WASHINGTON -- The Municipal Securities Rulemaking Board klate Friday proposed raising its underwriting assessment fee on dealers to 3 cents per $1,000 bond, from 2 cents, effective Aug. 1, to help finance its newly approved electronic library for official statements and advance refunding documents.
In a three-page filing with the Securities and Exchange Commission, the board said it was seeking the increase because of its "declining fund balance and the expected expenses relating to the operation of" its electronic library for official statement and refunding documents, which was approved by the SEC June 6.
The proposed increase, which must be approved by the SEC before it takes effect, was not a surprise to dealers, who were tipped off to the possible increase by the MSRB a year ago in the master plan the board sent to the SEC for its proposed Municipal Securities Information Library.
At that time, Public Securities Association officials were riled by the projected increase because they thought much of the so-called MSIL's costs were to be covered by an increase the board levied in October 1989 when it raised the fee from 1 cent per $1,000 par value of bonds underwritten to 2 cents.
But the group said a month later that it would not fight an increase and would press the board to find ways to spread the costs of the library more fairly across the market. The board has said the costs will be paid by a combination of user fees and assessments on underwriters.
Dealers concede that the market may have been spoiled b low MSRB fees for several years because the board has been financing itself, in part, from surplus fees it took in during the mid-1980s rush to market of bond deals to beat tax deadlines. Now that the surplus has slowly been drawn down, the board needs to find additional financing.
The board sent its proposal to the SEC just after the commission released a report that outlined its reasons for approving MSIL, but that was silent on its simultaneous decision to defer action on the board's proposed Continuing disclosure Information/Electronic Submission system.
The 62-page report strongly disagrees with industry participants who argued in comment letters that the library will compete with private information vendors, that the MSRB does not have authority to establish the system, that there is no clear need for the electronic repository and that it is not justified by its cost.
"It's clear to me that the commission has very clearly addressed all of those issues and we're pleased with the way they have [come down]," said MSRB Executive Director Christopher Taylor. "Now we'll get on to the business of building the system." The board has said it hopes to have the library for bond documents up and running by late 1991 or early 1992.
Mr. Taylor said he was not surprised that the commission's report did not offer further insight into its 4-0 decision June 6 to defer action on CDI/ES until the MSRB comes in with a new plan that allows the market to file disclosures on paper. The current proposal only permits electronic submission, which the commission feared would discourage participation.
The board has made no decision whether to propose CDI/ES again and is expected to begin talks on the subject at its next quarterly meeting in July. The board views reproposing CDI/ES as an even larger task than developing MSIL because of the massive amounts and diversity of paper that would have to be filed under such a system.
The SEC's report rejected a recommendation by some industry participants that the commission create a committee composed of representatives of every segment of the market to advise it on disclosure and MSIL's operation. It also rejected a recommendation that it create a powerful oversight panel that would help supervise the library. Supporters of such panels say the board's composition favors the dealer community and that any group setting up a system like MSIL should have a more balanced membership.
But the commission said it would be inappropriate to delay implementation of MSIL to create such panels. "All issues related to the creation of the library have been fully aired" and the board already has formed a broad-based MSIL system advisory committee, it said. "Thus the commission does not believe that there is much to be gained from establishing yet another group to examine these issues."
The commission also disagreed with comments that approving MSIL would put the MSRB in a position to set standards for form and content of issuer documents. The MSRB chose scanning technology, called imaging, for the system so that it could accept documents in any format and store them exactly as provided, said the SEC. "The commission believes that this technology permits adequate flexibility and that the system in no way forces standardized formats on issuers."
Furthermore, said the SEC, "the commission's decision [to approve MSIL] is conditioned on the MSRB's representation that it will not attempt to dictate the content of disclosure."