Document ID: SEC-2012-1017-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-06-28T04:00Z

[Federal Register Volume 77, Number 125 (Thursday, June 28, 2012)]
[Notices]
[Pages 38694-38698]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15852]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67240; File No. SR-FINRA-2012-031]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Section 4 of Schedule A to the FINRA By-
Laws To Increase the Branch Office Annual Registration and New Member 
Application Fees and Assess a New Continuing Membership Application Fee

June 22, 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 June 13, 2012, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 the 
Substance of the Proposed Rule Change

    FINRA is proposing to amend Section 4 of Schedule A to the FINRA 
By-Laws to (1) increase the branch office annual registration fee; (2) 
increase the new member application fee; and (3) assess a new fee for 
continuing membership applications. The proposed rule change also makes 
corresponding amendments to NASD Rules 1012, 1013, and 1017 regarding 
the revised new member application fee and new continuing membership 
application fee, as well as increases from $350 to $500 the processing 
fee for new member applications that are deemed not to be substantially 
complete and imposes a $500 processing fee for continuing membership 
applications that are deemed not to be substantially complete.
    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
    As discussed in further detail below, the proposed rule change 
amends Section 4 of Schedule A to the FINRA By-Laws to (1) increase the 
branch office annual registration fee; (2) increase the new member 
application fee; and (3) assess a new fee for continuing membership 
applications. The proposed rule change also makes corresponding 
amendments to NASD Rules 1012 (General Provisions), 1013 (New Member 
Application and Interview), and 1017 (Application for Approval of 
Change in Ownership, Control, or Business Operations) regarding the 
revised new member application fee and new continuing membership 
application fee, as well as increases from $350 to $500 the processing 
fee for new member applications that are deemed not to be substantially 
complete and imposes a $500 processing fee for continuing membership 
applications that are deemed not to be substantially complete.
Branch Office Fees
    Schedule A, Section 4(a) currently sets forth an initial 
registration fee of $75 (and a branch office system processing fee of 
$20) upon the registration of each branch office as defined in the 
FINRA By-Laws.\5\ Section

[[Page 38695]]

4 also assesses (1) an annual registration fee in an amount equal to 
the lesser of (i) $75 per registered branch, or (ii) the product of $75 
and the number of registered representatives and registered principals 
associated with the member at the end of FINRA's fiscal year, and (2) 
an annual branch office system processing fee of $20 per registered 
branch. Pursuant to Section 4, FINRA waives, for one branch office per 
member per year, payment of the annual branch office registration fee 
(for those FINRA members who have been assessed the $75 amount as their 
annual fee) and the $20 annual branch office system processing fee (for 
all FINRA members).
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    \5\ Article I, paragraph (d) of the FINRA By-Laws defines 
``branch office'' as an office defined as a branch office in FINRA's 
rules. NASD Rule 3010(g)(2)(A) states that a ``branch office'' is 
any location where one or more associated persons of a member 
regularly conducts the business of effecting any transactions in, or 
inducing or attempting to induce the purchase or sale of any 
security, or is held out as such, excluding: (i) Any location that 
is established solely for customer service and/or back office type 
functions where no sales activities are conducted and that is not 
held out to the public as a branch office; (ii) any location that is 
the associated person's primary residence, provided that certain 
enumerated conditions are met; (iii) any location, other than a 
primary residence, that is used for securities business for less 
than 30 business days in any one calendar year, provided the member 
complies with certain enumerated conditions; (iv) any office of 
convenience, where associated persons occasionally and exclusively 
by appointment meet with customers, which is not held out to the 
public as an office; (v) any location that is used primarily to 
engage in non-securities activities and from which the associated 
person(s) effects no more than 25 securities transactions in any one 
calendar year; provided that any advertisement or sales literature 
identifying such location also sets forth the address and telephone 
number of the location from which the associated person(s) 
conducting business at the non-branch locations are directly 
supervised; (vi) the floor of a registered national securities 
exchange where a member conducts a direct access business with 
public customers; or (vii) a temporary location established in 
response to the implementation of a business continuity plan. NASD 
Rule 3010(g)(2)(B) further provides that notwithstanding the 
exclusions in NASD Rule 3010(g)(2)(A), any location that is 
responsible for supervising the activities of persons associated 
with the member at one or more non-branch locations of the member is 
considered to be a branch office.
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    Despite rising costs to administer the branch office registration 
and examination program, FINRA has not adjusted the branch office 
annual registration fee since 1994.\6\ In support of its branch office 
registration and examination program and other regulatory 
responsibilities, FINRA is proposing to revise the branch office annual 
registration fee structure by implementing a tiered regressive rate 
structure that will assess a per branch office annual registration fee 
ranging from $75 to $175 depending on the number of branch offices of 
the member.
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    \6\ See Securities Exchange Act Release No. 35074 (December 9, 
1994), 59 FR 64827 (December 15, 1994) (Notice of Filing and 
Immediate Effectiveness of File No. SR-NASD-94-58) (increasing the 
branch office registration and annual fees from $50 to $75 to 
reflect increased costs for registration and regulatory oversight of 
branch offices). In 2006, Schedule A, Section 4(a) was amended to 
establish an annual branch office system processing fee to reflect 
the costs of developing and implementing the Form BR, as well as 
costs associated with the ongoing branch office system maintenance 
and enhancements. See Securities Exchange Act Release No. 53955 
(June 7, 2006), 71 FR 34658 (June 15, 2006) (Notice of Filing and 
Immediate Effectiveness of File No. SR-NASD-2006-065).
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    Specifically, the proposed rule change would amend the annual 
registration fee requirement in Section 4(a) to provide that each 
member shall be assessed an annual registration fee of: (1) $175, for 
the first 250 branch offices registered by the member; (2) $150, for 
branch offices 251 to 500 registered by the member; (3) $125, for 
branch offices 501 to 1,000 registered by the member; (4) $100, for 
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. 
The proposed rule change would retain the $20 annual branch office 
system processing fee per registered branch. Consistent with current 
practice, FINRA would assess each member's annual registration fee 
based on the member's total number of branch offices registered at the 
end of each calendar year.
    Additionally, the proposed rule change would continue to waive, for 
one branch office per member per year, payment of the annual 
registration fee (and the $20 annual branch office system processing 
fee), but increase the amount of the waiver from $75 to $175. The 
proposed rule change also would amend Schedule A, Section 4(a) to 
codify FINRA's current practice of waiving payment of the $75 initial 
registration fee (and $20 branch office system processing fee) for the 
first branch office registered by a member.
New Member Application Fee
    Schedule A, Section 4(e) to the FINRA By-Laws currently requires 
new member applicants to pay an application fee of either $5,000 or 
$3,000, based generally on the net capital requirements for the type of 
business in which the applicant proposes to engage.
    The new membership application fee has remained unchanged since 
1994,\7\ notwithstanding the increase in complexity of such filings and 
the related resource demands. FINRA is proposing to revise the new 
member application fee structure to implement a fee structure that 
would assess fees ranging from $7,500 to $55,000 depending on the size 
of the new member applicant. The revised fee structure also would 
assess an additional $5,000 surcharge for a new member applicant that 
intends to engage in any clearing and carrying activities. FINRA 
believes that assessing new member application fees based on the 
applicant's size and whether the applicant intends to engage in 
clearing and carrying activities will more closely reflect the resource 
demands associated with processing and reviewing applicants.
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    \7\ See Securities Exchange Act Release No. 33533 (January 27, 
1994), 59 FR 5218 (February 3, 1994) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-94-05) (increasing from $1,500 to 
$3,000 the new member application fee for certain applicants).
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    Specifically, the proposed rule change would amend Section 4(e) of 
Schedule A to require that each applicant for membership shall be 
assessed an application fee based on the size of the applicant at the 
time the application is filed, as outlined in the tables below.

 
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    Number of registered  persons associated with  applicant           Small          Medium           Large
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................            1-10         151-300       501-1,000
Tier 2..........................................................          11-100         301-500     1,001-5,000
Tier 3..........................................................         101-150             N/A          >5,000
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                    Application  fee per tier                          Small          Medium           Large
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Tier 1..........................................................          $7,500         $25,000         $35,000
Tier 2..........................................................          12,500          30,000          45,000
Tier 3..........................................................          20,000             N/A          55,000
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    As noted above, the proposed rule change also would amend Section 
4(e) to require that each applicant for membership also pay $5,000 if 
the applicant will be engaging in any clearing and carrying activity.
    Additionally, the proposed rule change would make conforming 
amendments to NASD Rules 1012 and 1013. Specifically, the proposed rule 
change would amend the requirement in NASD Rule 1012(a) (Filing by 
Applicant

[[Page 38696]]

or Service by FINRA) that an applicant for membership shall file an 
application in the manner prescribed in NASD Rule 1013 to require that 
the applicant include the timely submission of an application fee 
pursuant to Schedule A to the FINRA By-Laws and delete as unnecessary 
the requirement in NASD Rule 1013(a)(1) (How to File) that an applicant 
include the payment of the appropriate fee as part of its new member 
application. The proposed rule change also would amend NASD Rule 
1012(b) (Lapse of Applicant) to require that if a new member 
application lapses, an applicant that wishes to continue to seek 
membership must submit a new application in the manner prescribed in 
NASD Rule 1013, including the timely submission of an application fee 
pursuant to Schedule A to the FINRA By-Laws.
    Further, FINRA is proposing to amend NASD Rule 1013(a)(3) 
(Rejection Of Application That Is Not Substantially Complete) to 
increase from $350 to $500 the processing fee retained by FINRA if the 
Department of Member Regulation (``Department'') determines that a new 
member application is not substantially complete. The proposed rule 
change also would amend NASD Rule 1013(a)(3) to require that, if an 
applicant submits another new member application, the applicant must 
submit the appropriate fee pursuant to Schedule A to the FINRA By-Laws.
Continuing Membership Application Fee
    NASD Rule 1017 provides parameters for certain changes in a 
member's ownership, control, or business operations that would require 
a continuing membership application. Among other things, those changes 
include a merger of a member with another member, a direct or indirect 
acquisition by a member of another member, a change in equity ownership 
or partnership capital of a member that results in one person or entity 
directly or indirectly owning or controlling 25 percent or more of the 
equity or partnership capital, or a material change in business 
operations as defined in NASD Rule 1011(k) (``material change in 
business operations''). NASD Rule 1011(k) defines a ``material change 
in business operations'' as including, but not limited to: (1) Removing 
or modifying a membership agreement restriction; (2) market making, 
underwriting, or acting as a dealer for the first time; and (3) adding 
business activities that require a higher minimum net capital under SEA 
Rule 15c3-1.
    Although FINRA does not currently assess a fee for submitting a 
continuing membership application, the membership program incurs 
substantial costs in reviewing the application materials and assessing 
whether the application meets the required standards. Based on these 
operational demands, FINRA is proposing to amend Schedule A to the 
FINRA By-Laws to require that an applicant submitting a continuing 
membership application fee pay an application fee based on the number 
of registered persons associated with the applicant and the type of 
change in ownership, control, or business operations being 
contemplated. Because the effort required to review a continuing 
membership application generally depends on the facts and 
circumstances, with more complex changes and larger applicants 
requiring additional resources, FINRA believes that the proposed matrix 
will be an effective means of assessing related fees. For instance, the 
proposed fee structure would assess a member with only one to ten 
registered persons a fee ranging between $5,000 and $7,500, depending 
on the type of continuing membership application, whereas a member with 
301 to 500 registered persons would be assessed a fee ranging between 
$10,000 and $30,000 depending on the type of continuing membership 
application.
    Specifically, the proposed rule change would amend Section 4 of 
Schedule A to require that, in addition to any dues or fees otherwise 
payable, each applicant submitting an application for approval of a 
change in ownership, control, or business operations shall be assessed 
an application fee, based on the number of registered persons 
associated with the applicant (including registered persons proposed to 
be associated with the applicant upon approval of the application) at 
the time the application is filed and the type of change in ownership, 
control, or business operations, as outlined in the tables below:

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    Number of registered  persons associated with  applicant           Small          Medium           Large
----------------------------------------------------------------------------------------------------------------
Tier 1..........................................................            1-10         151-300       501-1,000
Tier 2..........................................................          11-100         301-500     1,001-5,000
Tier 3..........................................................         101-150             N/A          >5,000
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          Application fee per tier and application type                Small          Medium           Large
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Merger:
    Tier 1......................................................          $7,500         $25,000         $50,000
    Tier 2......................................................          12,500          30,000          75,000
    Tier 3......................................................          20,000             N/A         100,000
Material Change:
    Tier 1......................................................           5,000          20,000          35,000
    Tier 2......................................................          10,000          25,000          50,000
    Tier 3......................................................          15,000             N/A          75,000
Ownership Change................................................           5,000          10,000          15,000
Transfer of Assets..............................................           5,000          10,000          15,000
Acquisition.....................................................           5,000          10,000          15,000
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    The proposed rule change also would clarify that if an applicant's 
request for approval of a change in ownership, control, or business 
operations involves more than one type of application identified in the 
``application fee per tier and application type'' table above, the 
application fee shall be the highest amount of the applicable 
``application type'' fees (e.g., the application fee for an applicant 
associated with 1-10 registered persons filing an application

[[Page 38697]]

involving a merger and material change would be $7,500).
    Additionally, the proposed rule change would make conforming 
changes to NASD Rule 1012. Specifically, the proposed change would 
amend NASD Rule 1012(a) (Filing by Applicant or Service by FINRA) to 
require that applicant seeking approval of a change in ownership, 
control, or business operations pursuant to NASD Rule 1017 must include 
the timely submission of an application fee pursuant to Schedule A to 
the FINRA By-Laws. The proposed rule change also would amend NASD Rule 
1012(b) (Lapse of Application) to require that, if a continuing 
membership application lapses, an applicant that wishes to continue to 
seek membership or approval of a change in ownership, control, or 
business operations must submit a new application in the manner 
prescribed in NASD Rule 1017, including the timely submission of an 
application fee pursuant to Schedule A to the FINRA By-Laws.
    Finally, FINRA is proposing to amend NASD Rule 1017(d) (Rejection 
Of Application That Is Not Substantially Complete) to provide that, if 
the Department determines that a continuing membership application is 
not substantially complete, the Department shall, among other things, 
refund the application fee, less $500, which shall be retained by FINRA 
as a processing fee. The proposed rule change also would amend NASD 
Rule 1013(a)(3) to require that, if an applicant submits another 
continuing membership application, the applicant must submit the 
appropriate fee pursuant to Schedule A to the FINRA By-Laws.
Implementation
    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the implementation date for the 
fees assessed in Schedule A to the FINRA By-Laws, Section 4(e) (the new 
member application fee) and new Section 4(i) (the continuing membership 
application fee), and the corresponding amendments to NASD Rules 1012, 
1013, and 1017, will be July 23, 2012. FINRA will announce the 
implementation date for the fees assessed in Schedule A to the FINRA 
By-Laws, Section 4(a) (branch office annual registration fee (and 
related waiver)), which will be on or after January 1, 2013, in a 
Regulatory Notice or similar communication.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\8\ 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 believes that the proposed fees are reasonable based on 
the nature and scope of the Membership Department's examination program 
and application review processes and the related costs of maintaining 
the program. The proposed fees also contribute to the general funding 
of FINRA's overall regulatory program and serve to ensure that FINRA is 
sufficiently capitalized to meet its regulatory responsibilities. FINRA 
also believes that the proposed fees are equitably allocated among 
members and applicants for membership as they are assessed based on the 
size of the member or applicant, and in the case of the continuing 
membership application fee, also on the type of continuing membership 
application being filed.
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    \8\ 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 \9\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\10\ 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. [sic]
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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-2012-031 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-2012-031. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal offices 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 available publicly. All submissions should refer to 
File Number SR-FINRA-2012-031, and should be submitted on or before 
July 19, 2012.

[[Page 38698]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15852 Filed 6-27-12; 8:45 am]
BILLING CODE 8011-01-P