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Self-Regulatory Organizations; Order Granting Approval of a Proposed Rule Change Filing by the Municipal Securities Rulemaking Board to Amend Rule A-14, on Annual Fees

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Start Preamble August 14, 2003.

On July 3, 2003, the Municipal Securities Rulemaking Board (“Board” or “MSRB”) filed with the Securities & Exchange Commission (“Commission” or “SEC”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“the Act”)[1] and Rule 19b-4 thereunder,[2] a proposed rule change (File No. SR-MSRB-2003-06) (the “proposed rule change”). The MSRB's proposed rule change amends Rule A-14, which provides for an annual fee paid to the MSRB.

The Commission published the proposed rule change for notice and comment in the Federal Register on July 15, 2003.[3] The Commission received two comment letters on the proposed rule change.[4] This order approves the proposed rule change.

I. Description of the Proposed Rule Change

The MSRB proposed to amend Rule A-14, on annual fees paid by brokers, dealers and municipal securities dealers (collectively “dealers”). In its filing, the MSRB requested that the proposed rule change become effective prior to the beginning of the Board's fiscal year of 2004 (October 1, 2003). The proposed rule change increases the annual fee, from $200 to $300, for each fiscal year a dealer conducts municipal securities activities. The effective date of the proposed fee change does not alter the date in which the fees must be received by the Board.[5] Under Rule A-14, the fee must be received by the office of the Board no later than October 31 of the fiscal year of the Board.

II. Summary of Comments

The commission received two comment letters addressing the proposed rule change. Both comment letters expressed their opposition to the proposed rule change for an increase in annual fees. One commentator stated that the increasing fees drive out the smaller firms from engaging in municipal securities business.[6] The other commentator suggested that the fees paid to the MSRB should be based on generated revenues from a firm's municipal securities activities.[7]

III. Discussion and Commission Findings

Section 19(b) of the Act [8] requires the Commission to approve a proposed rule change filed by the MSRB if the Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder. After careful review of the proposed rule change and the related comments, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder, which govern the MSRB,[9] and, in particular, the requirements of section 15B(b)(2)(J) of the Act.[10] Under section 15B(b)(2)(J) of the Act, in pertinent part, the Board's rules must provide that each municipal securities broker and each municipal securities dealer 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. The Commission believes that the annual fee, as described in the proposed rule change, is necessary and appropriate to defray Board expenses. Thus, the Commission believes that the MSRB's proposal meets the required statutory threshold.

To address the comment letters, the Commission notes that the annual fee, levied under Rule A-14, is a flat rate that applies equally to all dealers conducting municipal securities Start Printed Page 50205business regardless of the size or type of transactions. In Rule A-13, the MSRB sets forth a fee structure that assesses dealers based on dealers' underwriting and transaction amount.[11]

The Commission recognizes the difficulties inherent in assessing the MSRB's fee structure, and believes that the MSRB has made a good faith effort to do so in a manner that is fair and reasonable. The Commission agrees with the MSRB that the fees are not levied for a specific purpose but for general purposes, and that MSRB regulatory activities affect all participants in the dealer community.

IV. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[12] that the proposed rule change (File No. SR-MSRB-2003-06) be and hereby is, approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[13]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See Release No. 34-48140 (June 8, 2003), 68 FR 41852 (July 15, 2003).

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4.  See letter from Erich Sokolower, Managing Director, Repex & Co., Inc., to MSRB, dated July 13, 2003; letter from Ying Cui, Winstrade, to MSRB, dated July 25, 2003.

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5.  See Release No. 34-48140.

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6.  See letter from Repex & Co, Inc., note 4, supra.

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7.  See letter from Winstrade, note 4, supra.

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9.  Additionally, in approving this rule the Commission notes that it has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).

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10.  15 U.S.C. 78o-4(b)(2)(J).

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11.  Rule A-13 provides for an underwriting fee of $.03 per $1000 par value of bonds and $.01 per $1000 par value of notes, and a transaction fee of $.005 per $1000 par value.

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[FR Doc. 03-21253 Filed 8-19-03; 8:45 am]