Document ID: SEC-2011-0335-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-03-10T05:00Z

[Federal Register Volume 76, Number 47 (Thursday, March 10, 2011)]
[Notices]
[Pages 13248-13249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5518]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64041; File No. SR-FINRA-2011-004]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of a Proposed Rule Change 
Relating to the Trading Activity Fee Rate for Transactions in Asset-
Backed Securities

March 4, 2011.

I. Introduction

    On January 10, 2011, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to provide a new method of calculating the Trading 
Activity Fee (``TAF'') for transactions in Asset-Backed Securities. The 
proposed rule change was published for comment in the Federal Register 
on January 27, 2011.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 63751 (January 21, 
2011), 76 FR 4966 (``Notice'').
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II. Description of the Proposal

    FINRA proposes to amend Section 1 of Schedule A to the FINRA By-
Laws to provide a new method of calculating the TAF \4\ for 
transactions in Asset-Backed Securities.\5\ The TAF is one of the 
member regulatory fees FINRA uses to fund its member regulation 
activities, which include examinations; financial monitoring; and 
FINRA's policymaking, rulemaking, and enforcement activities.\6\ 
Generally, the TAF is assessed on the sale of all exchange-registered 
securities wherever executed (except debt securities that are not Trade 
Reporting and Compliance Engine (``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 MSRB reporting 
requirements. The rules governing the TAF also include a list of 
transactions exempt from the TAF.\7\
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    \4\ See FINRA By-Laws, Schedule A, section 1 (describing how the 
TAF is applied).
    \5\ See FINRA Rule 6710(m) (defining ``Asset-Backed Security'').
    \6\ In addition to the TAF, the other member regulatory fees are 
the Gross Income Assessment and the Personnel Assessment.
    \7\ See FINRA By-Laws, Schedule A, section 1(b)(2).
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    In 2010, the Commission approved a proposed rule change that 
generally makes transactions in Asset-Backed Securities reportable to 
TRACE.\8\ Because Asset-Backed Securities will be TRACE-Eligible 
Securities, transactions in Asset-Backed Securities will generally be 
subject to the TAF.
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    \8\ See Securities Exchange Act Release No. 61566 (February 22, 
2010), 75 FR 9262 (March 1, 2010). See also Regulatory Notice 10-23 
(April 2010).
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    Currently, when reporting the size of a corporate bond transaction 
to TRACE, the number of bonds is reported and the TRACE System, which 
is programmed to reflect that one bond equals $1,000 par value, 
calculates the total dollar volume of the transaction (e.g., 10 bonds x 
$1,000=$10,000).\9\ Based on this reporting structure, the TAF is 
assessed on a per-bond basis, but the number of bonds is a proxy for 
the size of the total dollar volume of a transaction in $1,000 
increments. Although some Asset-Backed Securities are structured like 
conventional corporate bonds, many are structured differently. For 
example, many Asset-Backed Securities are based on financial assets 
that amortize, and the principal (or face) value declines over time. 
Accordingly, transactions in Asset-Backed Securities will not be 
reported to TRACE on a per-bond basis like conventional corporate 
bonds, but rather will be reported based on the original principal (or 
face) value of the underlying security or the Remaining Principal 
Balance.
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    \9\ See FINRA Rules 6730(c)(2) and 6730(d)(2).
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    Consequently, FINRA is proposing to conform the TAF rate for sales 
of Asset-Backed Securities consistent with the reporting of such 
transactions to TRACE. Accordingly, FINRA is proposing to base the TAF 
for sales of Asset-Backed Securities on the size of the transaction as 
reported to TRACE (i.e., par value, or, where par value is not used to 
determine the size of the transaction, the lesser of original face 
value or Remaining Principal Balance) at a rate of $0.00000075 times 
the size of the transaction as reported to TRACE, with a maximum charge 
of $0.75 per trade.
    The effective date of the proposed rule change will be the date the 
proposed rule change SR-FINRA-2009-065 becomes effective, which is 
currently anticipated to be May 16, 2011.\10\
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    \10\ See Securities Exchange Act Release No. 63223 (November 1, 
2010), 75 FR 68654 (November 8, 2010) (extending the operational 
date of SR-FINRA-2009-065 to no later than June 1, 2011).

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[[Page 13249]]

III. Discussion and Commission's Findings

    After carefully reviewing the proposed rule change, the Commission 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities association.\11\ In particular, the Commission finds that 
the proposal is consistent with Section 15A(b)(5) of the Act,\12\ which 
requires that a national securities association have rules that provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members and other persons using any facility or 
system that the association operates or controls. The Commission 
believes that the proposal is reasonably designed to impose equitable 
fees on members that transact in Asset-Backed Securities, where the 
principal value of the securities may decline over time.
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    \11\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78o-3(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-FINRA-2011-004), be, and 
hereby is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5518 Filed 3-9-11; 8:45 am]
BILLING CODE 8011-01-P