12340 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Notices 

10 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 66080 

(January 3, 2012), 77 FR 1119 (‘‘Notice’’). 

4See letters to Elizabeth M. Murphy, Secretary, 

Commission, from David T. Bellaire, Esq., General 

Counsel and Director of Government Affairs, 

Financial Services Institute, dated January 30, 2012 

(‘‘FSI Letter’’); Eric Berman, CPA—Chair, Financial 

Management Standards Board, Association of 

Government Accountants, dated January 30, 2012 

(‘‘AGA Letter’’); David L. Cohen, Managing Director, 

Associate General Counsel, Securities Industry and 

Financial Markets Association, dated January 30, 

2012 (‘‘SIFMA Letter’’); Jeffrey L. Esser, Executive 

Director and Chief Executive Officer, Government 

Finance Officers Association, Robert O’Neill, 

Executive Director, International City/County 

Management Association, Larry E. Naake, Executive 

Director, National Association of Counties, Donald 

J. Borut, Executive Director, National League of 

Cities, and Tom Cochran, CEO and Executive 

Director, United States Conference of Mayors, dated 

January 30, 2012 (‘‘Associations Letter’’); John T. 

Hicks, President, National Association of State 

Budget Officers, dated January 30, 2012 (‘‘NASBO 

Letter’’); Ronald L. Jones, President, National 

Association of State Auditors, Comptrollers and 

Treasurers, dated January 30, 2012 (‘‘NASACT 

Letter’’); Michael Nicholas, Chief Executive Officer, 

Bond Dealers of America, dated January 30, 2012 

(‘‘BDA Letter’’); Martin J. Benison, Comptroller, 

Office of the Comptroller, Commonwealth of 

Massachusetts, dated January 24, 2012 

(‘‘Massachusetts Letter’’); and Chris Melton, Sr., 

dated January 19, 2012 (‘‘Melton Letter’’). 

5See Letter to Elizabeth M. Murphy, Secretary, 

Commission, from Brant K. Brown, Associate 

General Counsel, FINRA, dated February 13, 2012 

(‘‘FINRA Response Letter’’). 

6See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. No. 111–203, 124 

Stat. 1376 (2010). 

7See 15 U.S.C. 77s(g). For purposes of the GASB 

Accounting Support Fee, the annual budget of the 

GASB is the annual budget reviewed and approved 

according to the internal procedures of the 

Financial Accounting Foundation (‘‘FAF’’). See 15 

U.S.C. 77s(g)(2). FINRA stated that it anticipates 

that the GASB’s annual budget will include an 

administrative fee to FINRA. The administrative fee 

is intended to cover FINRA’s costs associated with 

calculating, assessing, and collecting the GASB 

Accounting Support Fee, and the amount will be 

negotiated with the FAF each year. For the initial 

year, the administrative fee will be $50,000. 

8See Securities Exchange Act Release No. 64462 

(May 11, 2011), 76 FR 28247 (May 16, 2011). 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rulecomments@sec.gov. Please include File 

Number SR–NYSEAmex–2012–14 on 

the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEAmex–2012–14. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEAmex–2012–14 and should be 

submitted on or before March 21, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–4764 Filed 2–28–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66454; File No. SR–FINRA– 

2011–073] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of Proposed Rule Change 

Relating to Establishing a 

Governmental Accounting Standards 

Board Accounting Support Fee 

February 23, 2012. 

I. Introduction 

On December 20, 2011, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to adopt Section 

14 to Schedule A of the FINRA By-Laws 

to establish an accounting support fee to 

adequately fund the annual budget of 

the Governmental Accounting 

Standards Board (‘‘GASB’’). The 

proposed rule change was published for 

comment in the Federal Register on 

January 9, 2012.3 The Commission 

received nine comment letters on the 

proposed rule change.4 On February 13, 

2012, FINRA submitted a response letter 

to the comments.5 This order grants 

approval of the proposed rule change. 

II. Description of the Proposed Rule 

Change 

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (‘‘DoddFrank Act’’) was signed into law by 

President Obama on July 21, 2010.6 As 

added by Section 978 of the Dodd-Frank 

Act, Section 19(g) of the Securities Act 

of 1933 (‘‘Securities Act’’) gives the 

Commission the authority to require a 

national securities association to 

establish a reasonable annual 

accounting support fee to adequately 

fund the annual budget of the GASB 

(‘‘GASB Accounting Support Fee’’), and 

rules and procedures to provide for the 

equitable allocation, assessment, and 

collection of the GASB Accounting 

Support Fee from the association’s 

members.7 On May 11, 2011, the 

Commission exercised this authority 

and issued an order requiring FINRA to 

establish (a) a reasonable annual 

accounting support fee to adequately 

fund the annual budget of the GASB; 

and (b) rules and procedures, in 

consultation with the principal 

organizations representing State 

governors, legislators, local elected 

officials, and State and local finance 

officers, to provide for the equitable 

allocation, assessment, and collection of 

the accounting support fee from its 

members, and the remittance of all such 

accounting support fees to the FAF.8

In response to the Commission’s order 

of May 11, 2011, FINRA proposed new 

Section 14 (Accounting Support Fee for 

Governmental Accounting Standards 

Board) to Schedule A of the FINRA ByLaws to establish the GASB Accounting 

Support Fee. The proposed rule change 

would assess the fee based on FINRA 

members’ municipal securities trading 

volume reported to the Municipal 

Securities Rulemaking Board (‘‘MSRB’’). 

FINRA stated its belief that basing the 

GASB Accounting Support Fee on 

reliable and timely reporting data will 

ensure the accuracy of the fee and that 

using transaction data to apportion the 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Notices 12341 

9Section 19(g)(4) of the Securities Act prohibits 

FINRA from collecting GASB Accounting Support 

Fees for a fiscal year in excess of GASB’s 

recoverable annual budgeted expenses. See 15 

U.S.C. 77s(g)(4). 

10MSRB Rule G–14(b) sets out municipal 

securities transaction reporting requirements. 

11 If a member does not engage in reportable 

municipal securities transactions during a 

particular calendar quarter, the member would not 

be subject to the GASB Accounting Support Fee for 

that quarter. 

12See 15 U.S.C. 77s(g)(1). 

13See 15 U.S.C. 77s(g)(3). Specifically, FINRA 

stated that it anticipates establishing a separate 

bank account specifically for the GASB Accounting 

Support Fee and would coordinate with the FAF to 

establish a process by which FINRA would wire the 

funds into the FAF account for the GASB 

Accounting Support Fee. Further, given the 

separate bank account, FINRA would provide 

monthly account reconciliations and accounts 

receivable aging reports, which would be reviewed 

by FINRA management each month and would be 

available for review by FAF and GASB management 

upon request. 

14See 15 U.S.C. 77s(g)(5)(B). 

15See supra note 4. 

16See AGA Letter; NASBO Letter; NASACT 

Letter; and Massachusetts Letter. 

17See SIFMA Letter; BDA Letter; and Melton 

Letter. 

18See FSI Letter; AGA Letter; Associations Letter; 

NASBO Letter; and NASACT Letter. 

19See supra note 5. Prior to filing this proposed 

rule change, FINRA issued Regulatory Notice 11– 

28 requesting comment on the proposal. See FINRA 

Regulatory Notice 11–28 (June 2011). In the Notice, 

FINRA addressed the comments it received in 

response to the Regulatory Notice. 

20See supra note 16. 

21See AGA Letter at 1. 

22 Id. at 2. 

23 Id. 

fee will result in a fair and equitable 

assessment across FINRA members. 

FINRA stated, however, that because it 

is statutorily prohibited from collecting 

amounts in excess of GASB’s 

recoverable annual budgeted expenses 

and because a transaction-based fee is 

inherently variable due to the 

unpredictability of transaction volume, 

it proposed a quarterly assessment 

based on GASB’s annual budget.9 Under 

proposed Section 14, the GASB 

Accounting Support Fee would be 

allocated among FINRA members on a 

quarterly basis based on municipal 

securities transactions reported to the 

MSRB. Specifically, each calendar 

quarter, each FINRA member would be 

required to pay an assessment to FINRA 

of its portion of one quarter of the 

annual GASB Accounting Support Fee 

amount that reflects the member’s 

portion of the total par value of 

municipal securities transactions 

reported by FINRA members to the 

MSRB under MSRB Rule G–14(b) 10 in 

the previous calendar quarter. For 

example, if GASB’s recoverable annual 

budgeted expenses for a given year were 

$10 million, FINRA would collect $2.5 

million from its members each quarter. 

Each member’s fee would be based on 

the member’s proportion of municipal 

securities transactions (based on the par 

value of reported transactions, not their 

price) reported by all FINRA members 

to the MSRB in the previous calendar 

quarter.11 Thus, for example, if a 

member reported transactions to the 

MSRB in a given quarter that accounted 

for 10% of the total par value amount 

of transactions reported by all FINRA 

members during the quarter, the 

member’s assessment would be 10% of 

one quarter of GASB’s annual budget (in 

the above example, the member’s 

quarterly assessment would be $250,000 

(i.e., 10% of $2.5 million)). 

To exclude members with de minimis 

transactions in municipal securities in a 

given quarter from being assessed the 

fee, FINRA proposed that members with 

a quarterly assessment of less than $25 

would not be charged the fee for that 

quarter. Any amounts originally 

assessed to those members would be 

reallocated among the members with an 

assessment that quarter of $25 or more 

based on each member’s portion of the 

total par value of municipal securities 

transactions reported by FINRA 

members to the MSRB. 

As required by Section 19(g) of the 

Securities Act, any GASB Accounting 

Support Fees collected by FINRA would 

be remitted to the FAF 12 and used to 

support the efforts of the GASB to 

establish standards of financial 

accounting and reporting applicable to 

state and local governments.13 In 

accordance with Section 19(g)(5)(B) of 

the Securities Act, collection of the 

GASB Accounting Support Fee shall not 

be construed to provide the Commission 

or FINRA direct or indirect oversight of 

the budget or technical agenda of the 

GASB or to affect the setting of generally 

accepted accounting principles by the 

GASB.14

Because some firms may seek to pass 

the GASB Accounting Support Fee onto 

customers engaged in municipal 

securities transactions, FINRA proposed 

to publish a Regulatory Notice each year 

disclosing the total annual GASB 

Accounting Support Fee that FINRA 

would collect for that year. In this 

annual Regulatory Notice, FINRA also 

anticipates setting out an estimated fee 

rate (per $1,000 par value) based on the 

GASB recoverable annual budgeted 

expenses reported to FINRA for that 

year and historical municipal security 

trade reporting volumes so that firms 

would have some basis on which to 

establish a fee should they choose to do 

so. FINRA’s Regulatory Notice would 

also remind any firms choosing to pass 

along the fee of the need for proper 

disclosure of the GASB Accounting 

Support Fee, including, if applicable, 

the fact that the fee is an estimate and 

that the firm ultimately may pay more 

or less than the fee charged to the 

customer. In addition, any disclosure 

used by the firm cannot be misleading 

and must comport with FINRA rules, 

including just and equitable principles 

of trade, as well as any applicable MSRB 

rules. 

As proposed, the effective date of the 

proposed rule change would be the date 

of Commission approval. The initial fees 

assessed on members would be based on 

trading activity reported in the calendar 

quarter during which the Commission 

approves the proposed rule change. As 

a result, the proposed GASB Accounting 

Support Fee may only cover a portion 

of the 2012 GASB budget. 

III. Comment Letters 

As noted above, the Commission 

received nine comment letters on the 

proposed rule change.15 Four 

commenters generally supported the 

proposed rule change.16 Three 

commenters expressed objections to the 

proposed rule change and urged the 

Commission to disapprove it.17 Five 

commenters, including three 

commenters who supported the 

proposed rule change, expressed 

concerns regarding various aspects of 

the proposal.18 Also, as noted above, 

FINRA submitted a response letter to 

the comments.19

As noted above, four commenters 

generally supported the proposed rule 

change.20 One commenter stated that it 

strongly supports the proposal, and that 

the proposed rule change represents a 

very positive and long overdue step to 

provide the GASB, in its role as an 

independent standards setting body, 

with reliable funding.21 While this 

commenter pointed out several potential 

concerns with the proposed rule change, 

the commenter stated that ‘‘any 

concerns regarding the proposal were 

outweighed by the positive effects of 

FINRA’s proposal.’’ 22 This commenter 

further stated that the proposed rule 

change is consistent with the DoddFrank Act, and will ‘‘provide GASB 

with a stable funding source for its 

work,’’ ‘‘strengthen GASB’s 

independence,’’ ‘‘eliminate the risk that 

financial support could be lost if an 

unpopular course of action is pursued 

by GASB,’’ and ‘‘allow GASB to better 

plan its research work on important 

topics.’’ 23

Another commenter who supported 

the proposal urged the Commission to 

approve it, stating that the proposed 


tkelley on DSK3SPTVN1PROD with NOTICES
12342 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Notices 

24Massachusetts Letter. 25NASACT Letter. 26See NASBO Letter at 1. 27See Melton Letter; BDA Letter; and SIFMA 

Letter. 28Melton Letter (stating that ‘‘[r]egistered brokerdealers are neither governmental entities nor 

accountants’’). 29See BDA Letter at 1 (stating that activities of 

GASB benefit issuers, financial advisors, investors, 

and citizens). 30See SIFMA Letter at 3. 31See id. at 3–4. 32See id. at 4. 

33 Id. 

34See id. at 6. 

35See id. 

36See id. at 7. 

37See AGA Letter at 1–2. The commenter also 

pointed out that state and local governments vary 

as to how often and to what extent they enter the 

municipal securities market, but stated that, even 

considering the current GASB funding mechanism, 

it is unaware of any link between a state or local 

government’s decision to allocate funds to support 

GASB and its subsequent decision to follow GASB 

standards. See id. 

38See id. at 2. 

39See FINRA Response Letter at 3 and Notice, 77 

FR at 1122. 

40See Notice, 77 FR at 1123. 

41See id. FINRA also noted that basing the GASB 

Accounting Support Fee on underwriting, rather 

than transactions, would increase the burden on 

lead underwriters and would disproportionately 

affect market participants engaged in underwriting 

activities rather than in trading in the secondary 

market. Further, FINRA stated that basing the fee 

on underwriting would wholly exempt secondary 

market participants from paying the fee and the fee 

would be assessed only on future municipal issues 

and would ‘‘grandfather’’ in previous issues. See id. 

at note 42. 

42See id. at 1123. 

43See id. 

44See FINRA Response Letter at 5. 

45See Associations Letter; NASBO Letter; and 

NASACT Letter. 

46See NASACT Letter. 

rule change ‘‘represents the best 

compromise identified through a 

deliberative open process and 

represents a long-term solution to GASB 

funding needs.’’ 24 Another commenter 

stated that ‘‘allocating the support fee 

among FINRA member firms based on 

municipal securities transactions 

appears to be a reasonable way to 

provide GASB with a steady source of 

independent funding’’ and that ‘‘[t]he 

methodology seems fair and 

equitable.’’ 25 The final commenter that 

generally supported the proposal stated 

that it agreed with most of the proposed 

changes, but was concerned the 

proposal did not specifically state that 

the GASB Accounting Support Fee 

could not be passed on to issuers of 

municipal debt.26

Several commenters who opposed the 

proposed rule change expressed the 

belief that the proposed GASB 

Accounting Support Fee is not equitable 

because it is imposed only on brokerdealers.27 One commenter stated that 

charges to the broker-dealer community 

should be restricted ‘‘to those items that 

are directly connected to brokerdealers,’’ and that ‘‘the connection to 

the broker-dealer community in this 

case is tenuous.’’ 28 One commenter 

stated that GASB’s activities benefit 

many participants in the municipal 

market other than broker-dealers, so the 

fee should be shared broadly by those 

who benefit.29 Another commenter 

stated that the proposed rule change is 

an ‘‘unfair tax’’ on broker-dealers.30 This 

commenter stated that the true 

beneficiaries of GASB’s work are state 

and local governments, investors, rating 

agencies, and auditors, and they should 

directly fund GASB’s operations.31

Further, this commenter stated that, 

under the proposed rule, many diverse 

end users of GASB’s accounting and 

financial reporting standards would get 

a ‘‘free ride.’’ 32 In addition, this 

commenter stated that numerous state 

and local governments and other 

municipal bond obligors do not follow 

GASB standards, so there is ‘‘no 

reasonable basis, nexus, or justification 

for the bondholders of these entities (or 

even the entities themselves) to 

financially support the activities of 

GASB,’’ and that ‘‘[i]f dealers are 

required to fund GASB, they should 

enjoy some certainty that GASB’s work 

product will be adhered to.’’ 33 This 

commenter also stated that bank dealers 

are not subject to FINRA regulation, so 

they would not be covered under the 

proposed rule change.34 Further, this 

commenter stated that each brokerdealer counterparty to a trade reports 

the trade under MSRB Rule G–14(b), 

resulting in a multiple assessment for a 

single purchase and sale.35 Lastly, this 

commenter suggested structuring the fee 

as an underwriting assessment on all 

municipal securities (or potentially just 

on bonds with GASB reporting obligors) 

purchased by a dealer from an issuer as 

part of a primary offering.36

One of the commenters who 

supported the proposed rule change also 

noted that there could be a potential 

‘‘unintended negative effect from 

assessing GASB’s costs across only a 

portion of the stakeholders that benefit 

from GASB’s work,’’ and that relying on 

a single constituency could have an 

unintended negative consequence.37

This commenter also stated, however, 

that it believes that the proposed rule 

change could create a ‘‘healthy 

segregation’’ for organizations that 

currently both collect sums from states 

and local governments for the funding 

of GASB and also participate heavily in 

commenting on the policy decisions 

developed by the GASB, by eliminating 

any potential conflicts between these 

two interests.38

In response to comments regarding 

who should be required to pay the 

GASB Accounting Support Fee, FINRA 

reaffirmed its statements in the Notice 

that Section 19(g) of the Securities Act 

substantially limited the parameters of 

the GASB Accounting Support Fee and 

that FINRA has no authority to collect 

the fee from non-FINRA members.39 In 

the Notice, FINRA also stated that 

because the goal of the assessment is to 

equitably allocate the GASB Accounting 

Support Fee among participants in the 

municipal securities market, it is 

appropriate that both brokers in a 

broker-to-broker transaction be 

considered as participating in that 

market with respect to the transaction, 

rather than using only one side of the 

trade in calculating the fee.40 FINRA 

further stated its belief that the 

proposed fee would accurately reflect 

firms’ participation in the municipal 

securities markets, whether those firms 

act as underwriters, brokers’ brokers, or 

simply as buyers or sellers of municipal 

securities.41 Lastly, in the Notice, 

FINRA declined to distinguish between 

issues depending on whether the obligor 

has followed Financial Accounting 

Standards Board (‘‘FASB’’) standards, 

GASB standards, or neither.42 FINRA 

stated that this information is not 

required to be reported to the MSRB, is 

not available on an automated basis, and 

that it would be impractical for FINRA 

to attempt to maintain a comprehensive 

and accurate list of issues where the 

obligor has followed GASB standards.43

In its response letter, FINRA also stated 

its belief that the issue of who should 

pay the GASB Accounting Support Fee 

is more properly resolved by the 

Commission, and that unless the 

Commission rescinds its order, FINRA 

must proceed with the rulemaking 

pursuant to Section 19(g) and the 

Commission’s order.44

Several commenters representative of 

state and local officials stated that the 

proposed rule change would allow 

FINRA members to pass the GASB 

Accounting Support Fee on to the 

members’ customers, which would be 

inconsistent with the Dodd-Frank Act.45

One commenter who stated that the 

proposed fee is a reasonable way to 

provide GASB with a steady source of 

independent funding and that the 

methodology is fair and equitable 

expressed concern that the fee could be 

passed along to customers, particularly 

municipal issuers.46 This commenter 

stated that the Dodd-Frank Act 

specifically provides that the fee is to be 

paid by members of a national securities 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Notices 12343 

47See id. 

48Associations Letter at 1. 

49 Id. at 2. 

50NASBO Letter at 1–2. 

51See SIFMA Letter and BDA Letter. 

52See SIFMA Letter at 6. This commenter further 

stated that the proposed fee unfairly burdens 

certain dealers because many transactions reported 

to the MSRB pursuant to Rule G–14(b) do not 

involve customers, which means some dealers 

cannot pass through the fee to customers. See id. 

at 5. 

53See BDA Letter at 2. 

54See Notice, 77 FR at 1124. FINRA stated that 

it ‘‘has long recognized that members pass fees 

through to the customers whose transactions 

generate those fees, and FINRA rules generally do 

not address the commercial allocation of fees 

between members and their customers, provided 

such fees are fair, reasonable, and disclosed.’’ Id. 

FINRA also declined to give a blanket exemption 

for issuers of municipal securities, and noted that 

transactions from a municipal securities issuer to an 

underwriter are not reported to the MSRB and 

would not generally be counted toward a member’s 

quarterly assessment. See id. 

55FINRA Response Letter at 4. 

56 Id. 

57See id. at note 16. FINRA also stated that it has 

no rule dictating how its member firms cover 

expenditures, and does not believe that any such 

provision is required by Section 19(g) or the 

Commission’s order. See id. 

58See FSI Letter and BDA Letter. 

59FSI Letter at 3. 

60 Id. 

61See BDA Letter at 2. 

62See id. 

63 Id. 

64 Id. 

65 Id. 

66See FINRA Response Letter at 6. In the Notice, 

FINRA stated that a de minimis threshold of $25 

per quarter would exempt approximately 55% of 

the firms per quarter, and raising the threshold to 

$1000 would exempt approximately 90% of the 

firms. See Notice, 77 FR at 1124. 

67See FINRA Response Letter at 5. See also 

Notice, 77 FR at 1124. FINRA further stressed that 

it estimates that a $25 threshold would exempt over 

half of its members reporting trades to the MSRB 

in a given quarter. See FINRA Response Letter at 

6. 

68See FINRA Response Letter at 6. 

69See BDA Letter; SIFMA Letter; and AGA Letter. 

association.47 Another commenter 

stated that ‘‘[t]he proposed rule does not 

adhere to the statutory language because 

it does not specify that the Fee must be 

paid by the members of the association, 

and in fact leaves open the possibility 

that the Fee may be passed along to 

customers, which might include state 

and local governments who issue 

municipal securities.’’ 48 This 

commenter also stated that, without 

language that would prevent FINRA 

members from passing the fee to issuers 

of municipal securities, ‘‘there will be 

nothing to ensure that the law is 

correctly implemented, and that state 

and local governments—and ultimately 

tax payers—will not be unnecessarily 

burdened with additional fees.’’ 49 One 

more commenter expressed concern that 

the proposed rule change is inconsistent 

with the statutory language of the DoddFrank Act ‘‘because it does not specify 

that the fee be paid by the members of 

the association, and leaves open the 

possibility that the fee may be passed 

along to customers which includes state 

and local governments who issue 

municipal securities.’’ 50

On the other hand, commenters 

representing broker-dealers stated that 

the proposal should allow brokerdealers to pass on the GASB Accounting 

Support Fee to customers engaged in 

municipal securities transactions.51 One 

commenter stated that dealers should be 

allowed to pass the fee to municipal 

issuers instead of or in addition to 

investors, and that this would more 

closely follow how FASB is funded.52

Another commenter suggested that 

broker-dealers should be allowed to 

share the burden of the fee and pass 

through the fee.53

In response to comments regarding 

whether FINRA members could pass 

through the GASB Accounting Support 

Fee, FINRA reaffirmed its views as 

expressed in the Notice,54 and 

responded that Section 19(g) of the 

Securities Act ‘‘does not, in fact, require 

that the fee be ‘paid’ by FINRA 

members, much less ‘specifically state’ 

such a requirement.’’ 55 FINRA stated 

that the proposed rule change ‘‘does 

precisely what the statute and the SEC 

GASB Order require: It proposes a rule 

to allocate, assess, and collect the GASB 

Accounting Support Fee from FINRA 

members, and only from FINRA 

members.’’ 56 FINRA further stated that 

the manner by which its members 

choose to recoup the expenditure is not 

addressed by Section 19(g) of the 

Securities Act, the Commission’s order, 

or FINRA’s proposed rule.57

Two commenters expressed concerns 

with respect to the proposed de minimis 

exemption for FINRA members whose 

GASB Accounting Support Fee 

assessment is less than $25 per 

quarter.58 One commenter urged FINRA 

to increase the threshold for the 

exemption to $250 because ‘‘it would 

provide relief to a greater number of 

member firms with de minimis 

involvement in municipal trading’’ and 

‘‘would appropriately place the burden 

of supporting the annual budget of the 

GASB primarily on those firms that are 

substantially involved in municipal 

trading.’’ 59 In the alternative, this 

commenter urged FINRA to ‘‘provide 

clarification as to why alternative 

threshold levels between $25 and $1000 

were not considered or discussed in the 

Proposed Rule.’’ 60 Another commenter 

stated that the exemption threshold 

should be increased to $1000 because of 

the concentration of trading and because 

of problems passing through the fee.61

This commenter stated that there are 

problems with passing the fee through 

because a firm would not know its 

liability until after the close of the 

quarter and, therefore, it cannot 

determine the amount allocable to a 

given trade at the time of the trade.62 As 

such, any attempt to pass on the fee 

would ‘‘necessarily be an estimate, and 

one that would surely be either too 

much or too little.’’ 63 Because ‘‘[s]etting 

up a system to track these charges 

would disproportionately burden 

smaller firms, as would the alternative 

of the broker-dealer accepting the entire 

burden of the GASB fee,’’ the 

commenter requested that the 

exemption threshold be increased to 

$1000.64 This commenter also stated 

that a threshold of $1000 would capture 

‘‘90 percent of the par volume,’’ and that 

‘‘[b]ecause of the concentration of 

trading, we believe the focus should not 

be on the number of dealers included or 

excluded, but on the proportion of the 

par value of the market included or 

excluded.’’ 65

In response to comments regarding 

the threshold for the de minimis 

exemption, FINRA stated that it 

considered other dollar levels before 

proposing the $25 threshold.66 In the 

FINRA Response Letter, FINRA 

reaffirmed its statements in the Notice, 

and stressed that any amount that one 

member is not assessed because of the 

de minimis exemption must be assessed 

to another member, so it believes that 

the threshold should be relatively low to 

avoid the cumulative effect that the 

exemption would have on those 

members above the threshold in a given 

quarter.67 Further, FINRA stated that 

any concern about proportionality is 

addressed in the fee assessment itself 

because firms with a higher 

proportional volume of reported sales 

will pay more than members with a 

smaller volume, and that the exemption 

was intended to exempt members with 

truly de minimis trading activity in a 

given quarter.68

Several commenters expressed 

concern that there would be no 

oversight of the amount of GASB 

Accounting Support Fees to be 

collected, and that the Commission and 

FINRA do not have the authority to 

oversee the amount of the fees or the 

uses of the fees.69 One commenter stated 

that ‘‘[s]eparating the authority to spend 

the money from the responsibility for 

collecting it—and accountability to 

those who pay it—is extremely bad 


tkelley on DSK3SPTVN1PROD with NOTICES
12344 Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Notices 

70BDA Letter at 2. 

71See SIFMA Letter at 5. 

72See id. 

73See AGA Letter at 2. 

74See id. 

75See Notice, 77 FR at 1122. 

76See FINRA Response Letter at 5. 

77See SIFMA Letter at 6. 

78See id. 

79See Notice, 77 FR at 1122. 

80See id. at 1122–23. 

81See id. at 1123. FINRA stated that under a selfreporting model, FINRA would need to audit its 

members to ensure that their self-reporting was 

accurate and timely, and that Section 19(g) requires 

FINRA to collect exact amounts, thus creating an 

inability to remedy potential over- or underpayments by members that self-report erroneous 

data. See id. 

82See id. For example, FINRA noted that the TAF 

is currently only charged to the sell side of a 

transaction. See id. 

83See id. 

84 15 U.S.C. 77s(g). 

85See supra note 8. 

86 15 U.S.C. 78o–3(b)(5). 

87 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f). 

88See 15 U.S.C. 77s(g)(2). 

89See 15 U.S.C. 77s(g)(4). 

90The Commission believes that allocating the 

GASB Accounting Support Fee to each counterparty 

to a trade is consistent with the equitable allocation 

of the fee because each FINRA member is assessed 

a fee based on the level of its activities in the 

municipal securities markets. The Commission 

further believes that it is equitable to allocate the 

fee to reflect a member’s participation in the 

municipal securities market, regardless of whether 

the member acts as an underwriter, broker’s broker, 

or a buyer or seller of municipal securities. In 

addition, the Commission believes that it is 

equitable to not make a distinction, in allocating the 

fee, depending on whether the obligor has followed 

GASB standards. 

91The Commission notes that FINRA stated that 

it had considered other dollar levels before 

proposing the $25 threshold. See supra note 66 and 

accompanying text. 

public policy.’’ 70 Another commenter 

pointed out that neither the proposed 

rule change nor the Commission’s order 

directing funding for GASB contains a 

provision for independent direct or 

indirect oversight of GASB’s budget, 

and that this is inconsistent with the 

Commission’s oversight and review of 

FASB’s annual budget.71 This 

commenter requested that some 

independent oversight be implemented 

to encourage transparency and fiscal 

discipline.72

Another commenter noted that it 

initially had been concerned that there 

appeared to be no constraints on 

GASB’s budget and/or limit on costs.73

However, during its discussion with a 

FAF Board member, the commenter was 

informed that there are control 

mechanisms in place, including reviews 

by the Finance Committee of the FAF, 

and the commenter stated that it trusts 

that these mechanisms will remain in 

place and continue as a meaningful 

review and restraint on GASB’s budget 

and costs.74

In response to comments regarding 

oversight of the amounts and uses of the 

GASB Accounting Support Fee, FINRA 

reaffirmed its statements in the Notice 

that Section 19(g)(5)(B)(i) of the 

Securities Act provides that the 

collection of the GASB Accounting 

Support Fee does not provide FINRA 

with any direct or indirect oversight of 

the budget or technical agenda of the 

GASB.75 In its response letter, FINRA 

stated that the issue is more properly 

resolved by the Commission, and that 

unless the Commission rescinds its 

order, FINRA must proceed with the 

rulemaking pursuant to Section 19(g) 

and the Commission’s order.76

Lastly, one commenter stated that the 

proposed $50,000 fee for FINRA to 

administer the GASB Accounting 

Support Fee is unwarranted because 

FINRA could easily amend its process 

for collecting its Trading Activity Fee 

(‘‘TAF’’) to include the GASB 

Accounting Support Fee.77

Alternatively, this commenter suggested 

that if FINRA moves forward with a fee 

based on an underwriting assessment or 

trades submitted to the MSRB, the 

MSRB could administer the fee for 

minimal costs because it already has the 

staffing and information to calculate, 

assess, and collect underwriting 

assessments, as well as transaction and 

technology assessments pursuant to 

MSRB Rule A–13.78

While FINRA did not provide any 

additional response to the comment 

regarding the administrative fee in its 

response letter, FINRA stated in the 

Notice that it disagrees that the fee is 

unwarranted.79 In the Notice, FINRA 

stated that use of a self-reporting model 

like the TAF is inappropriate for the 

GASB Accounting Support Fee because 

the transaction information available 

through the MSRB would be a more 

timely and reliable source of transaction 

information than self-reported data.80

FINRA also stated that self-reporting 

could increase costs for firms and 

FINRA 81 and that the exceptions from 

the TAF should not apply to the 

assessment of the GASB Accounting 

Support Fee.82 Further, in the Notice, 

FINRA stated that the amount of the 

administrative fee was negotiated with 

the FAF and based on estimated costs to 

FINRA, and that it anticipates that the 

administrative fee will be reviewed and 

evaluated each year by FINRA and FAF 

in light of FINRA’s experience in 

assessing and collecting the GASB 

Accounting Support Fee and the actual 

costs incurred by FINRA.83

IV. Discussion and Commission’s 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with Section 19(g) of the 

Securities Act 84 and the Commission 

order directing funding for the GASB,85

as well as Section 15A(b)(5) of the 

Exchange Act.86 Specifically, the 

Commission finds that the proposed 

rule change provides for the equitable 

allocation of reasonable dues, fees, and 

other charges among FINRA members. 

Further, the Commission finds that 

proposed Section 14 to Schedule A of 

the FINRA By-Laws establishes a 

reasonable annual accounting support 

fee to adequately fund the annual 

budget of the GASB, as well as rules and 

procedures that provide for the 

equitable allocation, assessment, and 

collection of the accounting support fee 

from FINRA members, and the 

remittance of all such accounting 

support fees to the FAF.87

The Commission finds that the 

proposed GASB Accounting Support 

Fee is reasonable because it is based on 

the annual GASB budget, which is 

reviewed and approved according to the 

internal procedures of the FAF.88 In 

addition, pursuant to Section 19(g)(4) of 

the Securities Act, the GASB 

Accounting Support Fee collected for a 

fiscal year may not exceed the 

recoverable annual budgeted expenses 

of the GASB.89 The Commission finds 

that the proposed GASB Accounting 

Support Fee is equitable because the fee 

will be proportionally distributed 

among FINRA members based on a 

member’s portion of the total par value 

of municipal securities transactions 

reported by FINRA members to the 

MSRB under MSRB Rule G–14(b) in the 

previous calendar quarter.90 As such, 

FINRA members who are active 

participants in the municipal securities 

markets will be assessed a 

proportionately higher fee than those 

who are less active. The Commission 

also believes that the transaction 

information reported to the MSRB will 

serve as an objective, timely, and 

reliable source of transaction 

information. Further, the Commission 

believes that the de minimis exemption 

for FINRA members whose assessment 

is less than $25 in a quarter is consistent 

with the equitable allocation of the fee 

because it will exempt firms who engage 

in a truly de minimis amount of 

transactions in municipal securities, 

and will not impose an undue burden 

on other firms that will receive 

allocations of this exempted fee.91 The 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 40 / Wednesday, February 29, 2012 / Notices 12345 

92With respect to the concern that any attempt to 

pass through the fee would be based on estimates, 

and that setting up a system to track charges to 

customers would disproportionately burden small 

firms, the Commission notes that the proposed rule 

change does not require FINRA members to pass the 

fee through to their customers. 

93See 15 U.S.C. 77s(g). Further, as discussed 

above, one commenter pointed out that, by 

allocating the GASB Accounting Support Fee 

among FINRA members, the proposed rule change 

could eliminate conflicts of interest for entities that 

collect sums from state and local governments for 

the funding of GASB, but that also participate in 

commenting on the policy decisions developed by 

GASB. 

94With respect to the comment that the proposed 

rule change is inconsistent with how FASB is 

funded, the Commission notes that the allocation, 

assessment, and collection of the GASB Accounting 

Support Fee, unlike the FASB fee, is governed by 

Section 19(g) of the Securities Act. 

95See 15 U.S.C. 77s(g)(1). 

96The Commission notes that FINRA has 

proposed to publish a Regulatory Notice each year 

disclosing the total annual GASB Accounting 

Support Fee that it would collect for that year and 

an estimated fee rate, and that the Regulatory Notice 

would remind any firms choosing to pass through 

the fee of the need for proper disclosure of the 

GASB Accounting Support Fee, including, if 

applicable, the fact that the fee is an estimate and 

that the firm ultimately may pay more or less than 

the fee charged to the customer. In addition, FINRA 

has stated that any disclosure used by the firm 

cannot be misleading and must comport with 

FINRA rules, including just and equitable 

principles of trade, as well as any applicable MSRB 

rules. 

97See 15 U.S.C. 77s(g)(5)(B)(i). 

98Based on FINRA’s response to comments in the 

Notice and the response letter, the Commission 

believes that it is reasonable for FINRA to not 

amend its process for collecting its TAF to include 

the GASB Accounting Support Fee. 

99 15 U.S.C. 78s(b)(2). 

100 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

5The Exchange’s affiliate, NYSE Arca, Inc., has 

submitted a substantially similar rule filing. See 

SR–NYSEAMEX–2012–11. 

Commission notes that FINRA members 

that do not fall within the de minimis 

exemption will be equitably allocated a 

portion of the fee based on an objective 

measure of their participation in the 

municipal securities market.92

With respect to the comments that the 

proposed GASB Accounting Support 

Fee is inequitable because it is only 

imposed on broker-dealers, but not 

others who may benefit from GASB’s 

activities, the Commission notes that 

Section 19(g) of the Securities Act 

provides that the Commission may 

require a registered national securities 

association to establish rules and 

procedures to provide for the equitable 

allocation, assessment, and collection of 

the GASB Accounting Support Fee from 

its members.93 As such, consistent with 

the statutory language, FINRA may only 

impose the GASB Accounting Support 

Fee on its members, even though other 

entities may benefit from GASB’s 

activities. 

Further, in connection with the 

comments regarding whether FINRA 

members should be allowed to pass 

through the GASB Accounting Support 

Fee, the Commission notes that how 

FINRA members recoup their 

expenditures is not the subject of 

Section 19(g) of the Securities Act or 

FINRA’s proposed rule change.94

Consistent with Section 19(g)(1) of the 

Securities Act,95 the GASB Accounting 

Support Fee will be allocated and 

assessed to, and collected from, FINRA 

members.96

With respect to the concerns that 

there would be no oversight of the 

amount of the GASB Accounting 

Support Fee to be collected and the use 

of the money, the Commission notes 

that Section 19(g)(5)(B)(i) of the 

Securities Act specifically states that 

Section 19 does not provide the 

Commission or any national securities 

association with direct or indirect 

oversight of the budget or technical 

agenda of the GASB.97

With respect to comments regarding 

the $50,000 fee for FINRA to administer 

the GASB Accounting Support Fee, the 

Commission notes that according to 

FINRA, the fee was negotiated with FAF 

and is based on estimated costs to 

FINRA. Further, FINRA stated that this 

fee may increase or decrease, if 

necessary, based on yearly reviews in 

light of FINRA’s experience in assessing 

and collecting the GASB Accounting 

Support Fee and the actual costs 

incurred by FINRA. As such, the 

Commission believes that the $50,000 

administrative fee is not unreasonable.98

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,99 that the 

proposed rule change (SR–FINRA– 

2011–073) be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.100

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–4767 Filed 2–28–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66453; File No. SR– 

NYSEAMEX–2012–11] 

Self-Regulatory Organizations; NYSE 

Amex LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending Registration 

Requirements for Traders 

February 23, 2012. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

9, 2012, NYSE Amex LLC (the 

‘‘Exchange’’ or ‘‘NYSE Amex’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization (‘‘SRO’’). The Exchange 

filed the proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A)(iii) of 

the Act 3 and Rule 19b–4(f)(6) 

thereunder,4 which renders the proposal 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

registration requirements for traders. 

The text of the proposed rule change is 

available at the Exchange, the 

Commission’s Public Reference Room, 

and www.nyse.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

registration requirements for traders.5

Background 

NYSE Amex Options Rule 341(a) 

currently provides that no member or 

member organization shall permit any 

natural person to perform regularly any 


tkelley on DSK3SPTVN1PROD with NOTICES