
budgetary expenditures. The MSRB contends that it is facing a projected 
shortfall in revenue caused by declining underwriting assessments and 
increases in projected expenses. According to the MSRB, during the past 
five years, increased regulatory activities and expanded operation of 
the Municipal Securities Information Library (``MSIL'') system have 
increased its expenses from $6,716,681 in FY 1994 to $9,849,701 in FY 
1999. The MSRB reported that much of the expenses during this time 
resulted from development and operation of its Transaction Reporting 
System.\7\ In addition, according to the MSRB, its long-range plans 
call for increased involvement in activities to improve disclosure, 
which may entail substantial modification or enhancement of the Board's 
computer systems, thus requiring increased revenue.
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    \7\ The MRSB reported that MSIL expenditures during the past 
five fiscal year totaled $16.5 million, more than half of which is 
for its Transaction Reporting System development and operations. The 
MSRB has enhanced the Transaction Reporting System to disseminate 
more information in the transparency reports and to increase the 
information provided in a surveillance database to support 
enforcement of Board rules. Annual subscriptions to the transparency 
reports are available for a fee of $15,000, which the MSRB stated 
has resulted in revenue that less than offsets the marginal cost of 
production. In January 2000, the MSRB began making available 
detailed transaction reports and determined that, in order to foster 
the broadest possible dissemination of price information, the new 
reports will be made available free of charge. See Exchange Act 
Release No. 41916 (Sept. 27, 1999) 64 FR 53759 (Oct. 4, 1999).
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III. Discussion

    The Commission must approve a proposed MSRB rule change if it finds 
that the proposal is consistent with the requirements of the Act and 
the rules and regulations thereunder that govern the MSRB.\8\ The 
Commission finds that the proposal meets the above standard. In 
particular, the Commission finds that the proposed rule is consistent 
with the requirements of Section 15B(b)(2)(J) of the Act,\9\ which 
requires, in pertinent part, that the MSRB's rules shall ``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.''
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    \8\ 15 U.S.C. 78s(b). The Commission's statutory role is limited 
to evaluating rules as proposed against the statutory standards. See 
S. Rep. No. 75, 94th Cong., 1st Sess., at 13 (1975).
    \9\ 15 U.S.C. 78o-4(b)(2)(J).
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    The Commission believes that the proposal will help to provide 
sufficient revenues to fund Board operations and to allocate fees among 
brokers, dealer, and municipal securities dealers in a manner that more 
accurately reflects each dealer's participation in the municipal 
securities market. The Commission believes that the MSRB's fees should 
be based, to the extent possible, on a comprehensive measurement of 
participation in the municipal market. The Commission further believes 
that it is appropriate for the MSRB to change the scope of the rules 
governing fees based on changes in dealer participation in the market. 
The Commission also believes that the increased revenue will help to 
ensure that the MSRB continues to provide increased disclosure in the 
municipal securities market.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Exchange Act and the rules and 
regulations thereunder applicable to the MSRB and, in particular, 
Sections 15B(b)(2)(J).\10\
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    \10\ In approving this rule proposal, the Commission notes that 
it has also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act 
\11\ that the proposed rule change (SR-MSRB-00-03) be, and hereby is, 
approved.

    \11\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12)

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9326 Filed 4-13-00; 8:45 am]
BILLING CODE 8010-01-M