[Federal Register Volume 76, Number 18 (Thursday, January 27, 2011)]
[Notices]
[Pages 4966-4968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1727]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63751; File No. SR-FINRA-2011-004]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to
the Trading Activity Fee Rate for Transactions in Asset-Backed
Securities
January 21, 2011.
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 January 10, 2011, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II 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 provide an alternative method of calculating the Trading
Activity Fee (``TAF'') for transactions in Asset-Backed 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, on the
Commission's Web site at http://www.sec.gov, 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.
[[Page 4967]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The TAF is one of the member regulatory fees FINRA uses to fund its
member regulation activities, which include examinations; financial
monitoring; and FINRA's policymaking, rulemaking, and enforcement
activities.\3\ In general, the TAF is assessed for the sale of all
exchange registered securities wherever executed (except debt
securities that are not TRAC-Eligible Securities), over-the-counter
equity securities, security futures, TRAC-Eligible Securities (provided
that the transaction is a Reportable TRACE Transaction), and all
municipal securities subject to MSRB reporting requirements. The rules
governing the TAF also include a list of transactions exempt from the
TAF.\4\ The current TAF rates are $0.000075 per share for each sale of
a covered equity security, with a maximum charge of $3.75 per trade;
$0.002 per contract for each sale of an option; $0.04 per contract for
each round turn transaction of a security future; and $0.00075 per bond
for each sale of a covered TRAC-Eligible Security and/or municipal
security, with a maximum charge of $0.75 per trade. In addition, if the
execution price for a covered security is less than the TAF rate on a
per share, per contract, or round turn transaction basis, then no TAF
is assessed.
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\3\ In addition to the TAF, the other member regulatory fees are
the Gross Income Assessment and the Personnel Assessment.
\4\ See FINRA By-Laws, Schedule A, Sec. 1(b)(2).
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Currently, when reporting the size of a corporate bond transaction
to the Trade Reporting and Compliance Engine (``TRACE''), a member
reports the number of bonds (e.g., 10 bonds), and the TRACE System,
which is programmed to reflect that one bond equals $1,000 par value,
calculates the total dollar volume of the transaction (e.g., 10 bonds x
$1,000 = $10,000).\5\ Because of this reporting structure, the TAF is
assessed on a per-bond basis, but the number of bonds is a proxy for
the size of the total dollar volume of a transaction in $1,000
increments.
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\5\ See FINRA Rule 6730(c)(2), (d)(2).
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Earlier this year, the SEC approved amendments to the TRACE
reporting requirements to include transactions in Asset-Backed
Securities.\6\ Under the amendments, Asset-Backed Securities will be
TRAC-Eligible Securities, and transactions in Asset-Backed Securities
will generally be reportable to TRACE and, thus, subject to the TAF.
The effective date of the amendments is May 16, 2011.\7\
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\6\ See Securities Exchange Act Release No. 61566 (February 22,
2010), 75 FR 9262 (March 1, 2010). See also Regulatory Notice 10-23
(April 2010).
\7\ See Regulatory Notice 10-55 (October 2010). See also
Securities Exchange Act Release No. 63223 (November 1, 2010), 75 FR
68654 (November 8, 2010).
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Although some Asset-Backed Securities are structured like
conventional corporate bonds (i.e., generally, one bond has a par (or
principal) value of $1,000), many are structured differently. For
example, many Asset-Backed Securities are based on financial assets
that amortize, and the principal (or face) value declines over time.
Accordingly, transactions in Asset-Backed Securities will not be
reported to TRACE on a ``per-bond'' basis like conventional corporate
bonds, but rather will be reported based on the original principal (or
face) value of the underlying security or the Remaining Principal
Balance.\8\
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\8\ FINRA Rule 6710(aa) defines ``Remaining Principal Balance''
for an Asset-Backed Security backed by a pool of mortgages or other
assets that are self-amortizing, as ``the total unpaid principal
balance of all such mortgages, or the equivalent remaining value of
such self-amortizing assets held in the asset pool, at a specific
time, such as the Time of Execution.'' See SR-FINRA-2009-065.
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FINRA is proposing to conform the TAF rate for sales of Asset-
Backed Securities to make it consistent with how such transactions are
reported to TRACE rather than use the existing per-bond rate.
Consequently, FINRA is proposing to base the TAF for sales of Asset-
Backed Securities on the size of the transaction as reported to TRACE
(i.e., par value, or, where par value is not used to determine the size
of the transaction, the lesser of original face value or Remaining
Principal Balance) at a rate of $0.00000075 times the size of the
transaction as reported to TRACE, with a maximum charge of $0.75 per
trade. Because, under the per-bond method of calculation, one bond
represents $1,000 in par value, the TAF rate across all Reportable
TRACE Transactions subject to the TAF will be the same, regardless of
whether the transaction is in corporate bonds or Asset-Backed
Securities.
In addition to the amendment to the TAF rate, FINRA is proposing
technical changes to capitalize certain terms in the TAF rule to
identify terms that are defined elsewhere in the FINRA Rulebook (e.g.,
TRAC-Eligible Security) and to correct one rule cross-reference.
The effective date of the proposed rule change will be the date the
proposed rule changes in SR-FINRA-2009-065 become effective, which is
currently anticipated to be May 16, 2011.\9\
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\9\ See Regulatory Notice 10-55 (October 2010). See also
Securities Exchange Act Release No. 63223 (November 1, 2010), 75 FR
68654 (November 8, 2010); Securities Exchange Act Release No. 61566
(February 22, 2010), 75 FR 9262 (March 1, 2010); Regulatory Notice
10-23 (April 2010).
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\10\ 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 rule change will clarify the
application of the TAF to sales of Asset-Backed Securities and will
ensure these transactions are treated in the same way as transactions
reported to TRACE in other types of fixed income securities.
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\10\ 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 shall:
(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:
[[Page 4968]]
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-FINRA-2011-004 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-2011-004. This
file number should be included on the subject line if e-mail 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 website
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 inspection and copying 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 available
publicly. All submissions should refer to File No. SR-FINRA-2011-004
and should be submitted on or before February 17, 2011.
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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1727 Filed 1-26-11; 8:45 am]
BILLING CODE 8011-01-P