Document ID: SEC-2011-2049-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-12-30T05:00Z

[Federal Register Volume 76, Number 251 (Friday, December 30, 2011)]
[Notices]
[Pages 82334-82335]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33589]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66050; File No. SR-FINRA-2011-071]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Increase 
the Trading Activity Fee Rate for Transactions in Covered Equity 
Securities

December 23, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 14, 2011, 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. 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.
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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 transactions in covered equity securities.
    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 regulatory pricing structure consists of the 
following fees: the Personnel Assessment (PA); the Gross Income 
Assessment (GIA); and the Trading Activity Fee (TAF). These fees are 
used to fund FINRA's regulatory activities, including examinations; 
financial monitoring; and FINRA's policymaking, rulemaking, and 
enforcement activities.\3\ Because the proceeds from these fees are 
used to fund FINRA's regulatory mandate, Section 1 of Schedule A to 
FINRA's By-Laws notes that ``FINRA shall periodically review these 
revenues in conjunction with costs to determine the applicable rate.'' 
\4\
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    \3\ See FINRA By-Laws, Schedule A, Sec.  1(a).
    \4\ Id.
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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.\5\ 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 (``MSRB'') reporting 
requirements. The rules governing the TAF also include a list of 
transactions exempt from the TAF.\6\
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    \5\ See Securities Exchange Act Release No. 46416 (August 23, 
2002), 67 FR 55901 (August 30, 2002).
    \6\ See FINRA By-Laws, Schedule A, Sec.  1(b)(2).
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    The current TAF rate for covered equity securities is $0.000090 per 
share for each sale of a covered equity security, with a maximum charge 
of $4.50 per trade. This rate has been in place for trades occurring on 
or after July 1, 2011, and was based on estimated trading volumes for 
the remainder of 2011.\7\ In addition, if the execution price for a 
covered equity security is less than the TAF rate on a per share basis, 
then no TAF is assessed.
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    \7\ See Securities Exchange Act Release No. 64590 (June 2, 
2011), 76 FR 33388 (June 8, 2011); Regulatory Notice 11-27 (June 
2011).

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[[Page 82335]]

    Because the TAF is based on trading volumes, FINRA's revenues 
derived from the TAF are subject to the volatility of trading in the 
securities markets and, in particular, the equity markets. Although the 
TAF is generally charged on transactions in equity securities, TRACE-
reportable securities, options, and futures, over 95% of TAF revenue is 
generated by transactions in covered equity securities. Thus, FINRA's 
revenue from the TAF is substantially affected by changes in trading 
volume in the equities markets.
    Share volume in the equity markets during 2011 has been difficult 
to project given the volatility of the markets. Declining share volumes 
during the first half of 2011, which led to the prior increase to the 
TAF rate for equity securities, were followed by a spike in volume in 
August, which was then followed by declining volumes heading into the 
fourth quarter of 2011. Year-to-date volume, excluding an extraordinary 
spike during the month of August, has averaged just under an average 
daily share volume of 7.7 billion shares. Recognizing these volume 
conditions remain weaker than the 2010 average daily share volume of 
8.5 billion shares, which FINRA used as the baseline for estimating TAF 
revenues, it is necessary for FINRA to adjust the rate for 2012.
    To stabilize revenue flows necessary to support FINRA's regulatory 
mission in light of the decreased volume of trading in the equity 
markets, FINRA is proposing an increase to the TAF rate for covered 
equity securities from $0.000090 per share to $0.000095 per share, with 
a corresponding increase to the per-transaction cap for covered equity 
securities from $4.50 to $4.75.\8\ FINRA believes that increasing the 
TAF rate on these securities by $0.000005 per share is the minimum 
increase necessary to bring the revenue from the TAF to its needed 
levels to adequately fund FINRA's member regulatory obligations. As 
with the prior rate change to the TAF, the proposed increase to the TAF 
rate on transactions in covered equity securities seeks to remain 
revenue neutral to FINRA (i.e., as adjusted, FINRA would aim to receive 
a substantially similar amount in revenue from the TAF as the TAF has 
generated in prior years).
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    \8\ Because, as noted above, transactions in covered equity 
securities account for over 95% of TAF revenues, FINRA is not 
proposing adjustments to the TAF rates for other types of 
securities.
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    The proposed effective date of the proposed rule change will be 
February 1, 2012. FINRA will announce the effective 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,\9\ 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 recent decrease in trading volumes in the 
equity markets, FINRA believes that the proposed rate change to the TAF 
is now necessary to ensure that FINRA can continue to maintain a robust 
regulatory program and meet its regulatory obligations effectively 
while attempting to remain revenue neutral.
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    \9\ 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-071 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2011-071. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at 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-2011-071 and 
should be submitted on or before January 20, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-33589 Filed 12-29-11; 8:45 am]
BILLING CODE 8011-01-P