Document ID: SEC-2012-0725-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-05-10T04:00Z

[Federal Register Volume 77, Number 91 (Thursday, May 10, 2012)]
[Notices]
[Pages 27527-27529]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11246]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66924; File No. SR-FINRA-2012-023]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
FINRA's Trading Activity Fee Rate for Transactions in Covered Equity 
Securities

May 4, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 2, 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. 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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[[Page 27528]]

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; 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 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 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 $0.000095 per 
share for each sale of a covered equity security, with a maximum charge 
of $4.75 per trade. This rate has been in place for trades occurring on 
or after March 1, 2012, and was based on estimated trading volumes.\7\ 
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 Regulatory Notice 12-06 (January 2012); see also 
Securities Exchange Act Release No. 66287 (February 1, 2012), 77 FR 
6161 (February 7, 2012); Securities Exchange Act Release No. 66276 
(January 30, 2012), 77 FR 5613 (February 3, 2012).
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    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 has been difficult to project 
given the volatility of the markets through 2011 and into the early 
months of 2012. Declining share volume during December 2011 and the 
first two months of 2012 indicate that share volumes are not holding to 
the level seen in 2011 as FINRA anticipated. Given this trend, FINRA's 
TAF projections for the year indicate a shortfall. Equity trading 
volume from December 2011 through February 2012 averaged approximately 
6.7 billion shares per day; when setting the previous TAF rate, FINRA 
estimated average equity trading of approximately 7.7 billion shares 
per day. Recognizing these volume conditions remain weaker than 
anticipated, it is necessary for FINRA to adjust the TAF rate for the 
second half of 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 $0.000095 per share to $0.000119 per share, with 
a corresponding increase to the per-transaction cap for covered equity 
securities from $4.75 to $5.95.\8\ FINRA believes that increasing the 
TAF rate on these securities by $0.000024 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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    When FINRA proposed replacing the former NASD Regulatory Fee with 
the TAF in 2002, several commenters at the time expressed concern to 
the Commission that FINRA could raise the TAF rate at any time without 
notice and comment and Commission approval.\9\ In approving the TAF, 
the Commission noted that it did not share the commenters' concern, 
that FINRA must file any proposed changes to the TAF with the SEC, and 
that FINRA agreed to file all future changes to the TAF for full notice 
and comment pursuant to Section 19(b)(2) of the Act.\10\
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    \9\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 34021 (June 6, 2003).
    \10\ See id. at 34024.
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    Consistent with the recent amendments by Congress to Section 
19(b)(3)(A) of the Act \11\ to clarify the authority of a self-
regulatory organization (``SRO'') to file proposed rule changes 
establishing or changing a due, fee, or other charge imposed by the SRO 
for immediate effectiveness,\12\ FINRA believes it is appropriate to 
file future amendments to the TAF rates under Section 19(b)(3)(A) of 
the Act \13\ and Rule 19b-4 thereunder \14\ rather than for full notice 
and comment under Section 19(b)(2) of the Act.\15\ FINRA notes that it 
will continue to file all TAF rate changes with the Commission, and

[[Page 27529]]

the Commission summarily may temporarily suspend a proposed rule change 
changing a TAF rate filed pursuant to Section 19(b)(3)(A) of the Act 
within 60 days of filing ``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].'' \16\ As noted above, FINRA anticipates filing proposed 
changes to TAF rates (either to increase or to decrease a rate) only 
when necessary to account for changes in trading volume with the goal 
of making the TAF revenue-neutral for FINRA (i.e., FINRA aims to 
receive a substantially similar amount in revenue from the TAF from 
year to year).
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    \11\ 15 U.S.C. 78s-3(b)(3) [sic].
    \12\ Section 916 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act amended Section 19(b)(3)(A) of the Act to 
explicitly allow SROs to file proposed rule changes for immediate 
effectiveness if the proposed rule change establishes or changes a 
due, fee, or other charge imposed by the SRO on members or non-
members.
    \13\ 15 U.S.C. 78s-3(b)(3)(A) [sic].
    \14\ 17 CFR 240.19b-4. Paragraph (f)(2) of Rule 19b-4 permits a 
proposed rule change filed by an SRO to take effect upon filing with 
the SEC if the SRO designates the proposed rule change as 
establishing or changing a due, fee, or other charge applicable only 
to a member. 17 CFR 240.19b-4(f)(2). The TAF is charged only to 
FINRA members.
    \15\ 15 U.S.C. 78s-3(b)(2) [sic].
    \16\ 15 U.S.C. 78s-3(b)(3)(C) [sic].
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    The effective date of the proposed rule change will be July 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,\17\ 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 described above, 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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    \17\ 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-2012-023 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-2012-023. 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 
10:00 a.m. and 3:00 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-2012-023 and should be 
submitted on or before May 31, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11246 Filed 5-9-12; 8:45 am]
BILLING CODE 8011-01-P