WASHINGTON — The Securities and Exchange Commission should rein in the American Bankers Association's CUSIP Service Bureau and prevent it from charging financial market participants unreasonable and unwarranted fees, according to three trade groups.
In a letter to SEC chairman Mary Schapiro Wednesday, the Bond Dealers of America, the Investment Adviser Association and the Government Finance Officers Association called on the SEC to assert jurisdiction in the widening dispute over CUSIP fees, especially in cases where the use of CUSIP identifiers is mandated by federal regulators. CUSIPs are used to identify government and municipal securities as well as stocks of all registered U.S. firms.
The CUSIP Service Bureau is operated by Standard & Poor's under the direction of the ABA. Market participants commonly refer to the "CUSIP bureau," though its name was formally changed two years ago to CUSIP Global Services.
The BDA raised similar concerns about the bureau in a letter to the SEC last June. Then called the Regional Bond Dealers Association, the industry group attacked the CUSIP bureau's "aggressive campaign to extract licensing fees" from muni market participants and its attempt to "prohibit, restrict and exploit" the use of CUSIP numbers, which are purchased by issuers and required by the market.
Though issuers have always had to purchase CUSIPs, the groups said that other market participants such as bond dealers and advisers have used the numbers for years on trade confirmations, account statements, electronic data sources and in other cases without being required to pay for their use.
"In the last few years, however, S&P has begun contacting investment advisers, bond dealers and representatives of many financial institutions seeking to collect significant licensing fees for the use of CUSIP identifiers regardless of the source or use of such numbers," the groups wrote in the letter, signed by BDA chief executive officer Mike Nicholas, IAA executive director David Tittsworth and GFOA debt panel chair Frank Hoadley, who is Wisconsin's capital finance director.
An SEC spokesman declined to comment. Michael Privitera, vice president of public affairs at Standard & Poor's, said the allegations made by the groups are "inaccurate and misleading," though he had not seen the letter because news organizations were embargoed from distributing it until this morning.
"Our licensing and charging practices for these services are transparent and in line with data-provider industry norms and based on fair, reasonable and non-discriminatory terms," he said in a statement.
Besides instances where the numbers are required by SEC and other regulators' rules, the groups argue that CUSIP fees are inappropriate for clearing and settlement utilities or where CUSIPs are already widely used in the market.
The groups said licensing fees vary from firm to firm but range from around $10,000 per year for an institutional user to hundreds of thousands of dollars per year for unlimited global licenses. The CUSIP bureau contends that large, recurring fees are necessary to cover the costs of issuing and distributing CUSIP information. But the trade groups said this contention is "factually inaccurate" because issuing a CUSIP "is actually a simple administrative activity, requiring basic information technology."