[Federal Register Volume 73, Number 53 (Tuesday, March 18, 2008)]
[Notices]
[Pages 14517-14519]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-5355]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57474; File No. SR-FINRA-2008-001]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to
Amendments to FINRA's Gross Income Assessment and Technical Changes to
Schedule A to FINRA's By-Laws
March 11, 2008.
I. Introduction
On January 10, 2008, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers,
Inc. (``NASD'')) \1\ filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4
thereunder,\3\ a proposed rule change to amend Schedule A to the FINRA
By-Laws to amend the Gross Income Assessment (``GIA'') paid by each
FINRA member and to update the references to NASD that appear in
Schedule A to the FINRA By-Laws. The proposed rule change was published
for comment in the Federal Register on February 7, 2008.\4\ The
Commission received no comment letters on the proposed rule change.
This order approves the proposed rule change.
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\1\ On July 26, 2007, the Commission approved a proposed rule
change filed by NASD to amend NASD's Certificate of Incorporation to
reflect its name change to the Financial Industry Regulatory
Authority, Inc., or FINRA, in connection with the consolidation of
the member firm regulatory functions of NASD and New York Stock
Exchange Regulation, Inc. (``NYSE''). See Securities Exchange Act
Release No. 56145 (July 26, 2007), 72 FR 42169 (August 1, 2007).
\2\ 15 U.S.C. 78s(b)(1).
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 57259 (February 1,
2008), 73 FR 7340 (``Notice'').
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II. Description of the Proposed Rule Change
On July 30, 2007, NASD and the NYSE consolidated their member firm
regulation operations into a combined organization, FINRA. The proposed
rule change seeks to consolidate certain regulatory fees imposed by
NASD and NYSE that will be applied retroactively to January 1, 2008.
FINRA will announce this fee change in a Regulatory Notice.
FINRA's member regulatory pricing structure currently consists
primarily of the following fees: the GIA; The Trading Activity Fee
(``TAF''); the Personnel Assessment (``PA''); and the Branch Office
Assessment (``BOA''). As part of the consolidation, NYSE committed to
transfer to FINRA certain regulatory revenues for the remainder of
2007.\5\ NYSE fees subject to the transfer agreement include a gross
FOCUS (Financial and Operational Combined Uniform Single Report) fee
(``GFF'') \6\
[[Page 14518]]
and registration fees for branch offices\7\ and registered
representatives.\8\
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\5\ See Securities Exchange Act Release No. 56181 (August 1,
2007); 72 FR 44206 (August 7, 2007) (Notice of Filing and Immediate
Effectiveness of SR-NYSE-2007-70).
\6\ The GFF is comparable to FINRA's GIA. See Section 1(c) of
Schedule A of FINRA By-Laws.
\7\ See NYSE Rule 342, Supplementary Material .11. NYSE's
registration fee for branch offices is comparable to FINRA's Branch
Office System Processing Fee. See also Section 4(a) of Schedule A of
FINRA By-Laws.
\8\ See NYSE Rule 345, Supplementary Material .14. NYSE's
registration fee for registered representatives is comparable to
FINRA's registration fees for the registration of representatives or
principals. See also Section 4(b) of Schedule A of FINRA By-Laws.
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FINRA now proposes to: (1) Eliminate NYSE's legacy registration
fees for branch offices and registered representatives, which totals
approximately $18.6 million in fee reductions;\9\ (2) maintain FINRA's
fee structures and levels for the TAF, the BOA and the PA; and (3)
consolidate, with certain adjustments, FINRA's GIA rate structure with
NYSE's GFF rate structure.\10\
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\9\ See Securities Exchange Act Release No. 57093 (January 3,
2008), 73 FR 1654 (January 9, 2008) (Notice of Filing and Immediate
Effectiveness of SR-NYSE-2007-127).
\10\ The NYSE will continue to charge its member organizations
an annual gross FOCUS fee; however, the fee was reduced by 75
percent beginning in 2008. See Securities Exchange Act Release No.
56181, supra note 5. The reduced gross FOCUS fee charged by NYSE
will be retained by NYSE and will not be forwarded to FINRA.
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The GIA is currently assessed through a three-tier rate structure
with a minimum GIA of $1,200.00. Under the current GIA, members are
required to pay an annual GIA equal to the greater of $1,200.00 or the
total of: (1) 0.125% of annual gross revenue less than or equal to $100
million; (2) 0.029% of annual gross revenue greater than $100 million
up to $1 billion; and (3) 0.014% of annual gross revenue greater than
$1 billion.\11\ In contrast, the legacy GFF was assessed at a flat rate
of $0.42 per $1,000 of gross FOCUS revenue (or 0.042%).
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\11\ Gross revenue for assessment purposes is set out in Section
2 of Schedule A of FINRA's By-Laws, which defines gross revenue as
total income as reported on FOCUS form Part II or IIA excluding
commodities income.
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To consolidate these two legacy fees, FINRA proposes to retain the
minimum assessment under the GIA of $1,200.00, with the ceiling
increased from $960,000.00 to $1 million of annual assessable revenue.
Because FINRA has committed to reduce the GIA by $1,200.00 per year for
five years, subject to annual approval by FINRA's Board of Directors,
the proposal will effectively reduce the GIA to $0 for the first $1
million of annual assessable revenue. For annual gross revenue over $1
million, the regressive rate structure of the legacy GIA and the flat
rate structure of the legacy GFF will be combined into a new seven-
tiered rate structure. Under the proposed rule change, members will be
assessed a GIA of:
(1) $1,200 on annual gross revenue up to $1 million;
(2) 0.1215% of annual gross revenue greater than $1 million up to
$25 million;
(3) 0.2599% of annual gross revenue greater than $25 million up to
$50 million;
(4) 0.0518% of annual gross revenue greater than $50 million up to
$100 million;
(5) 0.0365% of annual gross revenue greater than $100 million up to
$5 billion;
(6) 0.0397% of annual gross revenue greater than $5 billion up to
$25 billion; and
(7) 0.0855% of annual gross revenue greater than $25 billion.
The new rate structure will be implemented over a three-year period
beginning in 2008. During this period, the change in the GIA paid to
FINRA by each member will be subject to a cap based on the fees that
the member would have paid under the prior NASD and NYSE rate
structures. In 2008, a member's GIA will not be impacted by the new
rate structure. In 2009, any increase or decrease to the member's GIA
resulting from the new rate structure will be capped at a five percent
increase or decrease. In 2010, any increase or decrease to the member's
GIA resulting from the new rate structure will be capped at a ten
percent increase or decrease. During this implementation period, a
firm's GIA may increase or decrease due to a change in the member's
assessable revenue from year to year; however, any changes to the
firm's GIA that result from the change in rate structure will be
subject to the cap.
For firms that were members of NASD only (not NYSE) as of July 30,
2007, the cap will be calculated based upon the GIA that the member
firm would have paid under the prior NASD GIA rate structure. For firms
that became, or become, FINRA members on or after July 30, 2007
(excluding those firms that were members of NYSE only as of July 30,
2007, and were subsequently required to become FINRA members pursuant
to NYSE Rule 2), the cap will be calculated based upon the GIA that the
member firm would have paid under the prior NASD GIA rate structure.
For firms that were members of the NYSE only (not NASD) as of July 30,
2007, the cap will be calculated based upon the NYSE GFF that the
member would have paid under the prior NYSE GFF rate structure.\12\ For
firms that were members of both NASD and the NYSE as of July 30, 2007
(``Dual Members''), the cap will be calculated based upon the GIA and
the GFF that the member would have paid under the prior NASD GIA rate
structure and the prior NYSE GFF rate structure.\13\
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\12\ In calculating the cap based upon the GFF that a member
would have paid under the prior NYSE GFF rate structure, FINRA will
use only that portion of the GFF that would have been transferred by
the NYSE to FINRA (i.e., 75 percent of the GFF paid by the member
firm).
\13\ For an example of how the fees are calculated, see Notice,
supra note 4, at note 15.
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III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities association.\14\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 15A(b)(5) of the Act \15\ in that it provides
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.
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\14\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78o-3(b)(5).
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The proposed rule change creates a single fee structure for FINRA
that avoids duplicative fees charged by both FINRA and NYSE.
Specifically, the proposed rule change creates a seven-tiered rate
structure that balances NASD's legacy GIA tiered rate structure with
NYSE's legacy GFF flat rate structure. FINRA represents that the
proposed rule change will result in aggregate fee reductions of
approximately $25 million dollars in 2008 and forward. FINRA estimates
that, under the proposed rate structure, 93 percent of member firms
will have either no change to their GIA or a reduced GIA due to this
new rate structure. In addition, to minimize the impact on members, the
new rate structure will be implemented over a three-year period
beginning in 2008. Despite the reduction in revenue that will result
from the new rate structure, FINRA also represents that the revenue
collected under the proposal will adequately fund its member regulatory
programs, including the regulation of members through examination,
policymaking, rulemaking and enforcement activities. Accordingly, the
Commission believes that the proposed rule change is consistent with
the Act.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-FINRA-2008-001), be, and it
hereby is, approved.
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\16\ 15 U.S.C. 78s(b)(2).
\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-5355 Filed 3-17-08; 8:45 am]
BILLING CODE 8011-01-P