[Federal Register Volume 75, Number 211 (Tuesday, November 2, 2010)]
[Notices]
[Pages 67421-67422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27671]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63196; File No. SR-FINRA-2010-046]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Remove the
Exemption From the Trading Activity Fee for Transactions in Exchange
Listed Options Effected by a Member When FINRA Is Not the Designated
Options Examining Authority for That Member
October 27, 2010.
I. Introduction
On September 7, 2010, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend its By-Laws to remove the exemption from
the trading activity fee (``TAF'') for transactions in exchange listed
options effected by a member when FINRA is not the designated options
examining authority (``DOEA'') for that member. The proposed rule
change was published for comment in the Federal Register on September
23, 2010.\3\ The Commission received no comment letters 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. 62927 (September 17,
2010), 75 FR 58004.
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II. Description of the Proposed Rule Change
In its proposal, FINRA sought to amend Section 1(b) of Schedule A
to the FINRA By-Laws to remove the exemption from the TAF for
transactions in exchange listed options effected by a member for whom
FINRA is not the DOEA. The TAF is one of three member regulatory fees
FINRA uses to fund its member regulation activities.\4\ Because the TAF
funds FINRA's member regulation functions, it is intended to apply to
transactions in a way that corresponds to FINRA's regulatory
responsibilities.\5\ In general, the TAF is assessed for the sale of
all exchange registered securities wherever executed (except debt
securities that are not TRACE-eligible), 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 the reporting requirements of the Municipal
Securities Rulemaking Board.\6\ The TAF rules also include numerous
exemptions for certain types of transactions.\7\
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\4\ See FINRA By-Laws, Schedule A, Sec. 1(b). In addition to
the TAF, the other member regulatory fees are the Gross Income
Assessment and the Personnel Assessment. See id. Sec. Sec. 1(c),
(d).
\5\ See Securities Exchange Act Release No. 50485 (October 1,
2004), 69 FR 60445 (October 8, 2004) (SR-NASD-2003-201).
\6\ See FINRA By-Laws, Schedule A, Sec. 1(b)(1).
\7\ See FINRA By-Laws, Schedule A, Sec. 1(b)(2).
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In 2003, FINRA exempted from the TAF ``[t]ransactions in exchange
listed options effected by a member when FINRA is not the designated
options examining authority for that member.'' \8\ FINRA represented
that the exemption was added to reflect the fact that FINRA's
regulatory responsibilities with respect to such activities were
somewhat alleviated by its participation in a plan filed with the
Commission under Rule 17d-2 of the Act \9\ (``17d-2 Agreement'') in
which regulatory responsibilities for certain FINRA members that
conducted a public options business were assumed by other self
regulatory organizations (``SROs'') that would act as the members'
DOEA.\10\ In view of the fact that another SRO performed certain
regulatory responsibilities with respect to the options activities of
some of its members, FINRA decided to exempt transactions in exchange
listed options by such members from the TAF.\11\ The exemption was also
based on the fact that certain other SROs were assessing or preparing
to assess specific regulatory fees for acting as DOEA,\12\ which FINRA
believed made its TAF on options transactions appear redundant.
However, subsequent amendments to the 17d-2 Agreement have consolidated
within FINRA sole regulatory responsibility for the public options
activities of all of its members \13\ and FINRA assumed all regulatory
responsibility for FINRA members under the 17d-2 Agreement.\14\ As a
result of this increase in regulatory responsibility, FINRA filed the
instant proposed rule change to delete the exemption from the TAF.\15\
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\8\ FINRA By-Laws, Schedule A, Sec. 1(b)(2)(K). See Securities
Exchange Act Release No. 47946 (May 30, 2003), 68 FR 34021 (June 6,
2003) (SR-NASD-2002-148).
\9\ 17 CFR 240.17d-2.
\10\ See Securities Exchange Act Release No. 46800 (November 8,
2002), 67 FR 69774 (November 19, 2002).
\11\ Transactions in over-the-counter (``conventional'') options
are exempted from the TAF with respect to all FINRA members. See
FINRA By-Laws, Schedule A, Sec. 1(b)(2)(H).
\12\ See, e.g., Securities Exchange Act Release No. 47577 (March
26, 2003), 68 FR 16109 (April 2, 2003) (SR-PCX-2003-03) (PCX rule
filing establishing a DOEA fee).
\13\ See Securities Exchange Act Release No. 57987 (June 18,
2008), 73 FR 36156 (June 25, 2008).
\14\ Following the consolidation of National Association of
Securities Dealers (``NASD'') and NYSE member regulation operations
in 2007, FINRA announced that it serves as the DOEA for all FINRA
member firms. See Regulatory Notice 08-37 (July 2008).
\15\ At the time FINRA (then NASD) proposed the exemption in
Amendment No. 4 to SR-NASD-2002-148, it noted that ``NASD does not
believe it is precluded from seeking further amendments to the TAF
with respect to the reduction or elimination of the proposed
exemption * * * in the event of a change of factors surrounding its
sales practice and other regulatory responsibilities.'' Letter from
Barbara Z. Sweeney, SVP and Corporate Secretary, NASD, to Katherine
A. England, Assistant Director, Division of Trading and Markets,
Commission, dated May 19, 2003.
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FINRA represented that deleting this exemption would also remove
any ambiguities over whether FINRA should collect the TAF from sole-
FINRA members or from FINRA members that conduct only a proprietary
options business. FINRA stated its belief that the existing language
exempting a member's transactions in exchange listed options from the
TAF when FINRA is not the DOEA for the member does not properly align
with those situations where FINRA has regulatory responsibility over
the member firm. First, the DOEA designation is established only under
the 17d-2 Agreement, which by its own terms applies only with respect
to firms that are members of more than one SRO. Thus, according to
FINRA, while it has regulatory responsibilities for the
[[Page 67422]]
options business of its sole members, it is not technically the DOEA
for such firms. Second, the 17d-2 Agreement addresses only a firm's
public options business. As such, a firm that conducts only a
proprietary options business, irrespective of whether such firm is a
member of FINRA and another SRO, would not be covered by the 17d-2
Agreement, and FINRA would not technically be the DOEA. FINRA stated
that although its regulatory responsibilities are more limited for a
firm that does not conduct a public options business, it still retains
regulatory responsibilities over the firm's options activities.
III. Discussion and Commission 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.\16\ In particular, the Commission finds that
the proposal is consistent with Section 15A(b)(5) of the Act,\17\ 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 its facilities.
Further, the Commission finds that the proposal is consistent with
Section 15A(b)(6) of the Act,\18\ which requires, among other things,
that FINRA rules be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
and, in general, to protect investors and the public interest.
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\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78o-3(b)(5).
\18\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes that removal of the TAF exemption for
transactions in exchange listed options effected by members for whom
FINRA is not the DOEA is consistent with the Act because it more
properly aligns the imposition of the TAF with those situations where
FINRA has regulatory responsibility over the member firm.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-FINRA-2010-046) be, and
hereby is, approved.\20\
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\19\ 15 U.S.C. 78s(b)(2).
\20\ FINRA states it will implement the proposed rule change on
the first day of the month following Commission approval. FINRA will
announce the implementation of the proposed rule change in a
Regulatory Notice to be published no later than 30 days following
Commission approval.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27671 Filed 11-1-10; 8:45 am]
BILLING CODE 8011-01-P