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Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

temporary fee reduction is informed by the MSRBs prior experience in attempting to address its excess reserves position. For example, the Board continues to believe that a temporary reduction of market activity fees is a reasonable and appropriate mechanism for reducing its excess reserves position because, as a matter of fairness and equity among regulated entities who pay MSRB fees, it would temporarily decrease fees for those regulated entities that financially contributed to the excess reserves position.
At the same time, the Board believes that the temporary fee reduction which would be assessed over a relatively extended period of eighteenth monthsis more prudent and equitable than other alternatives. Specifically, the Board believes that one of the advantages of extending the temporary fee reduction over the course of eighteen months, as opposed to a shorter period, is that the proposed rule change will capture a larger, and likely more representative, segment of market activity than if the fee reduction was for a shorter duration.35
Additionally, stretching the duration of the fee reduction to eighteen months will allow the MSRB to progress toward its reserves target at a more measured pace of net-deficit spending than if, for example, the total percentage amount of the fee reduction was more aggressive.
In addition, and as previously noted above, the Board believes that the eighteen-month duration of the temporary fee reduction is reasonable and appropriate because it will provide the Board requisite time to evaluate the organizations fee structure thoughtfully and thoroughly and arrive at longer term conclusions about the MSRBs financial positioning.36
Lastly, the Board believes that the mechanism of a temporary fee reduction is preferable to a rebate or similar return mechanisms that would more directly reimburse the regulated entities who paid the market activity fees that contributed to the excess reserves position. The MSRB understands that such direct fee rebates based on past fee payments may pose operational challenges to dealer firms.37 In contrast, 35 As a general illustration of this point, the MSRB believes that a dealer firm that only occasionally engages in underwriting business is more likely to receive a benefit from a fee reduction occurring over an eighteenth-month period than, for example, a fee reduction occurring over a six-month period.
36 See note 21 supra.
37 The MSRB also understands that dealer firms receiving rebates and similar after-the-fact reimbursements for prior payments and historical activity may have difficulty in accurately calculating and appropriately redistributing money
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the proposed rule changes temporary fee reduction has the advantage of granting firms notice and time to operationalize the reduced fees into their business processes.
For all the reasons discussed herein, the MSRB believes that the proposed rule change satisfies the applicable requirements of the Act and the Board has developed a reasonable and appropriate mechanism for addressing the excess reserves position generated by the MSRBs current fee structure.
B. Self-Regulatory Organizations Statement on Burden on Competition Section 15Bb2C of the Act 38
requires that MSRB rules not be designed to impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The MSRB believes that the proposed rule change does not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the act because the proposed rule change proportionately applies to each dealer firm that may pay market activity fees and, thereby, equitably benefits this class of regulated entity. Consequently, the MSRB believes that the proposed rule change will not impact competition in this regard.
The Boards policy on the use of economic analysis is not applicable to those rules for which the Board seeks immediate effectiveness.39 However, an internal analysis may still be conducted to gauge the economic impact, with an emphasis on the burden on competition involving regulated entities. In this regard, the Board believes the proposed rule change is necessary and appropriate to achieve the goal of reducing the MSRBs reserves. Because the market activity fees that are the subject of the proposed rule change comprised a majority of MSRBs revenue and contributed to the excess reserves, the Board believes that it is through or across organizations, particularly for underwriting syndicate participants.
38 15 U.S.C. 78o4b2C.
39 The scope of the Boards policy on the use of economic analysis in rulemaking provides that:
this Policy addresses rulemaking activities of the MSRB that culminate, or are expected to culminate, in a filing of a proposed rule change with the SEC under Section 19b of the Exchange Act, other than a proposed rule change that the MSRB reasonably believes would qualify for immediate effectiveness under Section 19b3A
of the Exchange Act if filed as such or as otherwise provided under the exception process of this Policy.
Policy on the Use of Economic Analysis in MSRB
Rulemaking, available at http msrb.org/Rules-andInterpretations/Economic-Analysis-Policy.aspx. For those rule changes which the MSRB seeks immediate effectiveness, the MSRB usually focuses exclusively its examination on the burden of competition on regulated entities.

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reasonable and appropriate to temporarily reduce these fees for the designated period to achieve this objective. Additionally, the MSRB
believes that the duration of the proposed rule changes temporary fee reduction is reasonable and appropriate in light of the MSRBs excess reserves position and the Boards ongoing review of the MSRBs overall fee structure and goal of arriving at longer-term conclusions about the MSRBs financial positioning.
The MSRB does not believe that the proposed rule change would result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as it would temporarily decrease the market activity fees by the same percentage for all dealers subject to these fees.
Consequently, the equal application of the fee reduction will not result in an impact on market competition. The proposed fee reduction utilizes the temporary fee reduction mechanism already established and effectively used in Fiscal Year 2019 while the MSRB
proceeds with a broader review of its fee structure. Notably, this time the length of the reduction time period is eighteen months versus nine months in Fiscal Year 2019 and the rate of reduction is now 40 percent versus 33 percent in Fiscal Year 2019. Based on the current level of MSRBs reserves and the Boards target level, the Fiscal Year 2021
budget and pro forma for Fiscal Year 2022 projected budget numbers between April 2021 and September 2022, a 40 percent reduction of the fees assessed under Rule A13ci and d would forgo revenue of, and thus reduce reserves by, an estimated $18.8
million.40
The MSRB believes that the proposed rule change would not impose an unnecessary or inappropriate regulatory burden on dealers, as dealers with different levels of underwriting and trading activities would all benefit from the temporary fee reduction proportionately during the relevant period. For dealers engaging in primary market activity, a temporary 40 percent reduction in the underwriting assessment of the par value will benefit all dealers and the reduction amount will be proportionate to each dealers total underwriting par amount.
Additionally, all dealers engaging in secondary market activity will be impacted by a 40 percent reduction of the transaction assessment on the par 40 In round numbers, the proposed fee reduction would reduce an estimated $6 million fee for underwriting, $9 million fee for transaction, and $4
million fee for technology.

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