Document ID: SEC-2012-1643-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-10-10T04:00Z

[Federal Register Volume 77, Number 196 (Wednesday, October 10, 2012)]
[Notices]
[Pages 61647-61649]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-24859]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67971; File No. SR-FINRA-2012-044]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to the Trading Activity Fee Rate for 
Transactions in Security Futures

October 3, 2012.
    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 September 26, 2012, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``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 filing with 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 amend Section 1 of Schedule A to the FINRA 
By-Laws to adjust the rate of FINRA's Trading Activity Fee (``TAF'') 
for round turn transactions in security futures.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA's primary member fee structure consists of the following: the 
Personnel Assessment; the Gross Income Assessment; and the TAF. These 
fees are used to fund FINRA's regulatory activities, including 
examinations; financial monitoring; and FINRA's policymaking, 
rulemaking, and

[[Page 61648]]

enforcement activities.\5\ The proposed rule change amends the TAF rate 
for round turn transactions in security futures to match the fee 
charged by the National Futures Association (``NFA'').
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    \5\ See FINRA By-Laws, Schedule A, Sec.  1(a).
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    FINRA initially adopted the TAF in 2002 as a replacement for an 
earlier regulatory fee based on trades reported to Nasdaq's Automated 
Confirmation Transaction system then in place.\6\ Currently, the TAF is 
generally assessed on the sale of all exchange registered 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. The rules 
governing the TAF also include a list of transactions exempt from the 
TAF, including transactions in security futures held in futures (as 
opposed to securities) accounts.\7\
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    \6\ See Securities Exchange Act Release No. 46416 (August 23, 
2002), 67 FR 55901 (August 30, 2002).
    \7\ See FINRA By-Laws, Schedule A, Sec.  1(b)(2)(J).
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    For transactions in security futures held in securities accounts, 
members must pay to FINRA a fee for each round turn transaction 
(treated as including one purchase and one sale of a contract of sale 
for future delivery) of a security future.\8\ The current TAF rate for 
security futures transactions is $0.04 per contract for each round turn 
transaction.\9\
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    \8\ See FINRA By-Laws, Schedule A, Sec.  1(b)(3)(C).
    \9\ See FINRA By-Laws, Schedule A, Sec.  1. This rate has been 
in place since October 1, 2002. See NASD Notice to Members 02-75 
(November 2002).
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    On June 1, 2012, the NFA submitted an NFA Interpretive Notice to 
the Commodity Futures Trading Commission (``CFTC'') regarding the NFA's 
assessment fee on diminutive notional value contracts and security 
futures products.\10\ Pursuant to the NFA Filing, effective September 
1, 2012, the NFA reduced its assessment fee on security futures 
transactions from $0.04 per contract for each round turn transaction to 
$0.00008 with a minimum fee of $0.01 per round turn transaction. The 
NFA Filing notes that the $0.04 rate had been in place since 2002 and, 
when adopted, was intended ``to ensure that NFA's fees do not provide a 
disincentive for customers to carry [security futures products] in the 
futures accounts of NFA Member firms.''
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    \10\ See NFA Notice to Members I-12-15 (July 20, 2012); NFA 
Filing from Thomas W. Sexton, Senior Vice President and General 
Counsel, NFA, to David A. Stawick, Office of the Secretariat, CFTC, 
dated June 1, 2012 (``NFA Filing'').
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    To ensure that the TAF does not create a disincentive to holding 
security futures in securities accounts, FINRA is proposing to amend 
the TAF rate for security future transactions from $0.04 per contract 
for each round turn transaction to $0.00008 per contract for each round 
turn transaction, with a minimum fee of $0.01 per round turn 
transaction. FINRA believes that amending the TAF rate on security 
futures transactions to match the rate charged on such transactions by 
the NFA will ensure that transaction fees do not influence the decision 
on whether to hold security futures in a futures or in a securities 
account.\11\
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    \11\ FINRA notes that the NFA Filing states that the NFA was 
adjusting its assessment rate on security futures, at least in part, 
to avoid having the assessment rate provide a disincentive to 
holding security futures in a futures account. The NFA Filing notes 
that a disincentive could be created because FINRA does not charge 
the security futures TAF rate on trades in security futures that 
result in delivery of the underlying securities ``but rather charges 
a securities fee that is capped at $4.50.'' See NFA Filing, supra 
note 10, at 4. Since the TAF was adopted, FINRA has charged such 
transactions based on the TAF equity rate structure rather than the 
rate for round turn transactions in security futures. See NASD 
Notice to Members 02-63, Question 10 (September 2002); see also TAF 
Frequently Asked Question 500.4, available at www.finra.org/taf/faq. 
FINRA notes that it is not changing this guidance; however, as of 
July 1, 2012, the cap on the TAF assessment for transactions in 
equity securities was increased to $5.95. See Regulatory Notice 12-
31 (June 2012).
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    The implementation date of the proposed rule change will be October 
1, 2012. FINRA will announce the implementation date of the proposed 
rule change in a Regulatory Notice.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\12\ 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. Because of the NFA's amendment to its assessment fee for 
transactions in security futures held in futures accounts, FINRA 
believes that the proposed rate change to the TAF is now necessary to 
ensure that there is no disincentive to hold security futures in a 
security account because of the fees charged on round turn transactions 
in security futures.
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    \12\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    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 \13\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\14\ 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(2).
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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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2012-044 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2012-044. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent

[[Page 61649]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing also will be available for Web site inspection and printing at 
the principal office of FINRA. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make publicly available. All submissions should refer to 
File Number SR-FINRA-2012-044 and should be submitted on or before 
October 31, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-24859 Filed 10-9-12; 8:45 am]
BILLING CODE 8011-01-P