The modern landscape of municipal securities has seen significant shifts in regulatory practices, particularly in the way fees are structured and allocated. Recently, dealer groups—representing stakeholders deeply involved in the municipal securities market—responded to the Municipal Securities Rulemaking Board’s (MSRB) request for information (RFI) regarding its fee-setting mechanisms. The discourse surrounding the burden of fees highlights a crucial issue: the perceived inequities in how municipal advisors (MAs) and dealers contribute financially to the regulatory framework that governs their operations.
Dealers, represented by organizations such as the Securities Industry and Financial Markets Association (SIFMA) and the Bond Dealers of America (BDA), have called for a reevaluation of the fee structure, advocating for a shift toward activity-based fees for municipal advisors. Their rationale hinges on the notion that the current fee assignment is “unfair,” disproportionately impacting dealers who are bound to bear a heavier financial load than their advisory counterparts. The argument emphasizes that a more equitable distribution of costs could better reflect the services utilized by each group within the municipal securities ecosystem.
However, this push has not gone unnoticed by municipal advisors, who expressed skepticism toward the practicality of this proposal. The National Association of Municipal Advisors (NAMA) firmly rejected the notion of applying fees based on market activity, citing the diverse business models and operational frameworks prevalent in the advisory community. Susan Gaffney, NAMA’s Executive Director, articulated a concern that altering the fee assessment criteria could unduly burden smaller advisory firms, potentially leading to a decrease in the number of professionals in this field.
This debate encapsulates broader concerns about the fundamental principles of fairness and transparency in regulatory practices. As highlighted in the responses to the MSRB, there exists a stark contrast between how dealers and municipal advisors contribute to the funding of regulatory oversight. For instance, while dealers generate substantial revenue through market-based fees—which amounted to $45 million for the MSRB in 2024—municipal advisors’ contributions totaled a mere $3 million, an imbalance that raises pressing questions about the justification for such a disparity.
Interestingly, the MSRB’s operations depend largely on these regulated entities’ fees for sustainability. Given this financial dependency, the board’s approach to fee structures can significantly affect the operational dynamics within the sector. Again, this brings forth the issue of transparency, as dealers advocate for clearer insights into how MSRB budgets are constructed and how these budgets influence the rate card process.
A critical aspect of this discussion hinges on the inconsistency observed in the proposed fee adjustments. Stakeholders expressed alarm over the MSRB’s substantial rate increases—up to 25% for certain fee categories—coming on the heels of substantial drops (48% reductions in trade count fees). The BDA has proposed that a more tiered and predictable rate-setting mechanism is essential for providing stability to firms operating in a highly dynamic market, rather than introducing drastic fluctuations in fees that can impact firms’ financial planning adversely.
This unpredictability not only complicates the operational landscape but also exacerbates the existing tensions between dealers and municipal advisors. The BDA has encouraged the board to implement a cap of 10% on annual fee increases, advocating for a more measured approach that offers predictability and fairness in the apportioning of regulatory costs.
The ongoing discourse surrounding the MSRB’s fees and their distribution illustrates the intricate web of interests in the municipal securities market. As the landscape evolves, it is pivotal for the MSRB to seek a balanced approach that equitably addresses the concerns of both dealer and municipal advisor groups. The call for a revised fee structure, grounded in a clear understanding of each participant’s contributions to the market ecosystem, presents an opportunity for enhancing compliance and fostering a more collaborative environment.
Moving forward, stakeholder engagement will remain paramount to ensuring that the regulatory framework evolves in a manner that is reflective of the operational realities in the municipal securities market. The goal should not only be the protection of issuers—which lies at the heart of the MSRB’s mission—but also the creation of a sustainable and fair landscape for all market participants involved. This ongoing dialogue will set the stage for future fee assessments and could redefine the terms of engagement between these critical components of the municipal finance sector.