Federal Register / Vol. 77, No. 5 / Monday, January 9, 2012 / Notices 1119 

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

4 15 U.S.C. 78q–1. In approving this proposed 

rule change, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

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

5 15 U.S.C. 78q–1(b)(3)(F). 

6 15 U.S.C. 78s(b)(2). 

7 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

member is the subject of a bankruptcy, 

receivership or equivalent proceeding. 

* * * 

The proposed changes are consistent 

with Section 17A of the Securities 

Exchange Act of 1934, as amended, 

because they are designed to permit 

OCC to perform clearing services for 

certain products that are subject to the 

jurisdiction of the CFTC without 

adversely affecting OCC’s obligations 

with respect to the prompt and accurate 

clearance and settlement of securities 

transactions or the protection of 

securities investors and the public 

interest. In addition, as a CFTCregistered DCO, OCC is required to 

comply with the CFTC’s core principles 

applicable to DCOs. The proposed rule 

change is not inconsistent with any 

rules of OCC. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

OCC does not believe that the 

proposed rule change would impose any 

burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed rule change and none 

have been received. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

• Electronic comments may be 

submitted by using the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml), or send 

an email to rule-comments@sec.gov. 

Please include File No. SR–OCC–2011– 

18 on the subject line. 

• Paper comments should be sent 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–OCC–2011–18. 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 such filing 

also will be available for inspection and 

copying at the principal office of OCC. 

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–OCC–2011–18 and should 

be submitted on or before January 30, 

2012. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of 

Proposed Rule Change 

In its filing, OCC requested that the 

Commission approve this request on an 

accelerated basis for good cause shown. 

OCC cites the reason for granting this 

request on an accelerated basis as OCC’s 

operations as a DCO, subject to 

regulation by the CFTC under the CEA 

and that these rule changes are being 

made according to regulations 

promulgated by the CFTC, which were 

previously subject to notice and 

comment. Not approving this request on 

an accelerated basis will have a 

significant impact on OCC’s operations 

as a DCO. 

Section 19(b) of the Act 3 directs the 

Commission to approve a proposed rule 

change of a self-regulatory organization 

if it finds that such proposed rule 

change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

such organization. The Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act, in particular the requirements of 

Section 17A of the Act,4 and the rules 

and regulations thereunder applicable to 

OCC. Specifically, the Commission 

finds that the proposed rule change is 

consistent with Section 17A(b)(3)(F) of 

the Act which requires, among other 

things, that the rules of a clearing 

agency be designed to promote the 

prompt and accurate clearance and 

settlement of derivative agreements, 

contracts, and transactions because it 

should allow OCC to comply with new 

CFTC regulatory requirements, thereby 

promoting the prompt and accurate 

clearance and settlement of derivative 

agreements, contracts, and 

transactions.5

The Commission finds good cause, 

pursuant to Section 19(b)(2) of the Act,6

for approving the proposed rule change 

prior to the 30th day after the date of 

publication of notice in the Federal 

Register because as a registered DCO 

OCC is required to comply with the new 

CFTC regulations by the time they 

become effective on January 9, 2012. 

V. Conclusion 

It is therefore ordered, pursuant to 

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

proposed rule change (SR–OCC–2011– 

18) is approved on an accelerated basis. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–96 Filed 1–6–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66080; File No. SR–FINRA– 

2011–073] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change Relating to 

Establishing a Governmental 

Accounting Standards Board 

Accounting Support Fee 

January 3, 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 December 

19, 2011, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 


tkelley on DSK3SPTVN1PROD with NOTICES
1120 Federal Register / Vol. 77, No. 5 / Monday, January 9, 2012 / Notices 

3The GASB is not a government entity. It is an 

operating component of the FAF, which is a 

private-sector, not-for-profit entity. Funding for the 

GASB comes in part from sales of publications and 

in part from state and local governments and the 

municipal bond community. Its standards are not 

Federal laws or regulations, and the GASB does not 

have enforcement authority. See Facts About GASB, 

http://gasb.org. 

4See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111–203, 124 

Stat. 1376 (2010). 

5See 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 FAF. See 

15 U.S.C. 77s(g)(2). FINRA 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. 

6Securities Exchange Act Release No. 64462 (May 

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

7Section 19(g)(4) of the Securities Act, as added 

by the Dodd-Frank 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). 

8MSRB Rule G–14(b) sets out municipal 

securities transaction reporting requirements. 

9 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. 

10See 15 U.S.C. 77s(g)(1). 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing 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 text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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 these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The GASB was established in 1984 by 

agreement of the Financial Accounting 

Foundation (‘‘FAF’’) and ten national 

associations of state and local 

government officials as an independent 

organization that establishes and 

improves standards of accounting and 

financial reporting for U.S. state and 

local governments.3 The GASB is 

recognized by governments, the 

accounting industry, and the capital 

markets as the source for the 

development and publication of the 

generally accepted accounting 

principles (‘‘GAAP’’) for state and local 

governments. 

The Dodd-Frank Wall Street Reform 

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

President Obama on July 21, 2010.4 As 

added by Section 978 of the Dodd-Frank 

Act, Section 19(g) of the Securities Act 

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

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 to draft the rules and 

procedures necessary to equitably assess 

the GASB Accounting Support Fee on 

the association’s members.5 On May 11, 

2011, the SEC 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.6

In response to the SEC’s order of May 

11, 2011, FINRA is proposing 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. After considering multiple 

ways to assess the GASB Accounting 

Support Fee on its members and issuing 

Regulatory Notice 11–28 requesting 

comment on the GASB Accounting 

Support Fee, the proposed rule change 

assesses the fee based on members’ 

municipal securities trading volume 

reported to the Municipal Securities 

Rulemaking Board (‘‘MSRB’’). FINRA 

believes 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 fee 

will result in a fair and equitable 

assessment across FINRA members. 

However, because FINRA 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, FINRA is proposing 

a quarterly assessment based on GASB’s 

annual budget.7 Under proposed 

Section 14, the GASB Accounting 

Support Fee will 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) 8 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.9 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 is proposing 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 the 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 will 

be remitted to the FAF 10 and used to 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 5 / Monday, January 9, 2012 / Notices 1121 

11See 15 U.S.C. 77s(g)(3). Specifically, FINRA 

anticipates establishing a separate bank account 

specifically for the GASB Accounting Support Fee 

and will coordinate with the FAF to establish a 

process by which FINRA will wire the funds into 

the FAF account for the GASB Accounting Support 

Fee. Given the separate bank account, FINRA will 

provide monthly account reconciliations and 

accounts receivable aging reports, which will be 

reviewed by FINRA management each month and 

will be available for review by FAF and GASB 

management upon request. 

12See 15 U.S.C. 77s(g)(5)(B). 13 15 U.S.C. 78o–3(b)(5). 

14See Letter from Brown & Brown Financial 

Services, Inc., dated July 5, 2011 (‘‘B&B’’); letter 

from Third Party Marketers Association, dated July 

26, 2011 (‘‘3PM’’); letter from NPB Financial Group, 

LLC, dated July 27, 2011 (‘‘NPB’’); letter from City 

of Bay City, Michigan, dated July 28, 2011 (‘‘Bay 

City’’); letter from Bond Dealers of America, dated 

August 1, 2011 (‘‘BDA’’); letter from Government 

Finance Officers Association, dated August 1, 2011 

(‘‘GFOA’’); letter from National Association of State 

Auditors, Comptrollers and Treasurers, dated 

August 1, 2011 (‘‘NASACT’’); letter from Roosevelt 

& Cross Incorporated, dated August 1, 2011 

(‘‘R&C’’); letter from Securities Industry and 

Financial Markets Association, dated August 1, 

2011 (‘‘SIFMA’’); letter from National Association of 

Independent Broker/Dealers, dated August 2, 2011 

(‘‘NAIBD’’); letter from Hartfield Titus & Donnelly, 

LLC, dated August 11, 2011 (‘‘HT&D’’). 

15See BDA, HT&D, NAIBD, SIFMA, R&C. 

16See SIFMA. The commenter specifically 

identified non-debt issuing municipalities, financial 

advisors, banks, bank dealers, insurance companies, 

rating agencies, mutual funds, legislative/ 

governmental staff, and taxpayer organizations. See 

also HT&D. 

17See NAIBD. 

support the efforts of the GASB to 

establish standards of financial 

accounting and reporting applicable to 

state and local governments.11 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 SEC or 

FINRA direct or indirect oversight of the 

budget or technical agenda of the GASB 

or to affect the setting of GAAP by the 

GASB.12

As FINRA noted in Regulatory Notice 

11–28, because some firms may seek to 

pass the GASB Accounting Support Fee 

onto customers engaged in municipal 

securities transactions, FINRA proposes 

to publish a Regulatory Notice each year 

disclosing the total annual GASB 

Accounting Support Fee FINRA will 

collect for that year. In this annual 

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 will have some 

basis on which to establish a fee should 

they choose to do so. The Notice will 

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. 

The effective date of the proposed 

rule change will be the date of SEC 

approval. The initial fees assessed on 

members will be based on trading 

activity reported in the calendar quarter 

during which the SEC approves the 

proposed rule change. For example, if 

the proposed rule change is approved 

on February 1, 2012, FINRA will bill 

members based on trading activity from 

January 1, 2012, to March 31, 2012, to 

cover one quarter of GASB’s 2012 

budget. As a result, depending on the 

date of SEC approval, the proposed 

GASB fee may only cover a portion of 

the 2012 GASB budget. 

2. Statutory Basis 

The proposed rule change is being 

filed in response to the SEC’s order of 

May 11, 2011, which was issued 

pursuant to Section 19(g) of the 

Securities Act. Section 19(g) gives the 

SEC 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 and to draft the 

rules and procedures necessary to 

equitably assess the GASB Accounting 

Support Fee on the association’s 

members. On May 11, 2011, the SEC 

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. 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(5) of the Act,13 which 

requires, among other things, that 

FINRA rules provide for the equitable 

allocation of reasonable dues, fees and 

other charges among members and 

issuers and other persons using any 

facility or system that FINRA operates 

or controls. FINRA believes that, given 

the restrictions in Section 19(g) of the 

Securities Act regarding the specific 

amount FINRA must collect, a quarterly 

transaction-based assessment with a 

limited exception for firms with a de 

minimis amount of reportable 

municipal securities transactions is a 

fair and equitable manner to assess the 

fee. FINRA also believes that the $25 per 

quarter exemption threshold strikes an 

appropriate balance between exempting 

those firms with truly de minimis 

transactions and not imposing an undue 

burden on other firms to recover the 

amount that would be assessed on the 

exempt firms. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The proposed rule change was 

published for comment in Regulatory 

Notice 11–28 (June 2011). A copy of the 

Regulatory Notice is attached as Exhibit 

2a to the proposed rule change. The 

comment period expired on August 1, 

2011. FINRA received eleven comment 

letters in response to the Regulatory 

Notice.14 A list of the comment letters 

received in response to the Regulatory 

Notice is attached as Exhibit 2b to the 

proposed rule change. Copies of the 

comment letters received in response to 

the Regulatory Notice are attached as 

Exhibit 2c to the proposed rule change. 

Of the eleven comment letters received, 

five were generally in favor of the 

proposed rule change and six were 

generally opposed. 

Several commenters expressed the 

view that broker-dealers, and 

specifically FINRA members, should not 

be forced to shoulder the entire burden 

of funding the GASB because many 

other market participants, issuers, and 

other people who benefit from GASB 

accounting standards are not registered 

broker-dealers or FINRA members.15 For 

example, one commenter stated that 

‘‘many other end users of GASB’s 

accounting and financial reporting 

standards * * * get a ‘free ride’ under 

FINRA’s proposed methodology.’’ 16

Another commenter suggested that a 

proportionate share of the revenue 

necessary to fund the GASB come from 

municipal financial advisors, which are 

registered with the SEC and the MSRB, 

although not always with FINRA.17

Another commenter suggested that the 

MSRB, rather than FINRA, should 


tkelley on DSK3SPTVN1PROD with NOTICES
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18See SIFMA. 

19FINRA is the only national securities 

association registered with the Commission. 

20 15 U.S.C. 77s (g)(1)(B). 

21FINRA estimates that over 95 percent of 

municipal transactions reported to the MSRB are 

reported by FINRA members. 

22See BDA, HT&D, SIFMA. 

23See Report of the United States Government 

Accountability Office, Dodd-Frank Wall Street 

Reform Act: Role of the Governmental Accounting 

Standards Board in Municipal Securities Markets 

and its Past Funding (January 18, 2011), available 

at http://www.gao.gov/new.items/d11267r.pdf. 

24See SIFMA. 

25See 15 U.S.C. 77s(g)(5)(B)(i). 

26See GFOA. 

27Section 19(g)(1)(B) of the Securities Act states 

that the Commission may require FINRA to 

‘‘establish * * * 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 [GASB 

Accounting Support Fee].’’ 15 U.S.C. 77s(g)(1)(B). 

28Specifically, on Thursday, June 9, 2011, FINRA 

provided a draft of the Regulatory Notice to 

representatives of the National Governors 

Association (‘‘NGA’’); the Council of State 

Governments; the National Conference of State 

Legislatures; the National Association of Counties; 

the U.S. Conference of Mayors; the National League 

of Cities; the Association of Government 

Accountants; the Government Finance Officers 

Association; the International City/County 

Management Association; the National Association 

of State Auditors, Comptrollers and Treasurers 

(‘‘NASACT’’); the National Association of State 

Budget Officers (‘‘NASBO’’); the National 

Association of State Retirement Administrators; the 

Native American Finance Officers Association; the 

National Federation of Municipal Analysts; the 

Association of Local Government Auditors; the 

National Association of State Treasurers; the 

National Council of State Housing Agencies; the 

National Association of Local Housing Financing 

Agencies; and the Council of Infrastructure 

Financing Authorities. The Notice was posted 

publicly on June 16, 2011. 

29See GFOA, NASACT. 

30Section 19(b)(3)(A) of the Act and Rule 19b– 

4(f)(2) thereunder permit FINRA to file a proposed 

rule change for immediate effectiveness if the 

proposed rule change establishes or changes a due, 

fee, or other charge. See 15 U.S.C. 78s(b)(3)(A); 17 

CFR 240.19b–4(f)(2). 

31See SIFMA. 

32See SIFMA. 

33The TAF is self-reported to FINRA by members 

on a monthly basis on the clearing firm level. See 

Trading Activity Fee FAQ Q100.5, available at 

http://www.finra.org/taf/faq. 

administer the fee because bank dealers 

are members of the MSRB but are not 

members of FINRA.18

Although FINRA recognizes the 

concerns raised by the commenters 

regarding the specification of FINRA 

members as the funding source for the 

GASB, Section 19(g) of the Securities 

Act, under which the SEC issued its 

order, substantially limits the 

parameters of the GASB Accounting 

Support Fee. Section 19(g)(1)(B) of the 

Securities Act provides that the SEC 

may require a registered national 

securities association 19 to assess and 

collect the accounting support fee ‘‘from 

the members of the association.’’ 20

Consequently, the order issued by the 

SEC pursuant to Section 19(g) of the 

Securities Act requires FINRA to collect 

the GASB Accounting Support Fee from 

its members, and FINRA has no 

authority to collect the fee from nonFINRA members.21

Three commenters expressed concern 

that there was no independent oversight 

of the GASB’s annual budget and 

asserted that this lack of oversight 

provides no incentive for transparency 

or fiscal discipline.22 One commenter 

noted that the recent Government 

Accountability Office report on the 

GASB23 observed that some 

stakeholders ‘‘were concerned with the 

level and nature of GASB’s 

expenditures—such as the amounts 

spent on staff salaries and office space— 

as well as a perceived lack of 

transparency associated with its budget 

process.’’ 24

The commenters are correct that 

although FINRA has been ordered to 

assess and collect the GASB Accounting 

Support Fee, FINRA has no authority 

under Section 19(g) of the Securities Act 

to review the GASB’s budget. In fact, 

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

Act specifically provides that 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.25

One commenter 26 suggested that 

FINRA has not met the statutory 

requirement in Section 19(g)(1)(B) of the 

Securities Act that it consult with 

certain groups when establishing the 

rules and procedures regarding the 

GASB Accounting Support Fee.27 The 

commenter claims that ‘‘FINRA did not 

consult with any state and local 

government associations before 

submitting a notice for public comment 

regarding the rules and procedures for 

establishing the GASB fee.’’ The 

commenter also asserts that ‘‘Section 

978 of the [Dodd-Frank Act] expressly 

requires prior consultation with the 

‘principal organizations representing 

State governors, legislators, local elected 

officials, and State and local finance 

officers.’ ’’ 

Contrary to the commenter’s 

conclusion that FINRA failed to consult 

with the specified organizations, FINRA 

departed from its standard practice and 

provided nineteen different 

organizations representing State 

governors, legislators, local elected 

officials, and State and local finance 

officers with a draft of Regulatory Notice 

11–28 before the Notice was published 

for public comment.28 In addition, after 

receipt of the GFOA comment letter, 

FINRA participated in a conference call 

with representatives of GFOA, 

NASACT, NASBO, and the NGA where 

those groups reiterated the issues set 

forth in the GFOA and NASACT 

comment letters. Moreover, FINRA’s 

publication of a Regulatory Notice 

requesting comment on a proposal 

before it is filed with the SEC is itself 

an additional form of consultation. 

Indeed, two organizations representing 

state and local finance officers 

submitted formal comment letters 

expressing their views on the 

proposal.29 To provide a further 

opportunity for all interested parties 

(including those organizations specified 

in Section 19(g) of the Securities Act) to 

raise any concerns and express their 

views, FINRA has elected to file the 

proposed rule change for full notice and 

comment under Section 19(b) of the 

Act.30 Given the multiple forms of 

consultation that have taken place 

regarding the proposed rule change, 

FINRA has met the consultation 

requirements set forth in Section 19(g) 

of the Securities Act. 

One commenter questioned the 

administrative fee GASB will pay to 

FINRA for calculating, assessing, and 

collected the GASB Accounting Support 

Fee.31 As FINRA noted in Regulatory 

Notice 11–28, FINRA has negotiated an 

administrative fee with the FAF of 

$50,000 for the initial year that the 

GASB Accounting Support Fee is in 

place that is intended to cover FINRA’s 

estimated costs associated with 

calculating, assessing, and collecting the 

GASB Accounting Support Fee. The 

commenter asserted that the fee was 

‘‘unwarranted’’ because ‘‘FINRA already 

has a process for collecting its own 

Trading Activity Fee from broker 

dealers, and could easily amend this 

process to include the GASB 

Accounting Support Fee.’’ 32 The 

commenter also suggested that the 

MSRB could administer the fee for 

minimal costs if FINRA moves forward 

with a fee based on underwritings or 

transactions. 

The commenter’s statements are 

misplaced, and FINRA disagrees that 

the fee is unwarranted. The 

commenter’s analogy to FINRA’s 

Trading Activity Fee (‘‘TAF’’) is 

inappropriate for several reasons. 

First, FINRA does not believe that the 

use of a self-reporting model like the 

TAF is appropriate for the GASB 

Accounting Support Fee.33 FINRA 

believes that the transaction information 

available through the MSRB serves as a 


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Federal Register / Vol. 77, No. 5 / Monday, January 9, 2012 / Notices 1123 

34See Schedule A to the FINRA By-Laws § 1(b). 

35See 3PM, NASACT, Bay City. 

36See HT&D, R&C, SIFMA. 

37See R&C. 

38See HT&D, SIFMA. 

39See SIFMA. The commenter noted that in 

broker-to-broker transactions, both brokers report 

the trade to the MSRB. 

40SIFMA. 

41See, e.g., FINRA Rules 7620A, 7710. 

42FINRA notes that basing the GASB Accounting 

Support Fee on underwriting, rather than 

transactions, would increase the burden on lead 

underwriters and would disproportionately affect 

those market participants engaged in underwriting 

activities rather than in trading in the secondary 

market. Moreover, basing the fee on underwriting 

would wholly exempt secondary market 

participants from paying the fee and would be 

assessed only on future municipal issues and would 

‘‘grandfather’’ in previous issues. FINRA does not 

believe this is a more equitable way to assess the 

fee than a transaction-based approach. 

43See 3PM, NAIBD. 

44See BDA. The commenter did not define 

‘‘smaller firms’’ and stated that it was not in a 

position to recommend a figure for the exemption 

because it did not have trading data available to it. 

45See NPB. 

more timely and reliable source of 

transaction information than selfreported aggregate quarterly data 

calculated by the various members 

subject to the fee. Moreover, FINRA 

believes that requiring self-reporting 

could increase compliance costs for 

firms and increase costs to FINRA. As 

proposed, FINRA will rely on 

transaction data that is already reported 

by members to the MSRB (i.e., there will 

be no increased compliance efforts 

necessary for members since, as 

discussed below, FINRA does not 

believe that the calculations members 

currently undertake for reporting the 

TAF would be the same as those for the 

GASB Accounting Support Fee). For 

FINRA, a self-reporting model raises 

two primary complications. First, 

FINRA would need to audit members to 

ensure that their self-reporting was 

accurate and timely, which could 

increase FINRA’s costs in administering 

the fee. Second, Section 19(g) of the 

Securities Act requires FINRA to collect 

exact amounts, thus creating an inability 

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

erroneous data. 

Second, FINRA does not believe that 

the exceptions from the TAF should 

apply to the assessment of the GASB 

Accounting Support Fee, and the TAF is 

currently charged only to the sell side 

of a transaction. Although municipal 

securities subject to MSRB reporting 

requirements are generally subject to the 

TAF, the TAF rules contain exceptions 

for certain transactions (e.g., primary 

market transactions). The goal of the 

GASB Accounting Support Fee 

assessment is to equitably allocate a 

specific amount of money among 

participants in the municipal securities 

market; consequently, FINRA believes it 

is not appropriate to exclude any subset 

of reportable transactions from factoring 

into the fee assessment for purposes of 

allocating the GASB Accounting 

Support Fee.34 In addition, and as 

discussed below, FINRA does not 

believe it is appropriate to charge only 

one side of a transaction when two 

members are involved and are required 

to report the transaction to the MSRB. 

For the foregoing reasons, FINRA does 

not believe that the TAF would serve as 

an appropriate model in assessing the 

GASB Accounting Support Fee. In 

addition, the amount of the 

administrative fee to FINRA was 

negotiated with the FAF and based on 

estimated costs to FINRA, including 

initial start-up technology costs, 

administrative costs, and the costs of 

personnel and other resources needed to 

process and implement the fee. FINRA 

anticipates that the amount of the 

administrative fee will be reviewed and 

evaluated each year by FINRA and by 

the FAF in light of FINRA’s experience 

in assessing and collecting the GASB 

Accounting Support Fee and in the 

context of actual costs incurred by 

FINRA. Following the review, the 

amount of the administrative fee will be 

increased or decreased if necessary. 

Commenters expressed opposing 

views on FINRA’s proposal to base the 

GASB Accounting Support Fee on 

transactions in municipal securities 

reported to the MSRB. Although several 

commenters believed the proposed 

assessment method was reasonable and 

equitable,35 other commenters opposed 

a transaction-based assessment.36

Among the objections to the proposal, 

commenters stated that an assessment 

based on trade reporting volume would 

disproportionately affect lead 

underwriters 37 and brokers’ brokers 38

and would result in broker-to-broker 

transactions being assessed multiple 

times.39 In addition, one commenter 

noted that the proposal ‘‘makes no 

distinction between bonds issued by 

GASB obligors, bonds issued by FASB 

obligors and bonds with obligors who 

follow neither set of standards.’’ 40

After considering the objections 

raised by the commenters, FINRA 

continues to believe that a proportionate 

fee based on reported trading volume 

remains a reasonable and fair method to 

allocate the GASB Accounting Support 

Fee. As noted above, FINRA believes 

that using reported transaction data to 

calculate the fee ensures that the fee is 

based on accurate, reliable information. 

Because the fee is assessed on a 

proportionate basis, rather than being 

assessed each time a transaction is 

reported to the MSRB (e.g., a fixed fee 

charged on each reported transaction 

like those charged in connection with 

reporting trades to a FINRA trade 

reporting facility 41), there are not 

multiple assessments on broker-tobroker transactions. Rather, both brokers 

reporting the same trade will have the 

volume of that trade factored into their 

share of total trade reporting volume for 

that quarter. The goal of the assessment 

is to equitably allocate a specific 

amount of money among participants in 

the municipal securities market; 

consequently, FINRA believes it is 

appropriate that both brokers in a 

broker-to-broker transaction be 

considered as participating in that 

market with respect to such a 

transaction, rather than only use one 

side of the trade in calculating the fee 

(e.g., charging only the broker on the 

sell side). For similar reasons, FINRA 

also believes that the proposal does not 

disproportionately affect lead 

underwriters or brokers’ brokers; to the 

extent such firms have high trading 

volumes reported to the MSRB under 

applicable reporting rules, FINRA 

believes that this accurately reflects 

those firms’ participation in the 

municipal securities markets, whether 

those firms act as underwriters, brokers’ 

brokers, or simply as buyers or sellers of 

municipal securities.42

FINRA also declines to distinguish 

between issues based on whether the 

obligor has followed FASB standards, 

GASB standards, or neither. This 

information is not required to be 

reported to the MSRB, is not available 

on an automated basis, and it would be 

impractical for FINRA to attempt to 

maintain a comprehensive and accurate 

listing of those issues where the obligor 

has followed GASB standards. 

Several commenters expressed views 

concerning the application of the GASB 

Accounting Support Fee to small firms 

and the exemption proposed in 

Regulatory Notice 11–28 for firms with 

a quarterly assessment of less than $25. 

Two commenters suggested that FINRA 

increase the quarterly threshold from 

$25 to $1,000,43 and one commenter 

suggested that ‘‘smaller firms’’ be 

exempt from the fee.44 In contrast, one 

FINRA member suggested that any firm 

with a stake in GASB accounting 

standards should be charged a small 

assessment, even if the firm had no 

assessable transactions in a given 

quarter.45

FINRA proposed a quarterly 

minimum threshold of $25 in order to 

exempt from the GASB Accounting 


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1124 Federal Register / Vol. 77, No. 5 / Monday, January 9, 2012 / Notices 

46See Bay City, GFOA, NASACT. 

47See BDA, SIFMA. 

48SIFMA. 

49To the extent commenters are concerned that 

FINRA members acting as underwriters for 

municipal securities may increase their 

underwriting fees to recoup part of the assessment, 

FINRA generally considers fee negotiations between 

an issuer and an underwriter to be within each 

party’s business decision-making process. 50 17 CFR 200.30–3(a)(12). 

Support Fee those firms that do a de 

minimis amount of trading activity in 

municipal securities in a given quarter. 

There are approximately 1,100 FINRA 

members eligible to conduct business in 

municipal securities, and FINRA 

estimates that a de minimis threshold of 

$25 per quarter would eliminate 

approximately 600 firms— 

approximately 55 percent of firms—per 

quarter from paying the fee. FINRA 

estimates that raising the level to $1,000 

per quarter would exempt 

approximately 90 percent of the firms 

reporting transactions to the MSRB from 

the fee each quarter. 

As discussed above, FINRA is 

required to collect a specific amount of 

money each year to adequately fund the 

annual budget of the GASB. Because of 

this unique requirement, unlike other 

fees assessed by FINRA, any amount 

that one member is exempt from paying 

must be assessed on other members so 

that FINRA can meet its statutory 

obligation and collect the total amount 

needed to adequately fund the GASB’s 

annual budget. Consequently, FINRA 

believes that a de minimis threshold of 

$25 per quarter achieves a fair and 

reasonable balance between exempting 

those members that do a small amount 

of trading in municipal securities and 

ensuring that other members are not 

shouldering a disproportionate amount 

of the GASB Accounting Support Fee 

and being allocated amounts 

significantly above their proportion of 

reported trading activity. For the same 

reasons FINRA is not increasing the 

quarterly exemption amount, FINRA 

also declines to adopt an across-theboard ‘‘small firm exemption.’’ 

In Regulatory Notice 11–28, FINRA 

noted that ‘‘some firms may seek to pass 

the GASB Accounting Support Fee on to 

customers engaged in municipal 

securities transactions.’’ This was an 

acknowledgement that, in many 

instances, members pass through FINRA 

fees and assessments to their customers. 

Some commenters expressed concern 

that members could pass the fee on to 

issuers of municipal securities and 

asked FINRA to clarify or mandate that 

members could not pass the fee along to 

issuers.46 Other commenters suggested 

that FINRA make it easier for members 

to pass the fee along to customers, 

including issuers.47 One commenter 

suggested that the GASB Accounting 

Support Fee should be structured as an 

underwriting assessment because 

‘‘[p]rinciples of fundamental fairness 

would dictate dealers be allowed to pass 

through any GASB support fee to 

municipal bond issuers instead of or in 

addition to investors.’’ 48

As discussed above, FINRA continues 

to believe that an equitable way to 

structure the fee is through a quarterly 

assessment based on trading volume 

with an exception for members whose 

assessment in a particular quarter would 

be less than $25. FINRA 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 accurately disclosed. Although 

FINRA is not encouraging members to 

pass all or part of the GASB Accounting 

Support Fee to their customers, that 

decision is ultimately one for each 

member, subject to the conditions and 

requirements noted. FINRA also 

declines to give a blanket exemption for 

issuers of municipal securities whose 

transactions may result in an increase to 

a member’s allocation of the GASB 

Accounting Support Fee. FINRA notes, 

however, that transactions from a 

municipal securities issuer to an 

underwriter are not reported to the 

MSRB and thus would not generally be 

counted toward a member’s quarterly 

assessment.49

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

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–FINRA–2011–073 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–FINRA–2011–073. 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 such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. 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–FINRA–2011–073 and 

should be submitted on or before 

January 30, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.50

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–84 Filed 1–6–12; 8:45 am] 

BILLING CODE 8011–01–P 


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