WASHINGTON The Government Finance Officers Association said yesterday an MSRB proposal that would bar dealers from passing on to issuers fees paid to the board may be hard to enforce and easy to circumvent.
"While we support the intent of the proposed rule change, we are concerned that the change might be largely 'cosmetic' when put into effect," said Catherine L. Spain, the association's chief lobbyist, in a Sept. 21 comment letter to the Municipal Securities Rulemaking Board.
The board's existing Rule A-13 requires dealers to pay fees to the MSRB to help fund some of its operations. The fee is three cents per $1,000 par value for offerings that are two years or more in maturity. If the longest maturity in an offering is more than nine months but less than two years, the assessment is one cent per $1,000 par value of the issue.
The MSRB filed the proposed amendment with the Securities and Exchange Commission on Aug. 15. The amendment would clarify that the A- 13 fees levied by underwriters "are to be paid by dealers, and not issuers," the MSRB said in its draft rule sent to the SEC last month.
In her letter, Spain said association officials "agree with the position the MSRB has taken that it is not appropriate for the underwriting fee to be treated as an expense to the issuers. The underwriting fee is more appropriately categorized as part of the dealer's overhead costs of operation."
But while the amendment is a welcome development, the MSRB needs to give further consideration to related issues in order for the change to have any teeth, said Spain, who is the director of the association's governmental liaison center.
For example. the association believes that "it is not clear how the various enforcement agencies would be able to ensure compliance with the rule except in those cases where issuers continued to list MSRB fees as an expense item in their officials statements," the letter states.
A related concern is that dealers could get around the proposed rule change by burying the fees in transaction costs.
"We believe there are several ways for those affected by the rule to continue to pass on underwriting fees to issuers," the letter states. "For example, these fees could be simply built into the price of a particular negotiation."
The MSRB may also want to reconsider the way it charges fees, the association said.
"With the potential costs associated with many new programs and responsibilities the MSRB has undertaken in recent years, we suggest that it may be appropriate to study the feasibility of a new revenue structure that is not so heavily reliant on underwriter assessments based on new issue volume," Spain said in the letter.
The association also suggested that the MSRB may want to explore whether it is appropriate for dealers to be passing on to issuers the fees they pay to the Public SeCurities Association for membership in that group. "Again, this fee, which is also tied to volume, is not an expense of bringing a new issue to market." the letter said.