Revision to Board Fee Assessments: Rule A-13
The Securities and Exchange Commission has approved an amendment to rule A-13 to institute a fee on dealers’ sales to customers. Trades effected on or after May 1, 2000 will be subject to the fee.
On April 10, 2000, the Securities and Exchange Commission approved a change to rule A-13, on underwriting and transaction assessments.[1] The rule change institutes a fee assessment on the customer sales transaction activities of municipal securities dealers. Beginning with customer trades effected on May 1, 2000, each broker, dealer and municipal securities dealer (“dealer”) will be assessed fees based upon the amount of its sales to customers. The fee is necessary in order to bring the MSRB’s revenues into better balance with its expenditures.
The MSRB’s goal in setting rule A-13 fee assessments has been to make the fees paid by each dealer reflect the extent of its municipal securities activities. The rule change will result in a combination of underwriting, inter-dealer and customer transaction fees that the MSRB believes is the best currently available means for comprehensive measurement of dealer participation in the market.
The rule change establishes $.005 (one-half cent) per $1,000 par value as the assessment rate applicable to customer sales and leaves unchanged the one-half cent assessment rate applicable to inter-dealer sales. There will be a change, however, in the timing of bills for inter-dealer sales, as discussed under “Billing Procedures.” There is no change to the MSRB’s fee on underwriting activity in municipal securities.
EXCLUSIONS
Certain short-term municipal securities will be excluded from both the new customer fee assessment and from the existing inter-dealer transaction fee. The excluded securities are those with a final stated maturity of nine months or less or which are “puttable” to an issuer at least as frequently as every nine months until maturity. Beginning with trades effected on May 1, 2000, inter-dealer trades in these excluded securities will no longer be subject to the existing inter-dealer transaction fee.
BILLING PROCEDURES
Who Will Be Billed
Customer sales will be billed to the dealer that effected the transaction. Inter-dealer sales will be billed to the clearing broker that reported the transaction to the MSRB via the centralized clearance and settlement system.
Bills for Customer Transactions. The Rule G-14 Transaction Reporting Procedures require each dealer to use its NASD-assigned executing broker symbol to identify itself when reporting transactions to the MSRB. This symbol will be used to identify the party to be billed for customer sales. As a result, each month, dealers that effect customer trades will receive a bill for the customer transaction fee assessment. Rule A-13(c)(ii), as amended, requires the dealer that effected the trade to pay the fee.
Bills for Inter-Dealer Transactions. Inter-dealer sales will be billed, as they are under current procedures, to the clearing broker. Clearing broker invoices for inter-dealer sales will have a subtotal for each executing broker symbol for which trades were reported. Rule A-13(c)(i), as amended, requires the dealer that reported the trade to pay the fee and permits that dealer to collect the fee from another dealer on whose behalf the trade was reported.
Billing Schedule
Under rule A-13 as amended, the Board will bill dealers each month for trades effected during the preceding calendar month. A transaction’s trade date will determine the month in which it is billed, rather than settlement date as under the previous provisions of rule A-13 that applied to inter-dealer sales. For example, trades with trade dates between July 1 and 31 will be billed in August. The Board plans to date bills on the last day of the month, so in this example, July trades will be billed on August 31.
The procedure for billing inter-dealer sales will be as follows. Inter-dealer trades that settle during May 2000 will be billed by the Board under existing procedures on May 31, 2000. To accommodate the transition from settlement date to trade date billing, no inter-dealer trades will be billed on June 30. Inter-dealer trades that are effected between June 1 and June 30 will be billed on a trade date basis. The Board will bill clearing brokers for these June inter-dealer trades on July 31, 2000.
Following is a monthly schedule of the phase-in to the new billing procedure.
May 31, 2000: Current procedures will apply. The Board will bill clearing brokers for inter-dealer sales that have settlement dates between May 1 and May 31. No customer trades will be billed.
June 30, 2000: Transitional procedures will apply. No inter-dealer trades will be billed. The Board will bill each dealer that effected trades with customers for its customer sales that have trade dates between May 1 and May 31.
July 31, 2000: New procedures will apply. The Board will bill for customer and inter-dealer trades that have trade dates between June 1 and June 30. Clearing brokers will be billed for their inter-dealer sales and effecting dealers will be billed for their customer sales.
Each succeeding month: On the last day of each month, the Board will bill for customer and inter-dealer trades whose trade date falls within the preceding calendar month (e.g., on August 31, dealers will be billed for trades with trade dates between July 1 and July 31).
April 27, 2000
TEXT OF AMENDMENT *
Rule A-13 Underwriting and Transaction Assessments for Brokers, Dealers and Municipal Securities Dealers
(a) – (b) No change.
(c) Transaction Assessments.
(i) Inter-Dealer Sales . Each broker, dealer and municipal securities dealer shall pay to the Board a fee equal to .0005% ($.005 per $1,000) of the total par value of inter-dealer municipal securities sales that it reports to the Board under rule G-14(b), except as provided in section (iii) of this paragraph (c). For those inter-dealer transactions reported to the Board by a broker, dealer or municipal securities dealer on behalf of another broker, dealer or municipal securities dealer, the inter-dealer transaction fee shall be paid by the broker, dealer or municipal securities dealer that reported the transaction to the Board. Such broker, dealer or municipal securities dealer may then collect the inter-dealer transaction fee from the broker, dealer or municipal securities dealer on whose behalf the transaction was reported.
(ii) Customer Sales. Each broker, dealer and municipal securities dealer shall pay to the Board a fee equal to .0005% ($.005 per $1,000) of the total par value of sales to customers that it reports to the Board under rule G-14(b), except as provided in section (iii) of this paragraph (c). The customer transaction fee shall be paid by the broker, dealer or municipal securities dealer that effected the sale to the customer.
(iii) Transactions Not Subject to Fee. Transaction fees are not assessed on transactions in municipal securities that:
(a) have a final stated maturity of nine months or less; or
(b) at the time of trade, may be tendered at the option of the holder to an issuer of such securities or its designated agent for redemption or purchase at par value or more at least as frequently as every nine months until maturity, earlier redemption, or purchase by an issuer or its designated agent.
(d) – (f) No change.
