`[Federal Register Volume 89, Number 229 (Wednesday, November 27, 2024)]
[Notices]
[Pages 93709-93731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27764]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101696; File No. SR-FINRA-2024-019]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adjust FINRA Fees To Provide Sustainable 
Funding for FINRA's Regulatory Mission

November 21, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 8, 2024, the 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. FINRA has 
designated the proposed rule change as ``establishing or changing a 
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\ 
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon receipt of this filing by the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adjust FINRA fees to provide sustainable 
funding for FINRA's regulatory mission.
    The text of the proposed rule change is available on FINRA's 
website 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
Overview
    FINRA is submitting this proposed rule change to increase the 
revenues that FINRA, as a not-for-profit self-regulatory organization 
(``SRO''), relies upon to fund its regulatory mission. Over the past 
year, FINRA has publicly stated many times its need to file a fee 
change this year to increase its fees. Over the past several years, 
FINRA has experienced significant expense growth resulting from rising 
technology costs related to capital investments seeking long-term 
efficiency gains for both FINRA and the industry, rising cloud hosting 
costs, ongoing disaster recovery and cybersecurity requirements, and 
elevated wage inflation and essential headcount increases necessitated 
by the growing breadth and complexity of FINRA's responsibilities.
    To sustain FINRA's regulatory capabilities, FINRA proposes to 
increase fees related to FINRA's core regulatory functions as well as 
select fees related to the use of FINRA programs and services. The 
proposal is designed to closely align FINRA's revenues with its costs 
while preserving the historical equitable allocation of fees among 
FINRA members. In parallel, FINRA continues to implement operational 
improvements to ensure FINRA's operations are effective and efficient.
    Implementation of the proposed rule change would take place over 
several years, with a minority of fees going into effect in 2025, most 
fees implemented in 2026 or later, and several fees phased in over 
several years between 2025 and 2029.
Thus, under the proposed rule change, FINRA would aim to collect more 
than 90 percent of the revenue it seeks to raise in 2026 or later. 
FINRA is submitting the proposed rule change now to provide members 
with sufficient advance notice of the proposed fee changes for annual 
budgeting and financial planning purposes. The proposed rule change is 
intended to provide sustainable longer-term funding, in a manner 
consistent with FINRA's public Financial Guiding Principles (``Guiding 
Principles''),\5\ to enable FINRA to continue fulfilling its regulatory 
mission.
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    \5\ See FINRA's Financial Guiding Principles, https://www.finra.org/sites/default/files/finra_financial_guiding_principles_0.pdf.
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FINRA's Current Fee Structure
    As a not-for-profit SRO, FINRA receives no taxpayer funding and 
instead relies on a mix of fees that are intended to cover the overall 
costs of FINRA's operations. The majority of FINRA's funding is derived 
from three regulatory fees: the Gross Income Assessment (GIA), Trading 
Activity Fee (TAF), and Personnel Assessment (PA). These fees, 
respectively, reflect one of the three critical components driving 
FINRA's regulatory costs with respect to a particular member: (1) the 
size of the firm measured by firm revenue, (2) the firm's trading 
activity, and (3) the number and role of persons registered with the 
firm. FINRA also employs use-based fees for specific services it 
provides to members and the public in support of its regulatory 
mission. Several use-based fees, including registration fees, 
qualification examination fees, and continuing education fees, among 
others, align with a critical component of FINRA's regulatory costs 
(i.e., the number and role of registered persons at a firm). As such, 
FINRA considers those use-based fees part of its ``core'' regulatory 
fees.
    In addition, FINRA employs other use-based fees for certain 
services it provides to members and the public. Examples include fees 
associated with: reviewing public offering filings; reviewing 
communications with the public; and operating the FINRA Dispute 
Resolution Services (``DRS'') arbitration forum. As FINRA has explained 
previously,\6\ when applying use-based fees, FINRA takes into account 
three associated types of costs: direct costs for the program 
associated with the use-based fee, such as program development and 
operating expenses, and reinvestments and enhancements; indirect costs 
for the program, including supporting services necessary for the 
program's associated regulatory activity; and a contribution to FINRA's 
overall regulatory operations, which promotes its mission of investor 
protection.\7\ Thus, taken together, core regulatory

[[Page 93710]]

fees and other use-based fees allow FINRA to fund its regulatory 
mission.\8\
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    \6\ See Securities Exchange Act Release No. 90176 (October 14, 
2020), 85 FR 66592 (October 20, 2020) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2020-032).
    \7\ See supra note 6.
    \8\ In addition to the services FINRA provides in furtherance of 
its regulatory mission, FINRA also provides certain services on a 
contract basis to third parties. These contract service fees 
represent approximately 8% of FINRA's total revenues. Importantly, 
these revenues pay in full for the services rendered under the 
contracts, and FINRA's costs to perform these services are not 
funded with any of the regulatory revenue discussed in this filing.
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    FINRA has explained that numerous operations and services must be 
funded by general revenue sources, which include both core regulatory 
and other use-based fees.\9\ There are several reasons for this. For 
instance, it is not feasible to associate a direct affiliated revenue 
stream for each of FINRA's programs (e.g., examinations of members do 
not have an associated revenue stream). Similarly, there is no one 
consistent driver of costs of a particular regulatory program. Even 
where one cost driver may, at times, align with a particular revenue 
stream (e.g., as trading activity increases, certain Market Regulation 
costs may increase), the relationship may not hold at other times. For 
example, novel trading patterns in single or multiple securities may 
not be associated with significant volume but may require comparatively 
larger efforts in terms of regulatory oversight. Likewise, periods of 
intense market volatility may influence regulatory costs independent of 
the change in trading volume.
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    \9\ See supra note 6.
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    Further, in light of FINRA's diverse membership of firms that vary 
greatly in size and business model, it is not feasible to develop a 
comprehensive pricing structure that precisely accounts for the 
particular costs associated with each member.\10\ Rather, FINRA's 
current fee structure is designed to ensure sufficient funding to meet 
all of its regulatory obligations in a manner that equitably allocates 
fees among FINRA members, notwithstanding the fluctuations in different 
revenue streams and cost drivers that are naturally expected to occur 
over time. The Commission has historically agreed that this overall 
cost-based pricing structure ``is reasonable in that it achieves a 
generally equitable impact across FINRA's membership and correlates the 
fees assessed to the regulatory services provided by FINRA.'' \11\ 
FINRA continues to believe that this approved approach to overall 
pricing is the most reasonable and equitable way to provide sufficient 
funding to meet its regulatory obligations as a not-for-profit SRO with 
broad, diverse membership.
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    \10\ See supra note 6.
    \11\ See Securities Exchange Act Release No. 61042 (November 20, 
2009), 74 FR 62616, 62620 (November 30, 2009) (Order Approving File 
No. SR-FINRA-2009-057).
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    As set out in the Guiding Principles, FINRA targets break-even cash 
flows as a means to appropriately fund its mission of protecting 
investors and promoting market integrity while facilitating vibrant 
capital markets. Careful expense management is another key element of 
the Guiding Principles. The Guiding Principles also explain the extent 
to which FINRA relies on its financial reserves--originally derived 
from the sale of Nasdaq--to help support its regulatory mission.\12\ 
The Guiding Principles also describe how FINRA uses fine monies--which 
are not included in FINRA's operating budget--to promote compliance and 
improve markets.\13\
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    \12\ See supra note 5. Information about FINRA's financial 
reserves is provided each year in FINRA's published annual financial 
reports. See FINRA Financial Reports and Policies, available at 
https://www.finra.org/about/annual-reports. FINRA strives to 
maintain an appropriate level of reserves, which the FINRA Board of 
Governors has determined to be at least one year of expenditures.
    \13\ While fine monies are not included in FINRA's annual 
operating budget, they are included in cash flow projections. For 
purposes of its projections, FINRA assumed a conservative amount of 
fine money for future years based on historical fine money receipt. 
When FINRA imposes fines, the amounts are based on the facts and 
circumstances of the misconduct and are guided by the principles set 
forth in FINRA's Sanction Guidelines that are similar in nature--
fines are not based on revenue considerations, and FINRA does not 
establish any minimum amount of fines that must be collected for 
purposes of the annual operating budget. Fines collected are 
accounted for separately, and the use of these monies is subject to 
special governance procedures and restrictions on use, as set forth 
in our Guiding Principles. See supra note 5. In accordance with the 
Guiding Principles, FINRA issues a separate annual report detailing 
use of fine monies as approved by the FINRA Board of Governors. See, 
e.g., Report of Use of 2023 Fine Monies (June 14, 2024), available 
at https://www.finra.org/about/annual-reports/report-use-2023-fine-monies.
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    FINRA's most recent comprehensive fee increase included increases 
to core regulatory fees from 2022 through 2024.\14\ Looking ahead, 
FINRA projects that its current fees will not keep pace with its 
projected future expenses in light of the continued growth in the 
breadth and complexity of FINRA's regulatory obligations, described in 
detail below. As FINRA noted recently in its 2024 Annual Budget 
Summary, based on the current fee structure (inclusive of the fee 
adjustments made from 2022 through 2024), FINRA projects it will 
recognize an operating loss in 2024, with a drawdown on its financial 
reserves of approximately $100 million.\15\ FINRA estimates that, 
absent any action, its reserve balance will fall below its Board-
approved target level of one-year of operating costs by 2027. As 
described in more detail below, FINRA has carefully managed its 
expenses; however, careful expense management cannot suffice as a 
sustainable financial strategy in the long term, particularly in the 
context of rising systemic costs and FINRA's increasing regulatory 
responsibilities.
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    \14\ See supra note 6.
    \15\ See FINRA 2024 Annual Budget Summary, https://www.finra.org/sites/default/files/2024-06/FINRA-2024-Annual-Budget-Summary.pdf, at 2. This potential loss is in line with FINRA's 
previous multiyear strategic planning for financial sustainability, 
which contemplates a series of annual losses in order to reduce the 
size of FINRA's reserves. As discussed in the Guiding Principles, 
FINRA has relied on its financial reserves, which were originally 
derived from the sale of Nasdaq, to help support its regulatory 
mission. See also Funding FINRA's Mission, available at https://www.finra.org/media-center/blog/funding-finras-mission.
    FINRA has made reasonably conservative assumptions using a 
variety of information points, including historical data and 
anticipated trends. If FINRA's structural financial deficit is 
materially reduced during this period, or if key assumptions change 
materially, FINRA would consider various modifications as 
appropriate. For example, FINRA has used rebates to support its 
commitment to reasonable, cost-based fee assessments in instances 
where revenues significantly exceed expenditures. These rebates are 
approved by the FINRA Board of Governors. A number of factors must 
be considered when determining whether to provide rebates, including 
the amount of excess revenue for the year, whether budget 
projections anticipate near-term revenue shortfalls, and the number 
of firms that would be eligible to receive rebates. FINRA makes 
information about these factors transparent to the public each year.
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Background
    Over the past several years, FINRA's regulatory and oversight 
responsibilities have grown significantly, and FINRA anticipates that 
they will continue to grow over the rest of this decade, requiring 
investments in technology and increased headcount. Simultaneously, 
FINRA has experienced substantial systemic expense growth resulting 
from, among other things, elevated wage inflation and increased 
operating costs related to technology.\16\ Several factors have 
contributed to these areas of growth, including: continued increases in 
the volume and complexity of member activity; new investment products, 
services, and market participants under FINRA's purview; the continuing 
evolution of market structure and trading patterns; and the SEC's 
adoption of significant new rules that require implementation by FINRA 
and its expanded member oversight.
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    \16\ FINRA's technology costs, for example, have risen by 
approximately 11% per year over the last five years.
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    For example, FINRA has made substantial investments to supervise or 
comply with new and amended SEC rules, such as amendments to Disclosure

[[Page 93711]]

of Order Execution Information, Regulation M, Shortening the Securities 
Transaction Settlement Cycle, Regulation Best Interest, Market Data 
Infrastructure, and Minimum Pricing Increments, Access Fees, and 
Transparency of Better Priced Orders. FINRA must also be prepared to 
implement and supervise significant potential new and amended rules 
that the SEC has proposed, including Regulation S-P, Conflicts of 
Interest Associated with the Use of Predictive Data Analytics, 
Regulation Systems Compliance and Integrity, Cybersecurity Risk 
Management, Regulation Best Execution, and the Order Competition Rule. 
Furthermore, FINRA is investing in preparation for its expanded role in 
the oversight of a broader range of market participants under several 
SEC rulemakings. For example, the SEC has narrowed the exemption for 
certain exchange members under Exchange Act Rule 15b9-1, further 
defined ``as part of a regular business'' \17\ in the definitions of 
``dealer'' and ``government securities dealer'' under the Exchange Act, 
and proposed to amend the definition of ``exchange'' under Exchange Act 
Rule 3b-16 and amend Regulation ATS.
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    \17\ The updated definition covers additional market 
participants engaged in liquidity-providing activities that 
generally would require SRO membership.
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    FINRA is also investing to enable continued effective oversight 
over evolving trading patterns, such as the significant growth in 
retail trading, growth in smaller and fractional share trading, and 
increased trading outside of regular trading hours. These and other 
market developments, together with the evolution of new and evolving 
products such as securities with crypto asset components and short-
dated options products, require increased oversight by FINRA staff.
    FINRA is committed to a culture of continuous improvement, with a 
rigorous focus on carefully managing costs and identifying new 
efficiency opportunities, where consistent with its mission. FINRA has 
exercised prudent expense control and managed costs through various 
initiatives and technology investments that have helped to enhance 
efficiency and effectiveness. Beginning with the FINRA360 \18\ 
initiative, which launched a comprehensive self-evaluation and 
organizational improvement exercise in 2017 to ensure that FINRA was 
maximizing its effectiveness, FINRA has implemented a number of 
enhancements including: enforcement program consolidation; new external 
transparency tools; the launch of the Small Firm Helpline; increased 
examiner training; creation of an Innovation Outreach Initiative; and 
the development of a program to evaluate and integrate advances in data 
analytics.
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    \18\ Detailed information about the FINRA360 initiative is 
available at https://www.finra.org/about/finra-360.
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    FINRA continues to invest in technology to better serve its mission 
and to improve FINRA's ability to communicate with members. For 
example, FINRA completed a multi-year digital platform upgrade that 
improved system interfaces, including essential registration and 
disclosure systems used by members.\19\ FINRA also continues to build 
on its early use of cloud computing in regulation, and invested in an 
Advanced Analytics Program that supports risk identification and other 
regulatory efforts. In the interest of regulatory efficiency, FINRA 
also recently discontinued a program requiring the reporting of 
prescribed data by certain members based on availability of data from 
alternative sources, resulting in millions of dollars in cost savings 
benefits to members.\20\
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    \19\ Detailed information about FINRA's ``Digital Experience 
Transformation'' is available at https://www.finra.org/filing-reporting/dxt. FINRA built the capabilities of the Digital 
Experience Transformation initiative in consultation with the 
industry, and FINRA's investment is estimated to save the industry 
more than $200 million annually in time and direct costs.
    \20\ See Regulatory Notice 23-17 (October 2023).
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    Further, cost savings have been accomplished in recent years 
through supplementary expense reduction initiatives, including 
conducting a comprehensive efficiency review of FINRA's core business 
lines; establishing a framework for improving measurement of FINRA's 
key performance results; voluntary retirement/incentive programs in 
2020 and 2024; and strategic reductions in FINRA's corporate real 
estate footprint.
    Given this context, and despite the significant increase in the 
breadth and complexity of FINRA's regulatory responsibilities, FINRA's 
expense growth rate from 2013 through 2023 has been significantly lower 
than that of the broader financial services industry. Specifically, 
FINRA's costs increased by 41% cumulatively during this period compared 
with 129% for the industry.\21\ Similarly, FINRA's total compensation 
costs rose by 31% on a cumulative basis during this period as compared 
with a 50% increase for the average U.S. financial services 
employee.\22\ FINRA's restrained expense growth is the result of 
careful management of both compensation costs, the largest driver of 
FINRA's budget, and non-compensation costs, such as technology and real 
estate.
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    \21\ Based on FOCUS reporting.
    \22\ FINRA total compensation represents business compensation, 
excluding technology. Average U.S. employee wage growth represents 
Finance and Business Services wage growth supplied by the Bureau of 
Labor Statistics and Federal Reserve Bank of Atlanta. See Current 
Population Survey, Bureau of Labor Statistics, and Federal Reserve 
Bank of Atlanta Calculations at https://www.atlantafed.org/chcs/wage-growth-tracker.
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    Notwithstanding these efforts, as discussed, FINRA projects that 
its current fees will not keep pace with its projected future expenses. 
FINRA therefore proposes to increase its fees as described below.
Proposal
    The proposed rule change would raise FINRA's core regulatory fees 
\23\ as well as select use-based fees \24\ that fund various FINRA 
services and programs. Consistent with the Guiding Principles, the 
proposed rule change would more effectively allow FINRA to balance its 
cash flow sources, operating expenses and capital expenditures, and 
stabilize its financial reserves by 2029. As discussed above, a 
minority of proposed fee increases would go into effect in 2025, while 
most fees would be implemented in 2026 or later, and several fees would 
be phased in over several years between 2025 and 2029.\25\ The 
following table summarizes the proposed timeline for implementing each 
fee increase: \26\
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    \23\ For ease of reference in this filing, FINRA refers to the 
following core regulatory fees: GIA; TAF; PA; Branch Office Fees; 
Registration; Qualification Examination; Continuing Education 
Regulatory Element Reporting; Late Disclosure; System Processing; 
and Renewal Late Fee.
    \24\ For ease of reference in this filing, FINRA refers to the 
following select use-based fees: Corporate Financing Private 
Placement Review; Corporate Financing Public Offering Review; 
Advertising Regulation Review; DRS Arbitration; and Regulation T and 
Exchange Act Rule 15c3-3(n) Requests for Extension of Time. The 
proposed fee increase will apply to filings or submissions related 
to these use-based services on or after the effective date.
    \25\ FINRA considered feedback from members of FINRA's advisory 
committees and other industry consultations that emphasized the 
importance of advance notice of fee increases to permit member firms 
to better plan for the proposed package of fee increases over 
multiple budget cycles. FINRA also considered stakeholder feedback 
that one-time increases for certain fees help reduce the 
administrative burdens on members.
    \26\ Fees listed in chronological order of initial 
implementation. Unless specified otherwise in the table above, the 
proposed fee increase would take effect on January 1 of the year 
stated. This table does not include proposed conforming amendments 
to two fees that impact funding portal members.

[[Page 93712]]



                       Fee Implementation Schedule
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                  Fee                        Implementation schedule
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Advertising Regulation Review..........  2025.
DRS Arbitration........................  2025.
Regulation T and Exchange Act Rule 15c3- 2025.
 3(n) Requests for Extension of Time.
Corporate Financing Private Placement    2025 (Q3).
 Review.
Corporate Financing Public Offering      2025 (Q3)-2029.
 Review.
Branch Office Fees.....................  2026, 2028.
Continuing Education Regulatory Element  2026.
Late Disclosure........................  2026.
Qualification Examination..............  2026.
System Processing......................  2026, 2028.
GIA....................................  2026-2028.
TAF....................................  2026-2029.
PA.....................................  2026-2029.
Registration...........................  2028.
Renewal Late Fee.......................  2028.
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    Taken together, the proposed rule change is projected to generate 
additional revenue of between $40 million and $160 million each year 
compared to the previous year from 2025 through 2029. The amount of the 
increase varies each year due to the phased implementation schedule 
described above. Cumulatively, the proposed rule change would increase 
FINRA's annual fee revenues by an estimated $450 million (once fully 
implemented in 2029) as compared to the annual fee revenues that would 
have existed in the absence of the proposed rule change. As such, the 
proposed rule change is calibrated to cover FINRA's projected budget 
deficit and achieve a balanced budget by 2029.\27\ This approach will 
retain FINRA's reserve balance at its target level based on FINRA's 
projected revenue and costs,\28\ while providing members advance notice 
of fee increases, phasing some of the increases over multiple years, 
and maintaining an equitable allocation of fees among FINRA members. As 
discussed further below, under the proposed rule change, the current 
proportion of fees borne by FINRA members based on firm size and 
business model, respectively, would remain stable through 2029.\29\
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    \27\ As discussed below, Chart 2, attached in Exhibit 3, 
available on FINRA's website at http://www.finra.org, demonstrates 
the difference between FINRA's projected cash flow sources and cash 
flow uses through 2029, absent the proposed rule change.
    \28\ Anticipated costs would not include potential costs 
associated with new services that may be initiated or approved in 
the future. FINRA may submit separate fee filings to cover program 
costs for new services. FINRA notes this proposed rule change does 
not include fees associated with the Consolidated Audit Trail 
(``CAT'') or the Securities Lending and Transparency Engine 
(``SLATE''), both of which are subject to separate proposed rule 
changes with the Commission. See, e.g., Securities Exchange Act 
Release No. 100920 (September 4, 2024), 89 FR 73457 (September 10, 
2024) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2024-011); Securities Exchange Act Release No. 100920 
(September 4, 2024), 89 FR 73457 (September 10, 2024) (Notice of 
Filing and Immediate Effectiveness of File No. SR-FINRA-2024-012). 
Similarly, FINRA notes that program costs associated with the 
reporting of transactions in U.S. Treasury Securities 
(``Treasuries'') are not included in the targeted amount sought by 
this proposal; currently, Treasuries transactions are exempted from 
both TRACE transaction reporting fees and from the TAF. See 
Securities Exchange Act Release No. 79116 (October 18, 2016), 81 FR 
73167, 73176 (October 24, 2016) (Order Approving File No. SR-FINRA-
2016-027).
    \29\ See Exhibit 3, Charts 5 and 6.
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    In total, the proposed fee changes will result in a compounded 
annualized growth rate (``CAGR'') of 5.3% across total FINRA fees 
between 2025 and 2029.\30\ Excluding specific fees typically passed on 
by members,\31\ the CAGR between 2025 and 2029 is projected to be 4.8% 
for FINRA members. Further, assuming that the majority, if not all, of 
TAF is also passed directly through to investors, the fee increase CAGR 
falls to the 3% to 4% range for FINRA members.\32\ During the same 
period, FINRA reasonably anticipates that its future expenses will grow 
at a CAGR of 5.9%, with a portion of such expense growth covered by 
anticipated cash flow sources other than the proposed fee increases. 
FINRA's fees will continue to represent a small dollar proportion of 
industry revenues as reported in FOCUS reports. FINRA estimates that 
FINRA's total fees when the proposed fee increases are fully 
implemented would represent approximately 0.31% of recent industry 
revenues by 2029.\33\
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    \30\ The CAGR provides a geometric average of the change in fees 
over the implementation period. It is particularly useful for 
comparing growth rates from various sets of data over the same 
multi-year period.
    \31\ Some of the fees discussed in this filing are or would be 
absorbed by non-members, including Corporate Financing review fees 
for public offerings and private placements, which are generally 
passed through to issuers, and a portion of DRS fees that are paid 
directly by customers.
    \32\ Many members identify that they pass through TAF to 
customers. Assuming 65% of TAF is passed to non-members, the fee 
increase CAGR to membership falls to 3.9%. If 100% of TAF is passed 
through, the fee increase CAGR to FINRA's membership falls to 3.1%.
    \33\ Industry revenue projections for 2029 are based on 
historical FOCUS revenue growth of 8.5% (2013-2023).
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    In sum, the proposed rule change is designed to collect the 
targeted revenue amount needed to address FINRA's projected budget 
deficit through a combination of core regulatory and select use-based 
fees that yield an equitable overall fee increase across member size 
and type. The proposed rule change is thus designed to preserve the 
same SEC-approved, equitable fee allocation across members that FINRA 
has maintained for years by minimizing the change to distribution of 
fees across members.
    Each specific fee in the proposed rule change is described below.
Core Regulatory Fees
Gross Income Assessment
    The GIA is a core regulatory fee designed to correlate to one of 
the three critical components of FINRA's regulatory costs--the size of 
a firm (based on revenue). Accordingly, the GIA is based on a firm's 
annual gross revenue,\34\ employing a graduated seven-tier rate 
structure that has applied since 2008.\35\
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    \34\ Section 2 of Schedule A to the FINRA By-Laws defines gross 
revenue for assessment purposes as total income as reported on FOCUS 
form Part II or IIA, excluding commodities income.
    \35\ The applicable GIA rate applies on a marginal basis to 
annual gross revenues that exceed each applicable threshold. While 
the GIA rate structure has not changed since 2008, FINRA made 
modifications to the method of GIA calculation under the structure 
in 2009 and 2014, and increased the GIA rate between 2022 and 2024. 
In 2009, the Commission approved a GIA calculation modification 
designed to mitigate year-to-year revenue volatility by assessing 
members the greater of a GIA calculated based on the firm's annual 
gross revenue from the preceding calendar year, or a GIA averaged 
over the prior three years. See Order Approving SR-FINRA-2009-057, 
supra note 11, 74 FR 62616, 62617. In 2014, FINRA refined the GIA 
calculation method to provide limited relief for smaller member 
firms from unintended effects of the 2009 calculation change; as a 
result of the 2014 change, firms that have annual gross revenue of 
$25 million or less pay the GIA based on preceding year revenue 
without looking to a three-year average. See Securities Exchange Act 
Release No. 73632 (November 18, 2014), 79 FR 69937 (November 24, 
2014) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2014-046). In 2020, FINRA proposed changes to the GIA tier 
rates, which went into effect between 2022 and 2024. See Order 
Approving SR-FINRA-2020-032, supra note 6, 85 FR 66592.

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[[Page 93713]]

    Section 1(c) of Schedule A to the FINRA By-Laws sets forth the GIA. 
The current rates, which reflect the fee adjustments made from 2022 
through 2024, are as follows:
    (1) $1,200.00 on annual gross revenue up to $1 million;
    (2) 0.1732% of annual gross revenue greater than $1 million up to 
$25 million;
    (3) 0.3705% of annual gross revenue greater than $25 million up to 
$50 million;
    (4) 0.0738% of annual gross revenue greater than $50 million up to 
$100 million;
    (5) 0.0520% of annual gross revenue greater than $100 million up to 
$5 billion;
    (6) 0.0566% of annual gross revenue greater than $5 billion up to 
$25 billion; and
    (7) 0.1219% of annual gross revenue greater than $25 billion.
    Thus, for example, under the current rates, for a member with 
annual gross revenue of $30 billion, the GIA would be calculated as 
follows: the first $1 million at the Tier 1 rate ($1,200), plus the 
next $24 million at the Tier 2 rate (0.1732%), plus the next $25 
million at the Tier 3 rate (0.3705%), plus the next $50 million at the 
Tier 4 rate (0.0738%), plus the next $4.9 billion at the Tier 5 rate 
(0.0520%), plus the next $20 billion at the Tier 6 rate (0.0566%), plus 
the final $5 billion at the Tier 7 rate (0.1219%), for a total 
assessment of $20,135,293.
    FINRA is proposing the following changes to its GIA tier rates from 
2026 through 2028.\36\
---------------------------------------------------------------------------

    \36\ FINRA notes the Exhibit 5 to this proposed rule change, 
available on FINRA's website at http://www.finra.org, is marked to 
show the changes as they are proposed to take effect each year, as 
described in this filing. Specifically, Exhibit 5A and 5B shows the 
proposed changes that would take effect in 2025, Exhibit 5C shows 
the proposed changes that would take effect in 2026, Exhibit 5D 
shows the proposed changes that would take effect in 2027, Exhibit 
5E shows the proposed changes that would take effect in 2028, and 
Exhibit 5F shows the proposed changes that would take effect in 
2029.

                                                              GIA--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             2025 (no
                     Tier (revenue)                       2024 (current)      change)          2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0 to $1 million........................................          $1,200          $1,200          $1,200          $1,200          $1,200          $1,200
Greater than $1 million up to $25 million...............         0.1732%         0.1732%         0.1827%         0.2056%         0.2280%         0.2280%
Greater than $25 million up to $50 million..............         0.3705%         0.3705%         0.3909%         0.4397%         0.4877%         0.4877%
Greater than $50 million up to $100 million.............         0.0738%         0.0738%         0.0779%         0.0876%         0.0972%         0.0972%
Greater than $100 million up to $5 billion..............         0.0520%         0.0520%         0.0549%         0.0618%         0.0685%         0.0685%
Greater than $5 billion up to $25 billion...............         0.0566%         0.0566%         0.0597%         0.0672%         0.0745%         0.0745%
Greater than $25 billion................................         0.1219%         0.1219%         0.1286%         0.1447%         0.1604%         0.1604%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Thus, for example, under the new rates once fully implemented in 
2029, for a member with annual gross revenue of $30 billion, the GIA 
would be calculated as follows: the first $1 million at the Tier 1 rate 
($1,200), plus the next $24 million at the Tier 2 rate (0.2280%), plus 
the next $25 million at the Tier 3 rate (0.4877%), plus the next $50 
million at the Tier 4 rate (0.0972%), plus the next $4.9 billion at the 
Tier 5 rate (0.0685%), plus the next $20 billion at the Tier 6 rate 
(0.0745%), plus the final $5 billion at the Tier 7 rate (0.1604%), for 
a total assessment of $26,502,945.
    When the proposed GIA rates are fully implemented, they are 
designed to generate an additional $80 million in annual revenue by 
2029. The proposed GIA increase preserves the existing seven-tier 
structure and calculation method while raising each tier 
proportionately. With these proposed increases, the GIA structure would 
continue to reflect the costs associated with performing regulatory 
responsibilities across FINRA's diverse population of members. Notably, 
the proposed rule change would not increase the flat $1,200 fee for 
members with revenues of $1 million or less. Maintaining this fee level 
for the smallest members preserves FINRA's existing approach to cost 
distribution between members of varying sizes.
    Further, FINRA seeks to preserve the historical proportionality 
across fees associated with the three main components of FINRA's 
regulatory costs--the size of the firm measured by firm revenue, the 
firm's trading activity, and the number and role of persons registered 
with the firm--with the aim of collecting a generally comparable amount 
of revenue from fees associated with each of these components once the 
proposed rule change is fully implemented. To that end, the proposed 
rule change would increase the GIA at a reduced rate relative to the 
other core regulatory fees. This is because, for 2024, GIA revenues 
exceeded projections due to record aggregate industry revenues. As a 
result, FINRA has proposed to phase in the proposed increases to the 
GIA more gradually, and at a reduced rate, relative to the other core 
regulatory fees to help preserve historical proportionality across 
these fees and achieve a generally comparable revenue distribution. 
FINRA believes this proportional approach to fee increases will provide 
member firms a greater degree of certainty and predictability, as it 
seeks to maintain consistency with FINRA's existing equitable fee 
distribution. FINRA further believes its proportional approach reduces 
the potential for unintended impacts on the services provided by member 
firms, and the business models they adopt, that could arise from 
significant changes to fee distribution.
Trading Activity Fee
    The TAF is a core regulatory fee designed to correlate to a 
critical component of FINRA's regulatory costs--the trading activity of 
a firm.

[[Page 93714]]

FINRA initially adopted the TAF in 2002, modeled on the Commission's 
transaction-based Section 31 fee.\37\ The TAF is generally assessed on 
the sale of all exchange-listed securities wherever executed (except 
debt securities that are not TRACE-Eligible Securities), over-the-
counter equity securities, security futures, TRACE-Eligible Securities 
(provided that the transaction is a Reportable TRACE Transaction), and 
all municipal securities subject to Municipal Securities Rulemaking 
Board reporting requirements.\38\ The current TAF rates, which reflect 
the fee adjustments made from 2022 through 2024, are:
---------------------------------------------------------------------------

    \37\ See Securities Exchange Act Release No. 46416 (August 23, 
2002), 67 FR 55901 (August 30, 2002) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-2002-98).
    \38\ Certain types of transactions are excluded from the TAF 
(e.g., primary market transactions, proprietary transactions 
executed by a member on a national securities exchange in the 
member's capacity as an exchange specialist or market maker, 
transactions effected by a proprietary trading firm on an exchange 
of which such firm is a member, and transactions in U.S. Treasury 
Securities). See FINRA By-Laws, Schedule A, Section 1(b)(2) 
(providing full list of transactions exempt from the TAF). This 
proposed rule change would not change the scope of any current TAF 
exemptions.
---------------------------------------------------------------------------

    (1) $0.000166 per share for each sale of a covered equity security, 
with a maximum charge of $8.30 per trade;
    (2) $0.00279 per contract for each sale of an option;
    (3) $0.00011 per contract for each round turn transaction of a 
security future, provided there is a minimum charge of $0.014 per round 
turn transaction;
    (4) $0.00105 per bond for each sale of a covered TRACE-Eligible 
Security (other than an Asset-Backed Security) and/or municipal 
security, with a maximum charge of $1.05 per trade; and
    (5) $0.00000105 times the value, as reported to TRACE, of a sale of 
an Asset-Backed Security, with a maximum charge of $1.05 per trade.\39\
---------------------------------------------------------------------------

    \39\ If the execution price for a covered security is less than 
the TAF rate ($0.000166 for covered equity securities, $0.00279 for 
covered options contracts, or $0.014 for a security future) on a per 
share, per contract, or round turn transaction basis, then no fee is 
assessed.
---------------------------------------------------------------------------

    FINRA is proposing the following changes to its TAF rates between 
2026 and 2029:

                                                              TAF--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
          Security type             2024 (current)     2025 (no change)          2026                2027                2028                2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Covered Equity Security.........  $0.000166 per       $0.000166 per       $0.000195 per       $0.000232 per       $0.000240 per       $0.000249 per
                                   share (up to        share (up to        share (up to        share (up to        share (up to        share (up to
                                   $8.30 max per       $8.30 max per       $9.79 max per       $11.61 max per      $12.05 max per      $12.50 max per
                                   trade).             trade).             trade).             trade).             trade).             trade).
Options.........................  $0.00279 per        $0.00279 per        $0.00329 per        $0.00390 per        $0.00404 per        $0.00420 per
                                   contract.           contract.           contract.           contract.           contract.           contract.
Security Future.................  $0.00011 per        $0.00011 per        $0.000135 per       $0.00016 per        $0.000166 per       $0.000172 per
                                   contract (with      contract (with      contract (with      contract (with      contract (with      contract (with
                                   $0.014 minimum      $0.014 minimum      $0.016 minimum      $0.019 minimum      $0.020 minimum      $0.021 minimum
                                   per round turn      per round turn      per round turn      per round turn      per round turn      per round turn
                                   transaction).       transaction).       transaction).       transaction).       transaction).       transaction).
TRACE-Eligible Security (Other    $0.00105 per bond   $0.00105 per bond   $0.00124 per bond   $0.00147 per bond   $0.00153 per bond   $0.00158 per bond
 than Asset-Backed Security) or    (up to $1.05 max    (up to $1.05 max    (up to $1.24 max    (up to $1.47 max    (up to $1.53 max    (up to $1.58 max
 municipal security.               per trade).         per trade).         per trade).         per trade).         per trade).         per trade).
TRACE-Eligible Asset-Backed       $0.00000105 times   $0.00000105 times   $0.00000124 times   $0.00000147 times   $0.00000153 times   $0.00000158 times
 Security.                         reported value      reported value      reported value      reported value      reported value      reported value
                                   (up to $1.05 max    (up to $1.05 max    (up to $1.24 max    (up to $1.47 max    (up to $1.53 max    (up to $1.58 max
                                   per trade).         per trade).         per trade).         per trade).         per trade).         per trade).
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When the new TAF rates are fully implemented, they are designed to 
generate an additional $186 million in annual revenue by 2029. The 
proposed TAF changes reflect proportional increases in the amount 
raised for each security type--meaning there is no anticipated change 
in the percentage of overall TAF revenue collected from transactions in 
each security type--phased in incrementally over the delayed four-year 
implementation period. Accordingly, while TAF revenues are largely 
derived from transactions in equity securities, like the SEC's Section 
31 fee, this proposed rule change is intended to preserve the current 
distribution of TAF fees among security types.
    The aggregate TAF increases would generate more revenue relative to 
the other core regulatory fees to preserve the historical 
proportionality among the core regulatory fees associated with firm 
trading activity and the other main components of FINRA's regulatory 
costs--the size of the firms measured by firm revenue and the number 
and role of persons registered with the firm--while seeking to collect 
a generally comparable amount of revenue from fees associated with each 
component. This is consistent with the proportional approach to fee 
increases discussed throughout this filing, which seeks to maintain 
consistency with FINRA's existing equitable fee distribution.
Personnel Assessment
    The PA is a core regulatory fee designed to correlate to the third 
critical component of FINRA's regulatory costs--the number and role of 
registered persons at a firm. The PA currently is assessed on a three-
tiered rate structure: members with one to five registered 
representatives and principals are assessed $210 for each such 
registered person (``Reps'' in the table below); there is a $200 charge 
for each of the next 20 registered persons (between 6 and 25); and a 
$190 charge for each additional registered person beyond 25 registered 
persons.
    Section 1(e) of Schedule A to the FINRA By-Laws sets forth the PA. 
These rates last increased between 2022 and 2024.\40\ FINRA is 
proposing the following increases to its PA tier rates between 2026 and 
2029:
---------------------------------------------------------------------------

    \40\ See Order Approving SR-FINRA-2020-032, supra note 6, 85 FR 
66592.

[[Page 93715]]



                                                               PA--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             2025 (no
                  Tier (number of reps)                        2024           change)          2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reps 0-5................................................            $210            $210            $245            $260            $270            $295
Reps 6-25...............................................             200             200             235             250             260             285
Reps 26 and greater.....................................             190             190             225             240             250             275
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When the proposed PA rates are fully implemented, they are designed 
to generate an additional $52 million in annual revenue by 2029. The 
proposed PA increases, together with the proposed increases to the use-
based fees aligned with the number and role of registered persons at a 
firm discussed below, are calibrated to preserve the historical 
proportionality among the core regulatory fees associated with the 
three main components of FINRA's regulatory costs and collect a 
generally comparable amount of revenue from fees associated with each 
component. This is consistent with the proportional approach to fee 
increases discussed throughout this filing, which seeks to maintain 
consistency with FINRA's existing equitable fee distribution.
Branch Office Fees
    FINRA members are assessed regulatory fees for registered branch 
offices. These fees are related to firm size and structure. Section 
4(a) of Schedule A to the FINRA By-Laws includes a branch office 
registration fee and a branch office system processing fee upon the 
initial registration of each branch office as defined in the By-Laws. 
The initial branch office registration fee is waived for the first 
branch office registered by a member. In addition, each member is 
assessed an annual registration fee for each branch office registered 
by the member. This fee has a tiered regressive rate structure that 
assesses a per branch office annual registration fee depending on the 
number of branch offices the firm has. Currently, each member is 
assessed an annual registration fee of: (1) $175, for each of the first 
250 branch offices registered by the member; (2) $150, for each of 
branch offices 251 to 500 registered by the member; (3) $125, for each 
of branch offices 501 to 1,000 registered by the member; (4) $100, for 
each of branch offices 1,001 to 2,000 registered by the member; and (5) 
$75, for every branch office greater than 2,000 registered by the 
member. For one branch office per member per year, the annual branch 
office registration fee and annual branch office system processing fee 
is waived.
    FINRA has not increased the branch office registration fee since 
2013.\41\ FINRA is proposing to retain the tiered regressive rate 
structure, but increase the branch office registration fee in 2026 as 
follows:
---------------------------------------------------------------------------

    \41\ See Regulatory Notice 12-32 (June 2012).

                                                Branch Office Registration Fees--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             2025 (no
                           Fee                            2024 (current)      change)          2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
FINRA Branch Registration Fee...........................             $75             $75            $105            $105            $105            $105
Annual Registration Fee 1-250 branch offices registered              175             175             245             245             245             245
 by the member..........................................
Annual Registration Fee 251-500 branch offices                       150             150             210             210             210             210
 registered by the member...............................
Annual Registration Fee 501-1000 branch offices                      125             125             175             175             175             175
 registered by the member...............................
Annual Registration Fee 1001-2000 branch offices                     100             100             140             140             140             140
 registered by the member...............................
Annual Registration Fee 2001+ branch offices registered               75              75             105             105             105             105
 by the member..........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When the proposed branch office registration fee changes are fully 
implemented, they are designed to generate $7 million in annual revenue 
by 2029.\42\ The proposed rule change would retain the same tiered 
regressive rate structure that assesses a per branch office annual 
registration fee depending on the number of branch offices of the firm, 
but would raise the fee associated with each range of branch office 
numbers. FINRA would continue to waive, for one branch office per 
member per year, payment of the annual registration fee, but increase 
the amount of the waiver from $175 to $245 to match the new rates.
---------------------------------------------------------------------------

    \42\ The projected revenue from the proposed increased Branch 
Office Fees assumes that the number of branch offices will remain at 
2024 levels through 2029. Due to the COVID-19 pandemic, FINRA had 
provided regulatory relief including a temporary suspension of the 
requirements to maintain updated Form U4 information regarding the 
office of employment address for registered persons who temporarily 
relocated due to the pandemic, and the requirement to submit branch 
office applications on Form BR for any newly opened temporary office 
locations or space-sharing arrangements. See Regulatory Notice 20-08 
(March 2020). In mid-2024, that relief ended and FINRA implemented 
new Rule 3110.19, which exempts from branch office registration a 
residential supervisory location (or RSL). An RSL is a private 
residence at which an associated person engages in specified 
supervisory activities, subject to certain safeguards and 
limitations. See Regulatory Notice 24-02 (January 2024). FINRA 
believes its assumptions are reasonable given the recency of these 
changes. As noted, if key assumptions change materially, FINRA would 
consider various modifications as appropriate, including rebates, 
for example. See supra note 15.
---------------------------------------------------------------------------

    FINRA has not increased the branch office system processing fee 
since 2022.\43\ FINRA is proposing to increase the branch office system 
processing fee in 2028 as follows:
---------------------------------------------------------------------------

    \43\ See supra note 6.

[[Page 93716]]



                                              Branch Office System Processing Fee--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         2025 (no         2026 (no         2027 (no
                        Fee                          2024 (current)      change)          change)          change)            2028             2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Branch Office System Processing Fee (initial and               $75              $75              $75              $75             $105             $105
 annual)..........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When the proposed branch office system processing fee change is 
fully implemented, it is designed to generate $4 million in annual 
revenue by 2029.\44\ FINRA would continue to waive, for one branch 
office per member per year, payment of the annual branch office system 
processing fee, but increase the amount of the waiver from $75 to $105 
to match the new rates. FINRA believes these proposed increases to the 
branch office fees, which relate to firm size and structure, are 
consistent with the proportional approach to fee increases discussed 
throughout this filing.
---------------------------------------------------------------------------

    \44\ See supra note 42.
---------------------------------------------------------------------------

Registration Fees
    Registration fees are registered person-level fees that, while use-
based, also correlate to the third critical component of FINRA's 
regulatory costs--the number and role of registered persons at a firm. 
Section 4 of Schedule A to the FINRA By-Laws establishes fees connected 
to FINRA's operation of the Central Registration Depository (``Web 
CRD[supreg]'' or ``CRD system''), the central licensing and 
registration system that FINRA operates for the benefit of FINRA, the 
SEC, other SROs, state securities regulators, and broker-dealer firms. 
The CRD system contains the registration records of broker-dealer firms 
and their associated individuals including their qualification, 
employment, and disclosure histories; it also facilitates the 
processing of, among other things, form filings and facilitates the 
making of fingerprint results available to the appropriate authorized 
recipients.\45\ The CRD system enables individuals and firms seeking 
registration with multiple states and SROs to do so by submitting a 
single form and fee payment.\46\
---------------------------------------------------------------------------

    \45\ Specified information reported to the CRD system is 
displayed in BrokerCheck[supreg], an electronic system that provides 
the public with information on the professional background, business 
practices, and conduct of FINRA members and their associated 
persons. Investors use BrokerCheck to help make informed choices 
about the individuals and firms with which they currently conduct or 
are considering conducting business.
    \46\ FINRA outsources fingerprint processing to Sterling 
Identity (``Sterling''), an FBI-approved channeler that processes 
fingerprints for members on FINRA's behalf. This provides for a more 
efficient and streamlined process with fewer fingerprint rejections, 
secure electronic transmission of FBI results, and significantly 
reduced turn-around times. Sterling assesses and collects all fees 
for fingerprint collection and processing, including the FBI fee.
---------------------------------------------------------------------------

    FINRA last increased associated registration fees between 2022 and 
2024.\47\ FINRA has explained that these fees are important to fund 
activities that help ensure the integrity of information in the CRD 
system--information critical to FINRA and other regulators, as well as 
to investors through BrokerCheck--and to support FINRA's overall 
regulatory mission.\48\ FINRA is proposing to increase certain 
registration fees \49\ in 2028 as follows:
---------------------------------------------------------------------------

    \47\ See Order Approving SR-FINRA-2020-032, supra note 6, 85 FR 
66592.
    \48\ See Securities Exchange Act Release No. 67247 (June 25, 
2012), 77 FR 38866 (June 29, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-030).
    \49\ FINRA also proposes conforming changes to Section 15(g) of 
Schedule A to the FINRA By-Laws to align this proposed fee change 
with the same fees for Funding Portal members.
    \50\ This fee applies for each initial or transfer Uniform 
Application for Securities Industry Registration or Transfer (``Form 
U4'') filed by a member in the CRD system to register an individual. 
Section 4(b)(1) of Schedule A includes a discount in cases where a 
member is transferring the registrations of individuals in 
connection with the acquisition of all or part of another member's 
business. The discount ranges from 10 to 50 percent, based on the 
number of registered personnel being transferred. While FINRA is 
proposing to increase the registration fee, it is not proposing to 
make any changes to the discount schedule.
    \51\ This fee applies for the additional processing of each 
initial or amended Form U4, Form U5, or Form BD that includes the 
initial reporting, amendment, or certification of one or more 
disclosure events or proceedings.
    \52\ This fee applies for processing and posting to the CRD 
system each set of fingerprints submitted electronically by a member 
to FINRA, plus any other charge that may be imposed by the United 
States Department of Justice for processing each set of 
fingerprints.
    \53\ In 2024, the fee for funding portal members that submit 
fingerprints electronically is $15. See Section 15(g) of Schedule A 
to FINRA By-Laws.
    \54\ As discussed below, FINRA proposes a conforming change in 
2025 to Section 15(g) of Schedule A to the FINRA By-Laws to align 
the fee for funding portal members that submit fingerprints 
electronically with the same fee charged to broker-dealer members.
    \55\ This fee applies for processing and posting to the CRD 
system each set of fingerprints submitted in non-electronic format 
by a member to FINRA, plus any other charge that may be imposed by 
the United States Department of Justice for processing each set of 
fingerprints.

                                                       Registration Fees--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
               Fee                  2024 (current)     2025 (no change)    2026 (no change)    2027 (no change)          2028                2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial/Transfer Registration     $125..............  $125..............  $125..............  $125..............  $175..............  $175.
 Form U4 filing \50\.
Termination U5 filing...........  $50 (plus $100 if   $50 (plus $100 if   $50 (plus $100 if   $50 (plus $100 if   $70 (plus $140 if   $70 (plus $140 if
                                   late filed).        late filed).        late filed).        late filed).        late filed).        late filed).
Disclosure review \51\..........  $155..............  $155..............  $155..............  $155..............  $215..............  $215.
Electronic Fingerprinting \52\..  $20 \53\..........  $20 \54\..........  $20...............  $20...............  $28...............  $28.
Non-Electronic Fingerprinting     $30...............  $30...............  $30...............  $30...............  $42...............  $42.
 \55\.
Fingerprinting Processed Through  $30...............  $30...............  $30...............  $30...............  $42...............  $42.
 Another SRO.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When these proposed registration fee changes are fully implemented, 
they are designed to generate an additional $10 million in annual 
revenue by 2029.
Renewal Late Fee
    Members renew their registrations with FINRA, other SROs and 
states/jurisdictions during the annual renewal program. Section 4(b)(8) 
of Schedule A to the FINRA By-Laws sets forth the renewal late fee, 
which applies if a member fails to timely pay the amount

[[Page 93717]]

indicated on its preliminary annual renewal statement.\56\ Where this 
late fee applies, FINRA includes it as part of the final statement. 
Currently, this fee is the greater of 10 percent of the member's final 
annual renewal assessment or $100, with a maximum charge of $5,000. 
FINRA has not increased the renewal late fee since it was established 
in 2002.\57\
---------------------------------------------------------------------------

    \56\ Members receive a preliminary annual renewal statement that 
reflects approved registrations at the time the statement is 
generated. The statement also includes a date by which members must 
make full payment available to FINRA.
    \57\ See Securities Exchange Act Release No. 46466 (September 6, 
2002), 67 FR 58092 (September 13, 2002) (Notice of Filing and 
Immediate Effectiveness of File No. SR-NASD-2002-100).
---------------------------------------------------------------------------

    FINRA is proposing to increase the renewal late fee in 2028 as 
follows:

                                                        Renewal Late Fee--Proposed Implementation
             [The Renewal Late Fee is 10 percent of a member's cumulative final renewal statement with the following minimums and maximums]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             2025 (no        2026 (no        2027 (no
                           Fee                            2024 (current)      change)         change)         change)          2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
The minimum late fee FINRA will assess is...............            $100            $100            $100            $100            $140            $140
The maximum late fee FINRA will assess is...............           5,000           5,000           5,000           5,000           7,000           7,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    FINRA notes that it collects all applicable renewal fees on behalf 
of itself and participating regulators, which enables members to submit 
their total renewal payment to FINRA instead of to each regulator. 
Among other reasons noted, FINRA believes this proposed fee increase 
would further encourage members to submit such fees on time. When the 
proposed renewal late fee changes are fully implemented, they are 
designed to generate an additional $100,000 in annual revenue by 2029.
Late Disclosure Fee
    Related to the registration functions described above, FINRA 
charges a fee for each day that a new disclosure event or a change in 
the status of a previously reported disclosure event is not timely 
filed on an initial or amended Form U5 or an amended Form U4. Section 
4(h) of Schedule A to the FINRA By-Laws sets forth the late disclosure 
fee. This fee is assessed starting on the day following the last date 
on which the event or change in status was required to be reported.
    Timely and complete reporting of all information required by the 
FINRA By-Laws and rules, as well as the federal securities laws, is 
critical to investor protection. The SEC, FINRA, other SROs and state 
securities regulators use the information to make licensing and 
registration decisions, among other things. FINRA also publishes 
information in FINRA BrokerCheck, which investors use for researching 
the professional backgrounds of firms and brokers.
    FINRA has not increased the late disclosure fee since 2013.\58\ 
Currently, disclosures filed more than 60 days following the last date 
on which the event was required to be reported under FINRA rules 
account for 50 percent of volume and 78 percent of revenues related to 
late filing fees.
---------------------------------------------------------------------------

    \58\ See Regulatory Notice 12-32, supra note 41.
---------------------------------------------------------------------------

    FINRA is proposing to increase the late disclosure fee \59\ in 2026 
as follows:
---------------------------------------------------------------------------

    \59\ FINRA also proposes conforming changes to Section 15(e) of 
Schedule A to the FINRA By-Laws to align this proposed fee change 
with the same fee for Funding Portal members.

                                                      Late Disclosure Fee--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             2025 (no
                           Fee                            2024 (current)      change)          2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
First Day...............................................            $100            $100            $100            $100            $100            $100
Subsequent Days.........................................              25              25              40              40              40              40
Maximum Fee.............................................           1,575           1,575           2,460           2,460           2,460           2,460
--------------------------------------------------------------------------------------------------------------------------------------------------------

    FINRA believes this proposed fee increase would further encourage 
firms to file timely and complete initial Forms U4 and U5 and 
amendments to these forms, while also generating additional revenue as 
part of the overall proposal to increase fees to fund FINRA's 
regulatory mission. When the proposed late disclosure fee changes are 
fully implemented, they are designed to generate an additional $3 
million in annual revenue by 2029.\60\
---------------------------------------------------------------------------

    \60\ Projected revenue from the proposed increased Late 
Disclosure Fees assumes approximately 53% late filings based on the 
historical average (2018-2023) and is based on other reasonably 
conservative assumptions using a variety of information points, 
including historical data and anticipated trends. See supra note 15.
---------------------------------------------------------------------------

System Processing Fee
    FINRA currently assesses an annual system processing fee for each 
of the member's registered persons. Like the registration fees 
described above, this fee correlates to the third critical component of 
FINRA's regulatory costs--the number and role of registered persons at 
a firm. Section 4(b)(7) of Schedule A to the FINRA By-Laws sets forth 
the system processing fee. Under the current fee structure, a flat $70 
fee applies to each registered person of a member. Many registered 
persons are registered with one or more securities regulators (i.e., 
with jurisdictions as a broker-dealer agent and with SROs as a 
representative or principal).\61\ The median number of other SROs and 
jurisdictions with which each registered person of a member is 
registered, in addition to their FINRA registration, is 11, with an 
average of 20.
---------------------------------------------------------------------------

    \61\ The term broker-dealer agent (or AG) is the designation 
used in Form U4 to identify a person who has been approved to sell 
securities in a particular jurisdiction.
---------------------------------------------------------------------------

    FINRA's costs and resources allocated to processing this 
information for members' registered persons depends, in part, on the 
number of securities regulators with which each registered person is 
registered (whether as a broker-dealer agent with one or more

[[Page 93718]]

jurisdictions or as a representative or principal with one or more 
SROs). To account for this variability, FINRA proposes to replace the 
current flat fee structure with a tiered rate structure in 2026 as 
described below. In addition, FINRA proposes to increase the proposed 
tiers in 2028. These proposed changes are summarized as follows:

                                                     System Processing Fee--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
     Number of securities regulators with which each
 registered person of a member is registered, excluding   2024 (current)     2025 (no          2026          2027 (no          2028          2029 (no
  registration as an investment adviser representative                        change)                         change)                         change)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1-5.....................................................             $70             $70             $70             $70            $100            $100
6-20....................................................              70              70              95              95             125             125
21-40...................................................              70              70             110             110             140             140
41+.....................................................              70              70             125             125             155             155
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The fee would be calculated based on the total number of securities 
regulators with which each registered person of a member is registered 
(whether as a broker-dealer agent with one or more jurisdictions or as 
a representative or principal with one or more SROs). A registered 
person's registration as an investment adviser representative would not 
be considered.
    FINRA believes this use-based fee will support FINRA's overall 
regulatory mission while reflecting the resources FINRA allocates to 
its securities licensing and registration operations for registered 
persons of members. Further, as noted above, this fee relates to the 
number and role of registered persons at a firm, which is one of the 
three critical components of FINRA's regulatory costs.
    FINRA proposes to implement the proposed tiered rate structure in 
2026. To allow members additional time to adjust and plan, FINRA 
proposes to defer implementation of proposed increases to this fee 
until 2028. When this proposed rule change, including implementation of 
the tiered structure and the proposed increase are fully implemented, 
it is designed to generate an additional $31 million in annual revenue 
by 2029.
Qualification Examination Fees
    Like registration fees, qualification examination fees are 
registered person-level fees that, while use-based, also correlate to 
the third critical component of FINRA's regulatory costs--the number 
and role of registered persons at a firm. Section 4(c) of Schedule A to 
the FINRA By-Laws sets forth the fees associated with the qualification 
examinations that FINRA administers. Persons engaged in the investment 
banking or securities business of a FINRA member who function as 
principals or representatives are required to register with FINRA in 
each category of registration appropriate to their functions. Such 
individuals must pass an appropriate qualification examination or 
obtain a waiver before their registration can become effective. These 
qualification examinations cover a broad range of subjects regarding 
financial markets and products, individual responsibilities, securities 
industry rules, and regulatory structure.
    FINRA develops, maintains, and delivers all qualification 
examinations for individuals who are registered or seeking registration 
with FINRA.\62\ FINRA last increased its examination fees between 2022 
and 2024.\63\ FINRA is proposing to increase its examination fees in 
2026 as follows:
---------------------------------------------------------------------------

    \62\ FINRA also administers and delivers examinations sponsored 
(i.e., developed) by the Municipal Securities Rulemaking Board 
(``MSRB'') and other SROs, the North American Securities 
Administrators Association, and the Federal Deposit Insurance 
Corporation. The fees charged for these examinations are set 
according to contracts with the examination sponsors, and FINRA is 
not proposing any changes to fees associated with those examinations 
at this time.
    \63\ See Order Approving SR-FINRA-2020-032, supra note 6, 85 FR 
66592.

                                                 Qualification Examination Fees--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             2025 (no
               Examination number and name                2024 (current)      change)          2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Securities Industry Essentials (SIE) Examination........             $80             $80            $100            $100            $100            $100
Series 4: Registered Options Principal Examination......             155             155             200             200             200             200
Series 6: Investment Company Products and Variable                    75              75             100             100             100             100
 Contracts Representative Examination...................
Series 7: General Securities Representative Examination.             300             300             395             395             395             395
Series 9: General Securities Sales Supervisor                        130             130             175             175             175             175
 Examination--Options Module............................
Series 10: General Securities Sales Supervisor                       175             175             235             235             235             235
 Examination--General Module............................
Series 14: Compliance Official Examination..............             350             350             450             450             450             450
Series 16: Supervisory Analyst Examination..............             245             245             325             325             325             325
Series 22: Direct Participation Programs Representative               60              60             100             100             100             100
 Examination............................................
Series 23: General Securities Principal Examination--                105             105             135             135             135             135
 Sales Supervisor Module................................

[[Page 93719]]

 
Series 24: General Securities Principal Examination.....             175             175             235             235             235             235
Series 26: Investment Company Products and Variable                  150             150             200             200             200             200
 Contracts Principal Examination........................
Series 27: Financial and Operations Principal                        175             175             235             235             235             235
 Examination............................................
Series 28: Introducing Broker-Dealer Financial and                   150             150             195             195             195             195
 Operations Principal Examination.......................
Series 39: Direct Participation Programs Principal                   100             100             200             200             200             200
 Examination............................................
Series 57: Securities Trader Examination................              80              80             105             105             105             105
Series 79: Investment Banking Representative Examination             300             300             395             395             395             395
Series 82: Private Securities Offering Representative                 60              60             100             100             100             100
 Examination............................................
Series 86: Research Analyst Examination--Analysis.......             225             225             295             295             295             295
Series 87: Research Analyst Examination--Regulatory.....             150             150             195             195             195             195
Series 99: Operations Professional Examination..........              60              60             100             100             100             100
--------------------------------------------------------------------------------------------------------------------------------------------------------

    FINRA is proposing a one-time fee increase across examinations in 
2026 designed to generate an additional $14 million in revenue across 
all examinations by 2029. In addition, FINRA has determined the amount 
of each examination fee increase based on the frequency with which the 
examination is administered, as well as the average fee per hour of 
examination length. Examinations that are administered more frequently 
or are longer in duration typically require more effort and cost to 
develop, maintain, and update. As a result, FINRA is generally 
proposing greater increases for those examinations, and smaller 
increases for others to preserve the broad and equitable distribution 
of proposed fee increases, as discussed throughout this filing.
Continuing Education Regulatory Element Fee
    Continuing education fees are also registered person-level fees 
that, while use-based, correlate to the third critical component of 
FINRA's regulatory costs--the number and role of registered persons at 
a firm. In conjunction with other SROs and the Securities Industry/
Regulatory Council on Continuing Education, FINRA administers the 
continuing education (CE) program for the securities industry.\64\ The 
Regulatory Element of the CE program provides training on significant 
rule changes and other regulatory developments relevant to each 
registration category. Registered persons must complete the Regulatory 
Element annually by December 31 for each registration that they 
hold.\65\
---------------------------------------------------------------------------

    \64\ See FINRA Rule 1240.
    \65\ See FINRA Rule 1240; see also Securities Exchange Act 
Release No. 93097 (September 21, 2021), 86 FR 53358 (September 27, 
2021) (Order Approving File No. SR-FINRA-2021-015).
---------------------------------------------------------------------------

    Section 4(f) of Schedule A to the FINRA By-Laws sets forth the fees 
associated with the Regulatory Element requirement. FINRA has not 
increased the fee for the web-based delivery of the Regulatory Element 
since it was established in 2015.\66\ FINRA is proposing to increase 
the Regulatory Element fee in 2026 as follows:
---------------------------------------------------------------------------

    \66\ See Securities Exchange Act Release No. 75581 (July 31, 
2015), 80 FR 47018 (August 6, 2015) (Order Approving File No. SR-
FINRA-2015-015). After FINRA adopted amendments to require 
registered persons to complete the Regulatory Element of CE annually 
rather than every three years, FINRA revised the Regulatory Element 
fee from a $55 fee paid once every three years, to an $18 fee paid 
annually. See Securities Exchange Act Release No. 93928 (January 7, 
2022), 87 FR 2193, 2194 (January 13, 2022) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2021-034). Thus, the 
Regulatory Element fee has not substantially changed since 2015.

                                                    Continuing Education Fee--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         2025 (no
                        Fee                          2024 (current)      change)            2026             2027             2028             2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Continuing Education..............................             $18              $18              $25              $25              $25              $25
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When the proposed regulatory element fee rate is fully implemented, 
it is designed to generate an additional $4 million in annual revenue 
by 2029.
Select Use-Based Fees
Corporate Financing Private Placement Review Fee
    FINRA Rule 5122 (Private Placements of Securities Issued by 
Members) imposes requirements regarding disclosure, filing, and use of 
offering proceeds for members that sell a private placement of 
securities issued by a member or a control entity, subject to various 
exemptions. Pursuant to FINRA Rule 5122, members that offer or sell 
their own securities or those of a control

[[Page 93720]]

entity must file with FINRA's Corporate Financing Department 
(``Corporate Financing'') a private placement memorandum, term sheet or 
other offering document and any retail communication that promotes or 
recommends the member private offering at or prior to the first time 
the documents are provided to any prospective investor.
    Its companion rule, FINRA Rule 5123 (Private Placement of 
Securities), requires members that sell any other type of private 
placement to file with Corporate Financing a copy of any private 
placement memorandum, term sheet or other offering document, and any 
retail communication that promotes or recommends the private placement. 
Such filing must occur within 15 calendar days of the first sale, 
subject to various exemptions.
    FINRA has historically performed the review of such filings at no 
cost since the program was created approximately 15 years ago.\67\ This 
program requires substantial resources, and the volume of filings has 
increased significantly in recent years.\68\ FINRA thus proposes to 
establish the following fees related to private placement review in 
July 2025 as follows:
---------------------------------------------------------------------------

    \67\ FINRA Rule 5122 became effective on June 17, 2009; FINRA 
Rule 5123 became effective on December 3, 2012.
    \68\ See Regulatory Notice 23-08 (May 2023) (``In recent years, 
the unregistered offering market outpaced the public market. . . . 
In 2021, for example, members submitted over 3,800 unique filings 
for private placements pursuant to FINRA Rules 5122 and 5123, which 
require filings for private placements generally sold to 
individuals, in comparison to roughly 2,000 submissions in 2013.'').

                                        Corporate Financing Private Placement Review Fee--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               2025
          Private placements (offerings >$25M)            2024 (current)  (effective 7/1/ 2026 (million)  2027 (million)  2028 (million)  2029 (million)
                                                                           25) (million)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Flat Fee................................................              $0            $300            $300            $300            $300            $300
% of Offering...........................................              0%          0.008%          0.008%          0.008%          0.008%          0.008%
Offering Cap............................................              $0            $500            $500            $500            $500            $500
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The proposed fee is designed to be similar to the current fee for 
public offering reviews. Like the public offering review fee, this 
proposed fee would consist of both a flat fee and a percentage of the 
maximum offering proceeds. However, to reduce the impact on smaller 
issuers and broker-dealers, FINRA proposes to apply this fee only to 
private placement offerings of greater than $25 million and to cap the 
fee at $40,300 (0.008% of $500,000,000 offering + $300 flat fee). In 
general, FINRA believes that such fees would be paid for by, or passed 
through to, issuers.\69\ This proposed new use-based fee is structured 
to take into account associated types of costs, including the 
substantial resources such reviews require.\70\ When the proposed new 
fee for private placement review is fully implemented, it is designed 
to generate $6 million in annual revenue by 2029.
---------------------------------------------------------------------------

    \69\ FINRA's belief is informed by its experience with the 
public offering fee, described below, and based on discussions with 
FINRA advisory committees and other industry participants.
    \70\ As discussed above, when applying use-based fees, FINRA 
takes into account direct costs for the program, indirect costs for 
the program, and a contribution to FINRA's overall regulatory 
operations. See supra note 7 and accompanying text.
---------------------------------------------------------------------------

Corporate Financing Public Offering Review Fee
    Corporate Financing reviews the underwriting terms and arrangements 
of proposed public offerings of securities for compliance with the 
requirements of FINRA Rule 5110 (Corporate Financing Rule--Underwriting 
Terms and Arrangements). Pursuant to Rule 5110, no member firm or 
person associated with a member firm may participate in a public 
offering subject to the rule, or to FINRA Rules 5121 (Public Offerings 
of Securities With Conflicts of Interest) and 2310 (Direct 
Participation Programs), unless the documents and information specified 
in the rule have been filed with and reviewed by Corporate Financing. 
The documents Corporate Financing reviews include registration 
statements, underwriting agreements, engagement letters and other 
relevant supporting documentation for public offerings. Corporate 
Financing's review is complementary to the SEC's registration process, 
which covers a larger set of filings than FINRA's program.\71\
---------------------------------------------------------------------------

    \71\ The SEC's current filing fee rate for filings made pursuant 
to Sections 6(b) of the Securities Act of 1933 and Sections 13(e) 
and 14(g) of the Exchange Act is $147.60 per $1,000,000. See https://www.sec.gov/edgar/filer/filing-fees/filing-fee-rate.
---------------------------------------------------------------------------

    Section 7 of Schedule A to the FINRA By-Laws sets forth the fees 
associated with filing documents pursuant to the Corporate Financing 
Rule. It currently provides for a flat fee of $500 plus .015% of the 
proposed maximum aggregate offering price or other applicable value of 
all securities registered on an SEC registration statement or included 
on any other type of offering document (where not filed with the SEC), 
with a cap of $225,500; or a fee of $225,500 for an offering of 
securities filed with the SEC and offered pursuant to Securities Act 
Rule 415 by a Well-Known Seasoned Issuer (``WKSI'') as defined in 
Securities Act Rule 405. The fee associated with any amendment or other 
change to the documents initially filed with Corporate Financing is 
also subject to the current $225,500 cap. FINRA has not raised the fee 
cap since 2012.\72\
---------------------------------------------------------------------------

    \72\ See Securities Exchange Act Release No. 67241 (June 22, 
2012), 77 FR 38698 (June 28, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-029); see also Regulatory 
Notice 12-32 (June 2012).
---------------------------------------------------------------------------

    FINRA is proposing to increase and modify the fee cap beginning in 
July 2025 as follows:

[[Page 93721]]



                                       Corporate Financing Public Offering Review Fee Cap--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               2025
                           IPO                            2024 (current)  (effective 7/1/      2026            2027            2028            2029
                                                                                25)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-WKSI................................................        $225,000      $1,125,000      $1,125,000      $1,125,000      $1,125,000      $1,125,000
WKSI....................................................         225,000         270,000         324,000         389,000         467,000         560,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    This proposed rule change would raise the fee cap to $1,125,000, 
which would account for the significant growth in the size of offerings 
since the cap was last raised in 2012. However, for WKSIs, the cap 
would be raised to $560,000 over a period of five years. FINRA notes 
that raising the caps would also create more consistency with the SEC 
IPO review fee, which has no cap.\73\ FINRA projects that increasing 
the cap as proposed would capture 81% of the incremental revenues if 
there were no cap while bounding the impact on WKSIs whose offerings 
tend to be less resource intensive for Corporate Financing to review. 
FINRA believes such fees are and would continue to be paid for by, or 
passed through to, issuers.\74\ When the proposed fee increase is fully 
implemented, it is designed to generate an additional $31 million in 
annual revenue by 2029.\75\
---------------------------------------------------------------------------

    \73\ See supra note 71.
    \74\ See supra note 69.
    \75\ The proposed rule change would remove the language ``on an 
automatically effective Form S-3 or F-3 registration statement'' 
because WKSIs may use other registration forms. See, e.g., 
Securities Offering Reform for Closed-End Investment Companies, 
Investment Company Act Release No. 33836 (April 8, 2020), 85 FR 
33290 (June 1, 2020).
---------------------------------------------------------------------------

Advertising Regulation Review Fee
    One way that FINRA protects investors is by having its Advertising 
Regulation Department review specified broker-dealers' communications 
for compliance with FINRA's communications with the public rules, and 
similar rules of \76\ the SEC, MSRB and Securities Investor Protection 
Corporation. FINRA rules require that member communications be based on 
principles of fair dealing and good faith, be fair and balanced, and 
provide a sound basis for evaluating the facts in regard to any 
particular security or type of security, industry or service. Among 
other things, FINRA rules prohibit member firm communications from 
including false, exaggerated, unwarranted or misleading statements or 
claims.
---------------------------------------------------------------------------

    \76\ See generally FINRA Rule 2200 Series. FINRA also will 
review communications filed voluntarily.
---------------------------------------------------------------------------

    Section 13 of Schedule A to the FINRA By-Laws sets forth the fees 
associated with review of communications filed with FINRA. Despite 
rising costs to administer the Advertising Regulation Department review 
program, FINRA has not increased these fees since 2012.\77\ FINRA is 
proposing an increase to the regular review charge in 2025 as follows:
---------------------------------------------------------------------------

    \77\ See Securities Exchange Act Release No. 67239 (June 22, 
2012), 77 FR 38692 (June 28, 2012) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2012-028).

                                                 Advertising Regulation Review--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Fee                          2024 (current)        2025             2026             2027             2028             2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Regular Review Charge (non-expedited).............            $125             $300             $300             $300             $300             $300
--------------------------------------------------------------------------------------------------------------------------------------------------------

    When the proposed fee increase is fully implemented, it is designed 
to generate an additional $11 million in annual revenue by 2029.\78\ 
Under the proposed rule change, the $600 expedited fee would not 
change.
---------------------------------------------------------------------------

    \78\ FINRA currently charges a $10 fee for the review of each 
printed page or web page in excess of 10 pages, and for each minute 
of tape reviewed in excess of 10 minutes of video or audio media. 
This would not change under the proposed rule change.
---------------------------------------------------------------------------

Dispute Resolution Services Arbitration Fees
    DRS operates the largest securities arbitration forum in the United 
States, to assist in the resolution of disputes involving customers, 
members and associated persons. As discussed in turn below, FINRA 
proposes to raise the (1) hearing session fees, (2) filing fees, (3) 
member surcharge, and (4) member process fee, as set forth in the Code 
of Arbitration Procedure for Customer Disputes (``Customer Code'') and 
Code of Arbitration Procedure for Industry Disputes (``Industry Code'') 
(together, the ``Codes'').\79\
---------------------------------------------------------------------------

    \79\ The Customer Code is the FINRA Rule 12000 Series; the 
Industry Code is the FINRA Rule 13000 Series. The proposed fee 
increases described, below, would be implemented in both Codes.
---------------------------------------------------------------------------

    FINRA believes that the cost of arbitration should be borne by the 
users of the forum, without imposing a significant barrier to public 
customers who bring arbitration claims to the forum. Thus, the current 
DRS arbitration fees are designed to be borne 85 percent by members and 
15 percent by customers.\80\ The proposed rule change would maintain 
that pricing structure. It would also maintain a sliding scale fee 
structure in which the member surcharge and process fees increase 
across the board, while the hearing session fees and filing fees 
increase more for higher value claims. Taken together, the proposed 
increase in DRS' arbitration fees would aim to partially recover 
increasing costs to operate the forum, without placing an undue burden 
on users of the forum, particularly customers or claimants with small 
claims. When the proposed DRS arbitration fee increases are fully 
implemented, they are designed to generate an additional $10 million in 
annual revenue by 2029.
---------------------------------------------------------------------------

    \80\ See Securities Exchange Act Release No. 90227 (October 20, 
2020), 85 FR 67794 (October 26, 2020) (Notice of Filing File No. SR-
FINRA-2020-035).
---------------------------------------------------------------------------

Hearing Session Fees
    Under FINRA Rules 12902 and 13902, hearing session fees are charged 
for each hearing session based on the amount in dispute. In the award, 
the panel determines the amount of each hearing session fee that each 
party must pay. The arbitrators may apportion the fees in any manner, 
including assessing the entire amount against one party.\81\
---------------------------------------------------------------------------

    \81\ See FINRA Rules 12902(a)(1) and 13902(a)(1).
---------------------------------------------------------------------------

    FINRA proposes to raise hearing session fees in 2025 as follows:

[[Page 93722]]



                                  Hearing Session Fees--Proposed Implementation
----------------------------------------------------------------------------------------------------------------
                                                          2024 (current)                     2025-2029
                                                ----------------------------------------------------------------
   Amount of claim (exclusive of interest and                                                         Hearing
                   expenses)                         Hearing     Hearing session      Hearing       session w/
                                                 session w/ one      w/ three     session w/ one       three
                                                   arbitrator      arbitrators      arbitrator      arbitrators
----------------------------------------------------------------------------------------------------------------
Up to $2,500...................................             $50             N/A              $50             N/A
$2,500.01 to $5,000............................             125             N/A              125             N/A
$5,000.01 to $10,000...........................             250             N/A              250             N/A
$10,000.01 to $25,000..........................             450             N/A              450             N/A
$25,000.01 to $50,000..........................             450            $600              450            $600
$50,000.01 to $100,000.........................             450             750              450             750
$100,000.01 to $500,000........................             450           1,125              675           1,690
$500,000.01 to $1,000,000......................             450           1,325              675           1,990
$1,000,000.01 to $5,000,000....................             450           1,435              675           2,160
Over $5,000,000................................             450           1,575              675           2,370
Non-Monetary/Not Specified.....................             450           1,150              675           1,725
----------------------------------------------------------------------------------------------------------------

    To minimize the impact of the proposed rule change on customers or 
claimants with small claims, the proposed fee increase would only apply 
to claims of more than $100,000 and claims for non-monetary or 
unspecified damages. The tiered structure of this fee would not change 
under the proposed rule change.
    FINRA notes the hearing session fee may not be assessed under 
certain circumstances. For example, if the parties timely settle the 
arbitration, the parties will not be assessed hearing session fees.\82\ 
During settlement negotiations, parties have the opportunity to 
determine how to share any hearing session fees, if hearings are 
held.\83\ For cases that result in an award, the panel has discretion 
to assess hearing session fees as part of the award,\84\ which allows 
them to consider numerous factors to determine each party's appropriate 
share and assign the costs accordingly. The proposed rule change would 
not change a party's ability to settle or arbitrators' discretion to 
assess the hearing session fees.
---------------------------------------------------------------------------

    \82\ See FINRA Rules 12701 and 13701.
    \83\ See FINRA Rules 12701(b) and 13701(b).
    \84\ See FINRA Rules 12902(a)(1) and 13902(a)(1).
---------------------------------------------------------------------------

Filing Fees
Filing Fees Paid by Customers, Associated Persons or Other Non-Members
    Filing fees are due when a claim is filed. FINRA Rule 12900(a) sets 
forth the filing fee schedule for customers, associated persons and 
other non-members who file a claim, counterclaim, cross claim or third 
party claim in a customer dispute. FINRA Rule 13900(a) sets forth the 
filing fee schedule for associated persons who file a claim, 
counterclaim, cross claim or third party claim in an industry dispute. 
The filing fee is based on the claim amount or type of damages 
requested.
    FINRA proposes to raise filing fees in 2025 as follows:

                               Filing Fee (Customers, Associated Persons, and other Non-Members)--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Amount of claim (exclusive of interest and expenses)    2024 (current)       2025            2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
$.01 to $1,000..........................................             $50             $50             $50             $50             $50             $50
$1,000.01 to $2,500.....................................              75              75              75              75              75              75
$2,500.01 to $5,000.....................................             175             175             175             175             175             175
$5,000.01 to $10,000....................................             325             325             325             325             325             325
$10,000.01 to $25,000...................................             425             425             425             425             425             425
$25,000.01 to $50,000...................................             600             600             600             600             600             600
$50,000.01 to $100,000..................................             975             975             975             975             975             975
$100,000.01 to $500,000.................................           1,425           1,790           1,790           1,790           1,790           1,790
$500,000.01 to $1,000,000...............................           1,740           2,175           2,175           2,175           2,175           2,175
$1,000,000.01 to $5,000,000.............................           2,025           2,540           2,540           2,540           2,540           2,540
Over $5,000,000.........................................           2,300           2,875           2,875           2,875           2,875           2,875
Non-Monetary/Not Specified..............................           1,600           2,000           2,000           2,000           2,000           2,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    To minimize the impact of the proposed rule change on customers or 
claimants with small claims, and consistent with the current claim 
amount tier structure, the proposed fee increase would only apply to 
claims of more than $100,000 and claims for non-monetary or unspecified 
damages. The tiered structure of this fee would not change under the 
proposed rule change.
Filing Fees Paid by Members
    FINRA Rules 12900(b) and 13900(b) set forth the filing fee schedule 
for members filing a claim, counterclaim, cross claim, or third party 
claim in customer and industry cases, respectively. FINRA proposes to 
increase the member filing fee in 2025 as follows:

[[Page 93723]]



                                                      Filing Fee (Members)--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Amount of claim (exclusive of interest and expenses)    2024 (current)       2025            2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
$.01 to $1,000..........................................            $225            $225            $225            $225            $225            $225
$1,000.01 to $2,500.....................................             350             350             350             350             350             350
$2,500.01 to $5,000.....................................             525             525             525             525             525             525
$5,000.01 to $10,000....................................             750             750             750             750             750             750
$10,000.01 to $25,000...................................           1,050           1,050           1,050           1,050           1,050           1,050
$25,000.01 to $50,000...................................           1,450           1,450           1,450           1,450           1,450           1,450
$50,000.01 to $100,000..................................           1,750           1,750           1,750           1,750           1,750           1,750
$100,000.01 to $500,000.................................           2,125           2,660           2,660           2,660           2,660           2,660
$500,000.01 to $1,000,000...............................           2,650           3,320           3,320           3,320           3,320           3,320
$1,000,000.01 to $5,000,000.............................           3,550           4,440           4,440           4,440           4,440           4,440
Over $5,000,000.........................................           4,200           5,250           5,250           5,250           5,250           5,250
Non-Monetary/Not Specified..............................           1,800           2,250           2,250           2,250           2,250           2,250
--------------------------------------------------------------------------------------------------------------------------------------------------------

Partial Refund of Filing Fee
    If a claim is settled or withdrawn more than 10 days before the 
date of the hearing on the merits, a party paying a filing fee will 
receive a partial refund of the filing fee in the amount specified 
under FINRA Rule 12900(c) for customer cases and FINRA Rule 13900(c) 
for industry cases. FINRA proposes to increase the partial filing fee 
refund in 2025 as follows:

                                                   Partial Filing Fee Refund--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Amount of claim (exclusive of interest and expenses)    2024 (current)       2025            2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
$.01 to $1,000..........................................             $25             $25             $25             $25             $25             $25
$1,000.01 to $2,500.....................................              50              50              50              50              50              50
$2,500.01 to $5,000.....................................             125             125             125             125             125             125
$5,000.01 to $10,000....................................             250             250             250             250             250             250
$10,000.01 to $25,000...................................             300             300             300             300             300             300
$25,000.01 to $50,000...................................             450             450             450             450             450             450
$50,000.01 to $100,000..................................             750             750             750             750             750             750
$100,000.01 to $500,000.................................           1,125           1,410           1,410           1,410           1,410           1,410
$500,000.01 to $1,000,000...............................           1,300           1,625           1,625           1,625           1,625           1,625
$1,000,000.01 to $5,000,000.............................           1,400           1,750           1,750           1,750           1,750           1,750
Over $5,000,000.........................................           1,500           1,875           1,875           1,875           1,875           1,875
Non-Monetary/Not specified..............................           1,200           1,500           1,500           1,500           1,500           1,500
--------------------------------------------------------------------------------------------------------------------------------------------------------

Member Surcharge
    FINRA assesses a surcharge against each member that (a) files a 
claim, counterclaim, cross claim or third party claim under the Codes; 
(b) is named as a respondent in a claim, counterclaim, cross claim, or 
third party claim filed and served under the Codes; or (c) employed, at 
the time the dispute arose, an associated person who is named as a 
respondent in a claim, counterclaim, cross claim, or third party claim 
filed and served under the Codes.
    FINRA Rules 12901 and 13901 set forth the schedule of the member 
surcharge, which is assessed based on the amount of the claim, 
exclusive of interest and expenses. The member is assessed one 
surcharge per arbitration case.\85\ Member surcharges are intended to 
allocate the costs of administering the arbitration case to the firms 
that are involved in those cases. Thus, each member is assessed a 
member surcharge, based on the aggregate claim amount, when it is 
brought into the case, whether through a claim, counterclaim, cross 
claim or third party claim. The member surcharge is the responsibility 
of the member party and cannot be allocated to any other party (``non-
allocable'').
---------------------------------------------------------------------------

    \85\ See FINRA Rules 12901(a)(6) and 13901(f).
---------------------------------------------------------------------------

    FINRA proposes to increase the member surcharge in 2025 as follows:

                                                        Member Surcharge--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Amount of claim (exclusive of interest and expenses)    2024 (current)       2025            2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
$.01 to $5,000..........................................            $150            $165            $165            $165            $165            $165
$5,000.01-$10,000.......................................             325             360             360             360             360             360
$10,000.01-$25,000......................................             450             495             495             495             495             495
$25,000.01-$50,000......................................             750             975             975             975             975             975
$50,000.01-$100,000.....................................           1,100           1,430           1,430           1,430           1,430           1,430
$100,000.01-$250,000....................................           1,700           2,210           2,210           2,210           2,210           2,210
$250,000.01-$500,000....................................           2,025           2,640           2,640           2,640           2,640           2,640
$500,000.01-$1,000,000..................................           2,625           3,420           3,420           3,420           3,420           3,420
$1,000,000.01-$5,000,000................................           3,200           4,800           4,800           4,800           4,800           4,800
$5,000,000.01-$10,000,000...............................           3,850           5,775           5,775           5,775           5,775           5,775

[[Page 93724]]

 
Over $10,000,000........................................           4,325           6,490           6,490           6,490           6,490           6,490
Non-Monetary/Not Specified..............................           2,000           2,600           2,600           2,600           2,600           2,600
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The member surcharge would remain non-allocable under the proposed 
rule change and, therefore, would not result in any additional costs to 
other parties to the arbitration, including customers.
Member Process Fee
    Under the Codes, each member that is a party to an arbitration or 
employed an associated person who is a party to an arbitration in which 
more than $25,000, exclusive of interest and expenses, is in dispute 
must pay a non-refundable process fee.\86\
---------------------------------------------------------------------------

    \86\ See FINRA Rules 12903 and 13903. If a claim amount is 
$25,000 or less, the member would not be assessed any process fees.
---------------------------------------------------------------------------

    FINRA Rules 12903 and 13903 set forth the process fee schedule. 
FINRA assesses the member the applicable process fee when the parties 
are sent the arbitrator lists or notification of the hearing. Like the 
member surcharge, the process fee is non-allocable to other parties to 
the arbitration.\87\
---------------------------------------------------------------------------

    \87\ See FINRA Rules 12903(d) and 13903(d). See also FINRA Rules 
12701(b) and 13701(b).
---------------------------------------------------------------------------

    FINRA proposes to increase the process fee in 2025 as follows:

                                                       Member Process Fee--Proposed Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Amount of claim (exclusive of interest and expenses)    2024 (current)       2025            2026            2027            2028            2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
$.01-$25,000............................................              $0              $0              $0              $0              $0              $0
$25,000.01-$50,000......................................           1,750           2,275           2,275           2,275           2,275           2,275
$50,000.01-$100,000.....................................           2,250           2,925           2,925           2,925           2,925           2,925
$100,000.01-$250,000....................................           3,250           4,225           4,225           4,225           4,225           4,225
$250,000.01-$500,000....................................           3,875           5,040           5,040           5,040           5,040           5,040
$500,000.01-$1,000,000..................................           5,225           6,800           6,800           6,800           6,800           6,800
$1,000,000.01-$5,000,000................................           6,375           9,570           9,570           9,570           9,570           9,570
$5,000,000.01-$10,000,000...............................           7,050          10,575          10,575          10,575          10,575          10,575
Over $10,000,000........................................           7,300          10,950          10,950          10,950          10,950          10,950
Non-Monetary/Not Specified..............................           3,850           5,005           5,005           5,005           5,005           5,005
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The member process fee would remain non-allocable under the 
proposed rule change and, therefore, would not result in any additional 
costs to other parties to the arbitration, including customers.
Regulation T and Exchange Act Rule 15c3-3(n) Requests for Extension of 
Time Fee
    Section 8 of Schedule A to the FINRA By-Laws governs the service 
charge for each extension of time request pursuant to Sections 220.4(c) 
and 220.8(d) of Regulation T \88\ of the Board of Governors of the 
Federal Reserve System (``Regulation T'') and Exchange Act Rule 15c3-
3(n).\89\ FINRA has not increased this fee since 2006.\90\ FINRA 
proposes to raise the fee in 2025 as follows:
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    \88\ 12 CFR 220.4(c) and 220.8(d), respectively.
    \89\ 17 CFR 240.15c3-3.
    \90\ See Securities Exchange Act Release No. 53982 (June 14, 
2006), 71 FR 35720 (June 21, 2006) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-2006-063). See also Notice to 
Members 06-30 (June 2006).

                                              Regulation T and Exchange Act Rule 15c3-3(n) Requests for Extension of Time--Proposed Implementation
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
         2024 (current)                        2025                            2026                            2027                            2028                            2029
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
$4 per request.................  $8 per request.................  $8 per request................  $8 per request................  $8 per request................  $8 per request.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on current annual extension filing volumes, the current fee 
does not cover the estimated personnel and technology costs necessary 
to process extension requests. The proposal to increase the fee would 
recover some of those costs. When the proposed service charge for 
Regulation T and Exchange Act Rule 15c3-3(n) requests for extension of 
time increases are fully implemented, they are designed to generate an 
additional $640,000 in annual revenue by 2029.
    Further, to streamline Section 8, FINRA proposes to eliminate 
current paragraph (a), which is not needed in light of the specific fee 
amount language set forth in paragraph (b) of that Section. The 
proposed rule change would also make minor technical corrections. As 
such, the proposed rule change would amend Section 8 to read: ``The 
service charge for processing each initial extension of time request 
and for all subsequent extension of time requests (1) involving the 
same transaction under Regulation T or (2) involving an extension of 
time previously granted pursuant to SEA Rule 15c3-3(n) shall be $8.00 
per request.''
Proposed Conforming Changes To Select Funding Portal Member Fees
    Section 15 of Schedule A to the FINRA By-Laws sets forth the fees 
that

[[Page 93725]]

govern funding portals that are FINRA members. These fees became 
effective in 2016. At the time they were proposed, the funding portal 
fees related to eligibility proceedings and fingerprint processing, 
among others, were ``identical to those charged to broker-dealer 
members.'' \91\ Though amendments to the fees charged to broker-dealer 
members related to eligibility proceedings and fingerprint processing 
have since occurred, those same fees for funding portal members have 
not been amended, and thus, are no longer aligned.
---------------------------------------------------------------------------

    \91\ See Securities Exchange Act Release No. 76238 (October 22, 
2015), 80 FR 66342 (October 28, 2015) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2015-041).
---------------------------------------------------------------------------

    This proposed rule change would amend Section 15(f)(1) and Section 
15(g) to conform the fees for members that are funding portals with the 
same fees that are charged to broker-dealer members. Specifically, in 
2025, the proposed rule change would raise the funding portal member 
fee for filing an application to initiate eligibility proceedings from 
$1,500 to $5,000 to conform with the same fee that currently applies to 
broker-dealer members. Also in 2025, the proposed rule change would 
raise the funding portal member fee for fingerprints submitted 
electronically from $15 to $20 to conform with the same fee that 
currently applies to broker-dealer members.\92\
---------------------------------------------------------------------------

    \92\ See supra note 54.
---------------------------------------------------------------------------

    FINRA has filed the proposed rule change for immediate 
effectiveness. Implementation of the proposed rule change will be 
phased in gradually over a five-year period beginning on January 1, 
2025, with full implementation of all proposed fee changes by 2029.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\93\ 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 further believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act, which 
requires, among other things, that FINRA rules are not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.\94\
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78o-3(b)(5).
    \94\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

Reasonableness of the Proposed Fees
    As discussed above, FINRA's longstanding approach to funding 
employs a variety of fees designed to meet FINRA's overall costs. As a 
not-for-profit SRO with a diverse membership, FINRA designs its mix of 
fees to seek recovery of its overall regulatory costs in a manner that 
is fair, reasonable, and equitably allocated among FINRA's members and 
users of FINRA's services. As FINRA has explained in the past, it is 
not feasible to associate a direct affiliated revenue stream for each 
of its programs (for example, FINRA collects no revenues in connection 
with its examinations of members), and thus numerous operations and 
services must be funded by other revenue sources, which include both 
core regulatory fees and other use-based fees. FINRA continues to 
believe that its overall Commission-approved cost-based pricing 
structure is reasonable, achieves general equity across its membership, 
and correlates fees with those firm components that drive FINRA's 
regulatory costs to the extent feasible.
    The reasonableness of this proposal is reinforced by three key cost 
discipline mechanisms: oversight, transparency, and rebates.
    First, FINRA's funding and operations are subject to several layers 
of oversight, including by the FINRA Board of Governors \95\ and the 
Commission. As discussed in FINRA's 2024 annual budget summary, FINRA's 
efforts to manage its expenses responsibly while appropriately funding 
its mission includes Board oversight of its annual budget, 
compensation, and capital initiatives. This oversight is spearheaded by 
key Board committees (such as its Finance, Operations and Technology 
Committee), and includes requirements for Board or relevant Committee 
approval with respect to various financial matters, such as the annual 
budget, the allocation and use of fine monies, the incurring of any 
expenses above certain pre-established thresholds, the amount of any 
annual merit or incentive compensation, and the compensation of certain 
key employees. The Board also relies on expert external consultants 
where appropriate. Notably, this Board oversight complements various 
staff level controls over routine costs, including expense policies 
that are enforced with systemic checks and escalating management 
approval requirements for expense requests, with the effectiveness of 
these policies further subject to review by FINRA's Internal Audit 
Department.
---------------------------------------------------------------------------

    \95\ The FINRA Board of Governors is composed of a mix of public 
and industry representatives and uses its diverse expertise to 
oversee management in the administration of FINRA's affairs and the 
promotion of FINRA's welfare, objectives, and its public service 
mission to protect investors and uphold the integrity of markets.
---------------------------------------------------------------------------

    FINRA is also extensively supervised by the Commission throughout 
the year. The SEC's Division of Examinations maintains dedicated staff 
as part of its FINRA and Securities Industry Oversight (``FSIO'') 
program who are devoted exclusively to overseeing FINRA and the MSRB--
the two not-for-profit regulatory SROs--including with respect to 
FINRA's overall financial management and the adequacy of the resources 
devoted to its regulatory programs. In addition, rules or fees adopted 
by FINRA are subject to review by the Commission's Division of Trading 
and Markets. The Commission's oversight of FINRA, in turn, is itself 
subject to Congressional oversight and evaluation by the United States 
Government Accountability Office (``GAO'') every three years. By 
statute, the GAO evaluates ten specific aspects of the Commission's 
oversight of FINRA, including FINRA governance, executive compensation, 
and the use of funding to support FINRA's mission, including the 
methods and sufficiency of funding, how FINRA invests funds pending 
use, and the impact of these aspects on FINRA's regulatory enforcement. 
The GAO reports the results of its evaluation to Congress.\96\
---------------------------------------------------------------------------

    \96\ See GAO Report to Congressional Committees (November 2023), 
available at https://www.gao.gov/assets/d24106578.pdf.
---------------------------------------------------------------------------

    Second, FINRA's commitment to reasonable funding in support of its 
mission is further reinforced by the transparency it has committed to 
provide on an ongoing basis--pursuant to its Guiding Principles--
regarding its financial performance. Each year, FINRA publishes an 
extensive Annual Financial Report regarding its operations, prepared in 
accordance with GAAP. In addition, FINRA publishes annual reports on 
its budget and its use of fine monies. FINRA's Board also reviews and 
affirms its Financial Guiding Principles bi-annually and re-publishes 
these as well. FINRA also files with the IRS the Form 990 mandated for 
all not-for-profit organizations. Collectively, these reports provide 
extensive and comprehensive information regarding FINRA's policies and 
operations with respect to its budgets, revenues, costs, financial 
reserves, use of fine monies, capital and strategic initiatives, and 
compensation of senior executives, among other information. FINRA 
maintains a dedicated web page that consolidates its

[[Page 93726]]

annual reports in a readily accessible place.\97\
---------------------------------------------------------------------------

    \97\ See FINRA Financial Reports and Policies, available at 
https://www.finra.org/about/annual-reports.
---------------------------------------------------------------------------

    Third, as a not-for-profit organization, FINRA is committed to 
aligning its revenues with its mission-driven costs. If revenues exceed 
costs on a sustained basis, and FINRA's reserves are sustained 
appropriately, FINRA will assess the merit of providing rebates. This 
approach helps ensure that the revenues from these proposed fee changes 
will not exceed FINRA's reasonable regulatory costs and reserve needs 
on an ongoing basis. As discussed above, FINRA will continue to be 
guided by its historical approach to rebates if its revenue in future 
years exceeds its costs and reserves needs by a material amount.
    Together, these mechanisms help ensure the ongoing reasonableness 
of FINRA's costs and the level of fees assessed to support those costs. 
The effectiveness of these mechanisms is demonstrated by FINRA's 
experience over the last decade, during which, FINRA was able to 
undertake expanding regulatory responsibilities while limiting 
cumulative cost growth to a rate that was lower than inflation and cost 
growth experienced by members.
The Proposed Fees Are Equitable and Not Unfairly Discriminatory
    As discussed throughout this filing, this proposed rule change is 
designed to increase the fees FINRA relies on to fund its regulatory 
mission in a manner that preserves an equitable and not unfairly 
discriminatory fee allocation among FINRA members and users of FINRA 
services. Notably, through this proposed rule change, FINRA is seeking 
to preserve the carefully calibrated mix of core regulatory fees and 
select use-based fees to fund its regulatory mission that the 
Commission previously approved as equitably allocated among its large 
and diverse membership. In addition, based on feedback from members of 
FINRA's advisory committees and other industry consultations that 
emphasized the importance of advance notice and clarity of any fee 
increases for budget planning, implementation of the proposed rule 
change would take place over several years, with some fees going into 
effect in 2025, others implemented in 2026 or later, and some phased in 
over several years between 2025 and 2029.
    The fees included in this proposed rule change were selected to 
address the impending funding deficit by raising fees in a way that 
maintains proportionality across members with minimal distributional 
impacts across firm sizes and business models. FINRA projects an 
aggregate dispersion level for the rate of increase realized across 
members to be 2.3% once the proposal is fully implemented.\98\ In other 
words, in choosing among options according to the principles described 
above, FINRA also sought to have minimal impact on the distribution of 
fee rate changes across members by firm size and business model, as 
measured by the standard deviation of the rate of the fee increases. 
Given this limited distributional impact, FINRA believes the proposed 
rule change will preserve the same equitable and not unfairly 
discriminatory fee allocation that has long served as the foundation 
for FINRA's funding model and has been approved by the Commission.
---------------------------------------------------------------------------

    \98\ See generally Exhibit 3, Charts 7 through 10.
---------------------------------------------------------------------------

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.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the regulatory need for the proposed rule change, its 
potential economic impacts, including anticipated costs, benefits, and 
distributional and competitive effects, relative to the current 
baseline, and the alternatives FINRA considered in assessing how best 
to meet FINRA's regulatory objectives.
Regulatory Need
    Based on an analysis of its funding sources, anticipated costs, and 
expanding responsibilities, FINRA has determined that it will require 
additional revenues to continue to effectively meet its regulatory 
obligations. FINRA anticipates that the absence of stable funding at 
the levels proposed here may have material negative impacts on its 
regulatory program, weakening investor protections. Specifically, FINRA 
may be unable to maintain its current capabilities at their current 
standards or respond to a significant market event requiring 
unanticipated funding. In the absence of a fee increase, eventually 
FINRA may not be able to hire and retain staff with the appropriate 
expertise to conduct its regulatory activities (including examinations, 
market surveillance and investigations, enforcement, regulatory policy 
and rulemaking, qualification examinations and credentialing, and 
providing transparency for markets, members and registered persons), or 
make the necessary investments in the technology needed to support 
these activities.
Economic Baseline
    The baseline for this proposed rule change includes FINRA's 
historical costs and revenues, the current schedule of fees assessed by 
FINRA, and the direct and indirect allocation of those fees across 
members, associated persons, third parties, and investors. The baseline 
also encompasses the scope of activities conducted by FINRA to meet its 
mission, and FINRA's current ability to address changing market 
activities and conditions through investment in staff, infrastructure, 
and technology.
    As a not-for-profit organization, FINRA targets break-even cash 
flows that allow it to appropriately fund its regulatory mission, and 
maintains a reasonable financial reserve necessary to meet 
unanticipated circumstances. Between 2013 and 2023, FINRA's cost 
increase CAGR was 3.5%, or 41% over the entire period.\99\ Over the 
same period, members' reported cost increase CAGR was 8.7%, or a total 
increase of 129%.\100\
---------------------------------------------------------------------------

    \99\ Based on figures drawn from FINRA's public Annual Financial 
Reports, which include FINRA subsidiaries.
    \100\ Based on FOCUS reports.
---------------------------------------------------------------------------

    At the same time, capital markets have grown in size, complexity, 
and retail investor participation, in part, through an increase in the 
number of self-directed accounts and rapid technological changes. 
Partly in response to these changes, FINRA's regulatory 
responsibilities have, and continue to, grow as described above. There 
have been substantial increases in equity and options trading volume 
(respectively, over 70% and 160% increases since 2013) and in corporate 
and agency bond trading volume (over 230% increase since 2013). There 
has also been growth in the complexity of the securities markets (the 
number of registered national securities exchanges significantly 
increased since 2013, from 14 to 24 \101\) and trading of new and 
evolving products, such as security-based swaps and securities with 
crypto asset components, has increased. These changes have led to a 
more complex

[[Page 93727]]

trading environment. This, in turn, has required enhancements to 
oversight by FINRA staff. In addition, as discussed above, FINRA has 
made substantial investments in its surveillance and examinations 
programs in response to new and amended SEC rules.
---------------------------------------------------------------------------

    \101\ See https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml. Additional registered national 
securities exchanges may contribute to more complex order lifecycles 
and trade reporting scenarios.
---------------------------------------------------------------------------

    Over the past several years, FINRA has observed changes in the 
number of registered persons and members. Between 2013 and 2023, the 
number of registered persons was essentially unchanged (627,468 and 
628,392, respectively).\102\ In contrast, over the same period, the 
number of members decreased from 4,146 to 3,298, a decrease of 
approximately 20%.\103\
---------------------------------------------------------------------------

    \102\ See Table 1.2.2 of the FINRA Industry Snapshot, available 
at https://www.finra.org/media-center/reports-studies/2024-industry-snapshot. As FINRA notes when it publishes industry snapshots, FINRA 
regularly updates historical data series due to data revisions by 
reporting firms.
    \103\ See Table 2.2.3 of the FINRA Industry Snapshot.
---------------------------------------------------------------------------

    FINRA believes that the number of registered persons remained 
fairly constant because persons from exiting members migrated to other 
members, requiring FINRA regulatory resources to shift accordingly. 
FINRA staff's quarterly reviews of departing firms find that on average 
about 75% of their associated persons remain registered after their 
firm exits the securities business, either by remaining with an 
affiliate firm or moving to a new firm. In the last quarter of 2023, 
the retention rate was closer to 90%. The difference in the decline in 
the number of members versus registered persons is also related to the 
fact that most exiting firms are small,\104\ such that their departure 
has relatively less impact on the total number of registered persons.
---------------------------------------------------------------------------

    \104\ FINRA By-laws define the size of a member firm by the 
number of associated registered representative as the following: 
small--150 or fewer registered representatives; mid-size--151 to 500 
registered representatives; and large--more than 500 registered 
representatives. A subgroup of the small firms are known as micro 
firms, firms with 10 or fewer registered representatives.
---------------------------------------------------------------------------

    Despite its increased responsibilities and changes in FINRA's own 
oversight by the SEC, FINRA achieved relatively low expense growth 
through a variety of cost-saving mechanisms.\105\ Staffing generates 
the majority of FINRA's expenses and was relatively flat until recent 
years, commensurate with increases in FINRA's responsibilities. As 
discussed above, since 2013, FINRA's total compensation costs rose by 
31% on a cumulative basis as compared with a 50% increase for the 
average U.S. financial services employee.\106\ In aggregate, since 
2013, FINRA's expenses have grown less rapidly than those of members, 
with the ratio of member expenses to FINRA expenses gradually 
increasing over time. Chart 1, attached in Exhibit 3, presents these 
findings.\107\
---------------------------------------------------------------------------

    \105\ As discussed above, cost savings have been accomplished in 
recent years through expense reduction initiatives, including 
conducting a comprehensive efficiency review of FINRA's core 
business lines; establishing a framework for improving measurement 
of FINRA's key objectives and results; voluntary retirement/
incentive programs in 2020 and 2024; and strategic reductions in 
FINRA's corporate real estate footprint.
    \106\ See supra note 22.
    \107\ As with Chart 1, all of the charts discussed below are 
attached in Exhibit 3, available on FINRA's website at http://www.finra.org.
---------------------------------------------------------------------------

    Over the period between 2013 and 2023, FINRA's total regulatory and 
use-based fee CAGR was 3.9%. These revenues remained effectively flat 
from 2013 through 2019 due to a limited number of fee increases. A 
previously implemented fee increase was phased in between 2022 to 2024 
and has resulted in increased levels of operating revenue. However, 
FINRA projects that increases in revenue will either remain flat or 
slightly decrease after 2024.
    Chart 2 provides a view of actual revenues and expenses for 2013 to 
2023 and anticipated revenue and expenses for 2024 to 2029 if no 
changes to the fee structure are made.\108\ Chart 2 also includes 
historical and projected ``excess reserves.'' FINRA maintains a reserve 
fund as part of its funding framework, and excess reserves are reserves 
in excess of the minimum determined by the FINRA Board of Governors as 
appropriate, which is one year of expenditures.\109\ FINRA has 
strategically relied on its reserves to help fund operating deficits in 
the past and will continue to strategically draw on its reserves where 
consistent with the Guiding Principles. Chart 2 illustrates, however, 
that without a fee increase, FINRA is projected to exhaust excess 
reserves and deplete its reserve balance below minimum target levels in 
the coming years.
---------------------------------------------------------------------------

    \108\ The revenues and expenses presented in Chart 2 in terms of 
Cash Flow Sources and Cash Flow Uses--both historical and 
projected--do not include subsidiaries other than FINRA Regulation 
and FINRA Dispute Resolution, which was merged into FINRA Regulation 
at the end of 2015. Cash Flow Sources includes Operating Revenues, 
Investment Returns and Fines. Cash Flow Uses includes Operating 
Expenses and Capital Initiatives.
    \109\ See supra note 12.
---------------------------------------------------------------------------

    Although FINRA's revenues would remain near current levels without 
any changes in the fee structure, FINRA reasonably anticipates that its 
future expenses will continue to grow at a pace of 5.9% on average per 
year based on the compounding impact of annual wage inflation, 
technology costs, and future capital initiatives.\110\ In this 
scenario, revenues would increasingly fall behind anticipated costs. 
While FINRA's reserves may continue to cover the shortfall in the near-
term, the reserves will reach their minimum prudent level of one year 
of operating costs within three to four years based on current 
projections if no corrective action is taken.
---------------------------------------------------------------------------

    \110\ As discussed above, FINRA has made reasonably conservative 
assumptions using a variety of information points, including 
historical data and anticipated trends. See supra note 15. This 
estimate is based on the following assumptions for FINRA and 
excludes the independent budgeting of all of FINRA's active 
subsidiaries other than FINRA Regulation--specifically, FINRA CAT, 
LLC and the FINRA Investor Education Foundation: (1) wage inflation 
at an annual rate between 4% and 6%, consistent with the financial 
industry over the last five years; (2) technology expense growth: 
capital investments seeking long-term efficiency gains for both 
FINRA and the industry, rising cloud hosting costs driven by volume 
increases, maintaining technology labor competitiveness, and ongoing 
disaster recovery and cybersecurity requirements; and (3) rise in 
regulatory efforts and associated costs for FINRA's regulatory 
programs.
---------------------------------------------------------------------------

    As described above, FINRA funds its regulatory and other related 
activities through a combination of regulatory fees and use-based fees. 
GIA, TAF, PA and Branch Office Fees, taken together, represent 
approximately 69% of 2023 revenues, while use-based fees represent 
approximately 31% of 2023 revenues. The specific fees that would be 
increased under this proposal represent approximately 89% of 2023 
revenues.\111\
---------------------------------------------------------------------------

    \111\ Following the implementation of the proposed rule change, 
GIA, TAF, PA and Branch Office Fees, together, would represent 
approximately 72% of revenues, while use-based fees would represent 
approximately 28%.
---------------------------------------------------------------------------

    All core regulatory and use-based fees mentioned above are assessed 
directly to members. FINRA understands that many members shift at least 
some of the fees to other parties. For instance, it is regular practice 
among clearing and trading firms to ``pass-through'' the TAF to the 
underlying firm executing the trade. Further, FINRA understands that 
the executing firms commonly pass the TAF directly on to their 
customers submitting orders. Typically, TAF fees are reflected on the 
confirmation statement received by customers.\112\
---------------------------------------------------------------------------

    \112\ FINRA conducted a study of a sample of members, which 
included approximately 25 retail investor focused broker-dealers and 
approximately 15 institutional investor focused broker-dealers, to 
better understand practices of TAF pass through. The research found 
that the majority of the retail focused firms did pass through the 
TAF to their customers. FINRA does not know the full extent of this 
practice across all members.
---------------------------------------------------------------------------

    Similarly, FINRA understands that many firms regularly pass-through 
to registered persons assessments such as the PA, registration fees, 
and qualification examination fees. FINRA understands that there may be

[[Page 93728]]

differences in this practice across firms depending on each firms' 
business model. Competitive markets for the provision of brokerage and 
related financial intermediation services, along with difficulty in 
allocating certain fees to specific transactions, can limit the extent 
to which these fees can be passed-through.
    Core regulatory fees are calibrated so that larger, more active and 
more geographically dispersed members are assessed higher fees, 
reflecting regulatory resource allocation. Likewise, the use-based fees 
that are part of core regulatory fees are designed to capture some of 
the costs associated with core regulatory activities in addition to the 
direct and indirect costs of the associated services. For example, 
FINRA believes it is appropriate that registration and qualification 
examination fees help defray the costs of regulating registered persons 
because members employing more persons require more regulatory effort 
on FINRA's part. This approach is consistent with a structure where the 
fees paid increase with the size of the firm's revenues (GIA) and the 
amount of trading activity it conducts (TAF). In addition, core 
regulatory fees tend to be correlated with member size and structure. 
As such, core regulatory fees are designed cohesively and 
comprehensively such that they should be evaluated in aggregate and not 
on a fee-by-fee or service-by-service basis.
    The fee structure is also designed, purposefully, to account for 
diversity in firm size. Compliance and regulatory oversight naturally 
represent a larger relative cost to small firms. Because FINRA wants to 
prevent regulatory costs from either creating a barrier to entry for 
small firms, or over-burdening existing small firms, the current fee 
structure includes a level of cross-subsidization by larger firms.
    FINRA believes that this practice supports two objectives. First, 
it is important that retail investors have access to diverse types of 
financial services intermediaries, including members of varying size. 
For example, some investors may prefer to engage registered persons 
associated with smaller firms. Second, the extent to which firms 
benefit from well-regulated markets is relative to firm size. Under 
well-regulated markets, investors are more willing to trust financial 
intermediaries because they are confident that they are treated fairly 
in their access to securities markets and products. Greater 
participation in the financial markets by investors allows firms to 
grow larger and become more diversified, leading to cost savings and 
reduced risk through economies of scale and scope. The concentration in 
both retail and institutional investor activity at larger firms 
suggests that larger firms reap substantial benefits from strong 
regulation and should therefore provide a substantial portion of the 
fees that support this regulation. At the same time, the impact of 
widespread misconduct at a larger firm may impair investor confidence 
more broadly than similar misconduct at a smaller firm. This lends 
further support to the practice of assessing higher fees on larger 
firms.
    Chart 3 presents the distribution in 2024 of FINRA's regulatory and 
use-based fee revenue and the proportion of FINRA's examination time, 
along with the proportion of firms and registered persons, by firm-size 
category as defined in the FINRA By-Laws.\113\ Small firms, including 
micro firms, account for 89% of the firms in the industry, 10% of total 
registered persons, 57% of FINRA's total firm examination time, and 12% 
of FINRA's revenues. Large firms, conversely, represent less than 5% of 
firms, over 80% of registered persons, 32% of FINRA's firm examination 
effort, and approximately 67% of FINRA's revenues. The remaining 
portions of firm examination time and revenues are attributable to mid-
size firms.
---------------------------------------------------------------------------

    \113\ The revenue in Charts 3-10 excludes Corporate Financing 
fees, which are generally passed through to issuers, and a portion 
of DRS fees that are paid directly by customers. See supra note 31. 
The revenue in these charts also excludes MAP fees, which are 
incurred irregularly. See also supra note 8 and accompanying text.
---------------------------------------------------------------------------

    Chart 4 presents the same measures as in Chart 3 by the business 
model category. The categories of capital markets and retail firms 
account for 80% of the firms in the industry, 72% of total registered 
persons, 55% of FINRA's total examination time, and 33% of FINRA's 
regulatory and use-based fee revenues.\114\ The category of diversified 
firms, including most of the largest firms, accounts for approximately 
5% of firms in the industry, almost 25% of total registered persons, 
over 27% of FINRA's total examination time, and 44% of FINRA's 
revenues. The remaining portions are attributable to the category of 
trading firms and the category of clearing firms.
---------------------------------------------------------------------------

    \114\ See supra note 113. Here, business model represents the 
primary type of services provided by the member firm.
---------------------------------------------------------------------------

Economic Impact
    FINRA's fee proposal is intended to ensure that FINRA can continue 
to meet its mission of promoting investor protection and market 
integrity in a manner that facilitates vibrant capital markets. This 
proposed rule change preserves FINRA's ability to be a robust and 
effective SRO, protecting investors from manipulation, exploitation, 
and other harms. Adequate funding allows FINRA to develop regulatory 
approaches that are effective and efficient, and to revise its rules 
through, among other ways, its robust retrospective review process. 
Through appropriate funding, FINRA will be better situated to adapt to 
changing markets, market behaviors, and expanding responsibilities. A 
stable and reliable funding model also permits members to better 
anticipate and plan for FINRA's fees. These benefits accrue to current 
and prospective investors, firms, issuers, and others participating in 
financial intermediation.
    FINRA notes that academic literature has provided evidence of the 
linkage between strong regulation in securities markets and improved 
outcomes, including more trading, lower transaction costs, and greater 
investor participation in the markets.\115\ Bruggemann, et al. [2018] 
study the impact of differences in state regulation on OTC stocks. They 
find that firms issuing in the OTC market subject to stricter 
regulation are more liquid and are subject to lower ``crash risk.'' 
Cazier, et al. [2023] examine the effect of the SEC's initiative to 
prevent fraud in OTC markets by suspending inactive shell companies 
that could be targeted by market manipulators. The authors find that 
these suspensions are associated with fraud deterrence among other OTC 
firms operating within the same regulatory jurisdiction as the 
suspended firm. Silvers [2016] studies the impact of SEC enforcement 
actions against foreign cross-listed issuers. He shows evidence that 
other cross-listed issuers (not cited by the SEC) experienced positive 
returns, suggesting that increased regulatory attention increases 
valuation. Silvers [2020] and Lang et al.

[[Page 93729]]

[2020] further show that cross-border cooperation between securities 
regulators reduces the cost of liquidity provision and increases cross-
border investment in the capital markets of participating countries. 
Finally, Christensen et al. [2019] and Aghanya et al. [2020] study the 
impact of the introduction of the European Union's Market Abuse 
Directive and MiFID. These studies conclude that these initiatives, 
designed to enhance investor protections, have led to higher household 
ownership of equities, higher liquidity, and higher stock price 
informativeness.
---------------------------------------------------------------------------

    \115\ See, e.g., U. Bruggemann, A. Kaul, C. Leuz & I. Werner, 
The Twilight Zone: OTC Regulatory Regimes and Market Quality, 31(3) 
The Review of Financial Studies, 898-942 (2018); R. Cazier, J. Huang 
& F. Zhou, Regulatory Spillover Effects in OTC Markets, Review of 
Accounting Studies, 1-33 (2023); Roger Silvers, The Valuation Impact 
of SEC Enforcement Actions on Nontarget Foreign Firms, 54 (1) 
Journal of Accounting Research, 187-234 (2016); Roger Silvers, 
Cross-Border Cooperation between Securities Regulators, 69 (2-3) 
Journal of Accounting and Economics, 101301 (2020); M. Lang, M. 
Maffett, J.D. Omartian & R. Silvers, Regulatory Cooperation and 
Foreign Portfolio Investment, 138 (1) Journal of Financial Economics 
138-158 (2020); H. Christensen, M. Maffett & L. Vollon, Securities 
Regulation, Household Equity Ownership, and Trust in the Stock 
Market, 24 (3) Review of Accounting Studies, 824-859 (2019); and D. 
Aghanya, V. Agarwal & S. Poshakwale. Market in Financial Instruments 
Directive (MiFID), Stock Price Informativeness and Liquidity, 113 
Journal of Banking & Finance, 105730 (2020).
---------------------------------------------------------------------------

    The proposed rule change would implement fee changes that would 
maintain the current distribution of total fees allocated across 
members by size and business model. Based on FINRA's projections of fee 
increases from 2024 to 2029, approximately 67% of the fee increases 
would be borne by large firms, 22% by mid-size firms, 9% by small 
firms, 1% by micro firms and the remaining 1% by non-members.\116\
---------------------------------------------------------------------------

    \116\ The firm size categories are defined above, see supra note 
104.
---------------------------------------------------------------------------

    Chart 5 describes the proportion of regulatory and use-based fees 
anticipated to be collected under the proposed rule change across firm 
size categories during the period from 2024 through 2029.\117\ In each 
year, 66%-68% of the fee is expected to be borne by large firms, 16%-
17% by mid-size firms, 11%-12% by small firms, approximately 1% by 
micro firms, and 3-4% by non-members. Therefore, the overall allocation 
of fees by firm size is expected to remain relatively unchanged with 
the implementation of the increase in fees.
---------------------------------------------------------------------------

    \117\ See supra note 113.
---------------------------------------------------------------------------

    Chart 6 describes the proportion of regulatory and use-based fees 
anticipated to be collected across firm business models during the 
period from 2024 through 2029.\118\ In each year, approximately 70% of 
the fees are expected to be borne by diversified and retail firms, with 
the remaining fees distributed relatively evenly across trading, 
capital markets, and clearing firms. As with FINRA's analysis of the 
proposed fee increases by firm size, the chart demonstrates that the 
overall allocation by firm business models is expected to remain 
unchanged with the implementation of the increase in fees.
---------------------------------------------------------------------------

    \118\ See supra note 113.
---------------------------------------------------------------------------

    Taken together, these charts indicate that the proposed fee 
increases are designed to allocate the growth in fees in an equitable 
manner, all else held equal, by maintaining a similar allocation of 
fees across firm sizes and business models, both overall and year-by-
year.
    As discussed, while potentially material, FINRA fees represent a 
small dollar amount relative to industry activity. Since 2013, as a 
percentage of member revenue, FINRA's total fees have ranged between 
0.2% and 0.4%, with an average of 0.30%. Under the assumption that 
members' revenues resume growth at a level commensurate with recent 
history,\119\ FINRA's fees would be 0.31% percent by 2029.\120\ This 
share of member revenue is close to the historical average of 0.30%.
---------------------------------------------------------------------------

    \119\ This 2029 industry revenue projection is based on 
historical FOCUS revenue growth of 8.5% (2013-2023).
    \120\ See supra note 33 and accompanying text.
---------------------------------------------------------------------------

    The amount of the fee increase borne by members depends on the 
extent to which they shift the burden of these fees to their associated 
persons and customers. As discussed above, FINRA understands that of 
the fees addressed by this proposal, the fee most likely to be passed 
through to customers is TAF, which is directly tied to customer trading 
activities. Despite the pass-through, FINRA believes the proposed TAF 
increase would not significantly affect customer trading behavior as 
TAF represents a small proportion of the average value of customer 
transactions. In 2023, TAF per share traded was 0.031 basis points 
(0.00031%) of the average price of the traded shares. When the new 
rates are fully implemented in 2029, TAF per share traded would be 
approximately 0.058 basis points of the average price of traded 
shares.\121\
---------------------------------------------------------------------------

    \121\ The average share price estimate is based on the number of 
shares and dollar trading volume from CBOE. See https://www.cboe.com/data_and_access_solutions for details.
---------------------------------------------------------------------------

    To better understand the impact of the proposed fee increases 
across members within each firm size category, FINRA analyzed the 
expected distribution of fee increases for all existing firms under the 
proposed fee structure, based on the expected rate of dispersion. 
Dispersion is a way to compare the anticipated growth rate in fees 
across a range of firms. Lower dispersion is associated with a higher 
degree of consistency in terms of the impact of the proposed fee 
increases and can be interpreted as more firms in a given group 
experiencing similar rates of growth. By seeking to limit dispersion, 
the proposal is effectively limiting the potential for inequitable 
treatment across members. This approach also reduces the potential for 
the proposed fee increase to create unintended impacts on the provision 
of financial services by members and the business models adopted by 
them.
    FINRA's analysis examines the level of dispersion based on the CAGR 
of the expected fee increase. CAGR is measured in this analysis 
relative to FINRA's projection of total fees in 2024.\122\ CAGR 
provides a standard metric to compare the relative impact of the fee 
increases within and across subgroups. Because the number of registered 
persons, trading and other business activities, and resulting aggregate 
fee dollar amounts vary significantly across firms and firm sizes, 
benchmarking to CAGR permits FINRA to closely compare the magnitude of 
the distribution across firms.
---------------------------------------------------------------------------

    \122\ We exclude firms that are not assessed GIA in the base 
year from CAGR distribution analysis. Since GIA in the base year 
drives the denominator of the CAGR formula, firms that are not 
assessed GIA would have inflated CAGRs by construction. Therefore, 
we exclude these firms to ensure that the tails of our distribution 
reflect a more accurate measure of fee growth.
---------------------------------------------------------------------------

    As discussed, implementation of the proposed rule change would take 
place over several years, with a minority of fees going into effect in 
2025, most fees implemented in 2026 or later, and several fees phased 
in over several years between 2025 and 2029. Due to the variability in 
when fees are implemented, and whether they are implemented at one time 
or phased in, FINRA believes that considering dispersion by firm size 
category over the five-year period is more useful than on an annual 
basis.
    Charts 7 through 10 provide a view on the distribution of fee 
increases within each firm size category. These charts also report the 
median increase in FINRA fees that are the subject of this proposal 
over the full period from 2025 through 2029 by firm size. Within the 
charts, each of the four central bars represents one standard deviation 
from the median, so that the two most central dark blue bars together 
would theoretically represent approximately 67% of all firms evaluated 
(plus or minus one standard deviation) and approximately 95% of firms 
evaluated should be represented under the four most central dark blue 
and mid-blue bars (plus or minus two standard deviations) presented in 
the charts.
    While it is not feasible to eliminate the possibility that some 
members will experience a rate of fee growth that is outside of the two 
standard deviation range, FINRA sought to limit the number of firms 
falling into this category when structuring this proposal. These charts 
demonstrate that the proposal significantly limits the number of firms 
that fall beyond two standard deviations from the median increase. In 
particular, the proposal limits those

[[Page 93730]]

firms that would be expected to experience a materially higher fee 
increase than the median (as defined by two standard deviations). When 
considering all the fees in this proposal, FINRA estimates that fewer 
than 2.5% of members would experience a fee increase greater than two 
standard deviations from the median. When only core regulatory fees are 
considered (i.e., excluding select use-based fees that only impact the 
users of those programs or services) fewer than 1% of firms would 
experience a fee increase greater than two standard deviations from the 
median.\123\
---------------------------------------------------------------------------

    \123\ As discussed above, the select use-based fees include 
Corporate Financing Private Placement Review; Corporate Financing 
Public Offering Review; Advertising Regulation Review; DRS 
Arbitration; and Regulation T and Exchange Act Rule 15c3-3(n) 
Requests for Extension of Time. See supra note 24.
---------------------------------------------------------------------------

    Based on this analysis, FINRA concludes the following:
     For micro firms, the median firm would anticipate an 
annual increase of 3.4%, translating to a dollar increase of $625. 
Approximately three-quarters of these firms would experience an annual 
increase between 1.4% and 5.4% between 2025 and 2029. Holding revenues 
constant at 2024 levels, total regulatory and use-based fees would 
increase from 0.26% to 0.31% of FOCUS reported revenues on average. 
This group includes 1,538 firms and represents 46.5% of all FINRA 
members.
     For other small firms, the median firm would anticipate an 
annual increase of 3.9%, translating to a dollar increase of 
approximately $4,135. Approximately 80% of these firms would experience 
an annual increase in fees between 1.3% and 6.4% between 2025 and 2029. 
Holding revenues constant at 2024 levels, total regulatory and use-
based fees would increase from 0.23% to 0.29% of FOCUS reported 
revenues on average. This group includes 1,414 firms and represents 
42.8% of all FINRA members.
     For mid-size firms, the median firm would anticipate a 5% 
annual increase, translating to a dollar increase of approximately 
$82,500. Approximately three-quarters of these firms would experience 
an annual increase between 2.9% and 7.1% between 2025 and 2029. Holding 
firm revenues constant at 2024 levels, total regulatory and use-based 
fees would increase from 0.26% to 0.36% of FOCUS reported revenues on 
average. This group includes 212 firms and represents 6.4% of all FINRA 
members.
     For large firms, the median firm would anticipate a 5.4% 
annual increase, translating to a dollar increase of approximately 
$415,000. Approximately three-quarters of these firms would experience 
an annual increase between 4.0% and 6.9% between 2025 and 2029. Holding 
revenues constant at 2024 levels, total regulatory and use-based fees 
would increase from 0.18% to 0.23% of FOCUS reported revenues on 
average. This group includes 141 firms and represents 4.3% of all FINRA 
members.
    FINRA notes that 1.7% of micro firms would experience a fee 
increase greater than two standard deviations above the median. Because 
the median increase is relatively low ($625), small dollar increases in 
fees can result in a large change in CAGR and its distribution.
    FINRA also notes that the 2.5% of small firms that would experience 
a fee increase greater than two standard deviations are mostly firms 
that would incur new or increased use-based fees for FINRA services 
that are not core regulatory activities. If only core regulatory fees 
are considered, only 1.1% of small firms would experience a fee 
increase greater than two standard deviations from the median increase.
    The 2.4% of mid-size firms that would experience a fee increase 
greater than two standard deviations above the median are mostly firms 
that incur a significant increase in TAF. If TAF is excluded, only 1.4% 
of mid-size firms would experience a fee increase greater than two 
standard deviations from the median increase. As mentioned above, FINRA 
understands that the TAF is typically passed-through to customers.
    As part of its analysis, FINRA also considered the broad potential 
impacts on competition under this proposal. The analysis considers the 
impact across all FINRA members, across members based on size or 
business model, and between members and other financial services 
providers.
    FINRA does not anticipate that the proposal will materially impact 
competition among members. The proposal is designed to maintain the 
current funding model and the relative allocation of fees across its 
core regulatory fees and select use-based fees. In other words, each of 
the affected fees would increase commensurate with fees charged under 
the current framework; no individual fee would be raised such that it 
may create inordinate hardships for some firms and benefit others. 
Implementation of the proposed rule change would not require 
significant system or process changes by firms.
    Similarly, FINRA does not anticipate that the proposed rule change 
will materially impact competition across members of different sizes or 
business models. The analysis of distributions within firm size 
indicates that firms may anticipate some differences in fee increases 
based on the services they provide and the way they provide those 
services. Nevertheless, as designed, the proposal maintains the 
relative allocation of fees across firm size and business model, 
meaning the proposed rule change is designed to preserve a consistent 
rate of growth in fee increases across firm size and business model. As 
noted above, this approach is designed to limit the likelihood that any 
specific fee change may create hardships for some firms and benefit 
others. Further, this proposed rule change maintains the current 
approach for cross-subsidization of the cost of regulatory oversight of 
members of different sizes.
    FINRA can identify two potential impacts of this proposal on the 
competition between its members and other providers of financial 
services. Although these increases are calibrated to limit the impact 
on individual members, at the margin, some members may find these 
increases material to their business. Further, where members may have 
the ability to provide similar services, or a subset of services, under 
an alternative business model that does not require FINRA membership, 
increased FINRA costs may increase the likelihood that these firms 
withdraw from FINRA in favor of the alternative business model. Based 
on the information available to it today, FINRA does not have an 
accurate measure of the number of members that may choose to withdraw 
registration as a FINRA member as a result of this proposed rule 
change.\124\
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    \124\ FINRA notes that because of the time lapse between 
proposal, adoption and implementation of fee increases, combined 
with changing business environments over time, it is difficult to 
reliably estimate the number of firms that might have exited 
historically because of previous fee increases.
---------------------------------------------------------------------------

    The proposed rule change may have an additional impact on 
competition through funding FINRA's regulatory activities. As discussed 
above, strong and effective surveillance and regulation of securities 
markets has been shown to increase investor confidence in the fairness 
of the market. This has been measured by an increase in retail 
participation in the securities markets, greater liquidity, and higher 
securities valuations. Given the presence of substitutes to broker-
dealers for retail clients--e.g., investment advisory services, issuers 
selling directly to the public, or certain market-linked insurance 
products--it may be reasonable to expect that effective regulation by 
FINRA would continue to

[[Page 93731]]

be a positive externality to those competitors. That is, increased 
confidence by retail investors due to FINRA's activities may increase 
business opportunities and lower transaction costs in the securities 
industry as a whole. This would benefit non-FINRA member competitors, 
especially in instances where investors do not recognize these 
competitors are not regulated by FINRA.
Alternatives Considered
    In developing this proposal, FINRA considered several options. 
First, FINRA considered making all the fee changes effective in 2025. 
FINRA did not pursue this alternative because it believed that, where 
possible, members should be provided an extended time period to plan 
for the proposed fee increase. In light of uncertainty and volatility 
in the markets, FINRA believes that implementing the proposed fee 
increase at one time would impose a greater burden on members than 
phasing in the implementation of the fee increases, as proposed.
    FINRA also considered making all of the fee changes effective in 
2026, but decided against that approach for many of the same reasons 
noted above. However, FINRA believes that deferring implementation of 
all fees in this proposed rule change is unnecessary and would hinder 
FINRA's ability to support its regulatory mission. As discussed, the 
uncertainty in the markets, which creates challenges for members and 
investors, also impacts FINRA. For example, market volatility increases 
the risk that FINRA's reserve portfolio will fall below the appropriate 
minimum.\125\ This limits FINRA's flexibility in relying on its 
reserves to cover funding gaps and indicates the need for stable 
funding as soon as practicable.
---------------------------------------------------------------------------

    \125\ See supra note 12.
---------------------------------------------------------------------------

    Further, FINRA notes that consistent investor protection is of 
vital importance, particularly in times of uncertainty, where FINRA has 
seen an increase in customer complaints and alerts from its 
surveillance programs.\126\ Financial limitations that constrain 
FINRA's ability to carry out its mission would have material negative 
implications for investors and the financial markets. Taking these 
concerns into account, FINRA believes that the most prudent course of 
action is to start increasing some fees in 2025, but to stagger the 
implementation over multiple years.
---------------------------------------------------------------------------

    \126\ In the first quarter of 2020, FINRA saw an increase in 
alerts generated through its market surveillance of over 250% 
compared to the same quarter in 2019.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \127\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\128\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. If 
the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
---------------------------------------------------------------------------

    \127\ 15 U.S.C. 78s(b)(3)(A).
    \128\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-FINRA-2024-019 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-FINRA-2024-019. 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 website (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 website 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 FINRA. Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection.
    All submissions should refer to file number SR-FINRA-2024-019 and 
should be submitted on or before December 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\129\
---------------------------------------------------------------------------

    \129\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27764 Filed 11-26-24; 8:45 am]
BILLING CODE 8011-01-P`