Funding the future of regulation for the municipal securities market

An open letter to our stakeholders:

Recently, the MSRB withdrew its 2024 rate card fee filing with the SEC. This action raised questions like: Why did this happen? What does it mean for the market? What’s next?

These are all important questions, and the purpose of this letter is to explain recent events, their impact on market participants, and to lay out a path forward to fund the future of regulation for the municipal securities market.  

When Congress established the MSRB as an independent self-regulatory organization (SRO) nearly 50 years ago, it relied upon a time-tested funding model for the market we regulate. Like other SROs, the MSRB is not funded by taxpayer dollars but rather through fees paid by regulated entities. Specifically, the Exchange Act provides the MSRB with the statutory authority to charge dealers and municipal advisors fees to defray the costs of operating the organization. The MSRB serves in a position of public trust, and we are accountable to our stakeholders for the prudent fiscal stewardship of the resources provided to us. 

Today, the MSRB’s fees are established through a rate card model. It was developed over the course of 2022 after extensive stakeholder engagement and feedback with the dual objectives of creating a more transparent fee-setting process and enhancing the management of organizational reserves. The model was filed with the SEC, and after a public notice and comment period, became effective in October 2022. Last fall, the MSRB established its first fees under the new model with its 2024 rate card fee filing with the SEC.  

However, public comments on the fee filing raised additional concerns about the model and questions about the MSRB’s budget. These comments led to the SEC subsequently suspending the MSRB’s fee filing. On Jan. 29, the MSRB formally withdrew its fee filing in a concerted effort to address these issues, while providing the time needed to engage directly with our stakeholders.

To advance the commitments we made in our response to the comment letters, we will be convening a series of meetings with our stakeholders. The overarching intent of these meetings is to strengthen communication between the MSRB and its stakeholders and to substantively engage in a dialogue that will move us forward in a sustainable way. 

At the first meeting, we will invite the four trade associations that submitted comment letters, whose member firms collectively pay most of the MSRB’s fees. The purpose of this meeting is to address comments related to the rate card model; in particular, market projections and fee volatility. While we continue to believe that this model achieves its intended goals, we fully expected at the outset that the model would evolve over time with changes in our market.

Considering the additional comments, however, we have decided that now is the right time to kick off a review of the model in its entirety. We plan to hold this meeting in March and to use the feedback received to inform our review. We do not anticipate filing new fees before this review is complete, which means that the prior fees in effect in 2023 will continue to remain in place until at least such time.   

At the second meeting, we will be inviting not only regulated entities to the table, but also investors and issuers, entities that the MSRB is charged with protecting. The purpose of this meeting is to address comments related to the MSRB’s budget; in particular, to discuss enhancements to our financial transparency with respect to technology-related expenses, and to explore avenues for stakeholders to provide feedback to the MSRB in advance of the adoption of our annual budget. We plan to hold this meeting in April in conjunction with the MSRB’s quarterly board meeting, which coincides with the start of our annual budget process. 

When Congress established the MSRB, it entrusted its Board of Directors with the responsibility of approving the MSRB’s annual budget and overseeing the fiscal management of the organization. As an SRO, we are a reflection of the market we regulate through the statutorily mandated stakeholder representation on our Board. The MSRB’s Board members are municipal market experts whose knowledge and expertise are essential to ensuring that our rules are necessary and appropriate and that our budget is fair and reasonable to advance our Congressional mandate.   

It is our sincere hope and belief that candid and honest dialogue with the shared goal of moving the conversation forward in a constructive way will allow us not only to resolve any outstanding issues regarding the fee filing, but also to advance something bigger that we know everyone can agree upon, the importance of funding the future of regulation. In doing so, the MSRB will continue to serve the public interest by ensuring an efficient municipal securities market that provides issuers with access to the lowest cost of funds to finance the nation’s critical infrastructure. 

We remain fully committed to our strategic goal of upholding public trust and look forward to engaging with you directly in the coming weeks. 

Meredith Hathorn, Chair, MSRB Board of Directors and Mark Kim, Chief Executive Officer, MSRB