[Federal Register Volume 76, Number 47 (Thursday, March 10, 2011)]
[Notices]
[Pages 13248-13249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5518]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64041; File No. SR-FINRA-2011-004]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Granting Approval of a Proposed Rule Change
Relating to the Trading Activity Fee Rate for Transactions in Asset-
Backed Securities
March 4, 2011.
I. Introduction
On January 10, 2011, the 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 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to provide a new method of calculating the Trading
Activity Fee (``TAF'') for transactions in Asset-Backed Securities. The
proposed rule change was published for comment in the Federal Register
on January 27, 2011.\3\ The Commission received no comments on the
proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 63751 (January 21,
2011), 76 FR 4966 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
FINRA proposes to amend Section 1 of Schedule A to the FINRA By-
Laws to provide a new method of calculating the TAF \4\ for
transactions in Asset-Backed Securities.\5\ 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.\6\
Generally, the TAF is assessed on the sale of all exchange-registered
securities wherever executed (except debt securities that are not Trade
Reporting and Compliance Engine (``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 MSRB reporting
requirements. The rules governing the TAF also include a list of
transactions exempt from the TAF.\7\
---------------------------------------------------------------------------
\4\ See FINRA By-Laws, Schedule A, section 1 (describing how the
TAF is applied).
\5\ See FINRA Rule 6710(m) (defining ``Asset-Backed Security'').
\6\ In addition to the TAF, the other member regulatory fees are
the Gross Income Assessment and the Personnel Assessment.
\7\ See FINRA By-Laws, Schedule A, section 1(b)(2).
---------------------------------------------------------------------------
In 2010, the Commission approved a proposed rule change that
generally makes transactions in Asset-Backed Securities reportable to
TRACE.\8\ Because Asset-Backed Securities will be TRACE-Eligible
Securities, transactions in Asset-Backed Securities will generally be
subject to the TAF.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 61566 (February 22,
2010), 75 FR 9262 (March 1, 2010). See also Regulatory Notice 10-23
(April 2010).
---------------------------------------------------------------------------
Currently, when reporting the size of a corporate bond transaction
to TRACE, the number of bonds is reported 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).\9\ Based on 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. Although some Asset-Backed Securities are structured like
conventional corporate bonds, 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.
---------------------------------------------------------------------------
\9\ See FINRA Rules 6730(c)(2) and 6730(d)(2).
---------------------------------------------------------------------------
Consequently, FINRA is proposing to conform the TAF rate for sales
of Asset-Backed Securities consistent with the reporting of such
transactions to TRACE. Accordingly, 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.
The effective date of the proposed rule change will be the date the
proposed rule change SR-FINRA-2009-065 becomes effective, which is
currently anticipated to be May 16, 2011.\10\
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 63223 (November 1,
2010), 75 FR 68654 (November 8, 2010) (extending the operational
date of SR-FINRA-2009-065 to no later than June 1, 2011).
---------------------------------------------------------------------------
[[Page 13249]]
III. Discussion and Commission's 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.\11\ In particular, the Commission finds that
the proposal is consistent with Section 15A(b)(5) of the Act,\12\ 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 any facility or
system that the association operates or controls. The Commission
believes that the proposal is reasonably designed to impose equitable
fees on members that transact in Asset-Backed Securities, where the
principal value of the securities may decline over time.
---------------------------------------------------------------------------
\11\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-FINRA-2011-004), be, and
hereby is, approved.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(2).
\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5518 Filed 3-9-11; 8:45 am]
BILLING CODE 8011-01-P