[Federal Register Volume 76, Number 203 (Thursday, October 20, 2011)]
[Notices]
[Pages 65313-65315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-27132]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65551; File No. SR-FINRA-2011-056]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule 7730 Regarding TRACE Reporting Fees
For Transactions in Agency Pass-Through Mortgage-Backed Securities
Traded ``To Be Announced''
October 13, 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 September 30, 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, 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 7730 to establish a
transaction reporting fee of $1.50 per transaction for a TRACE-Eligible
Security that is an Agency Pass-Through Mortgage-Backed Security traded
``to be announced'' and to incorporate minor technical amendments.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On May 16, 2011, amendments to the FINRA Rule 6700 Series (the
TRACE rules) and Rule 7730 (TRACE fees) became effective.\5\ The
amendments defined Asset-Backed Securities (``ABS'') as TRACE-Eligible
Securities and extended TRACE reporting requirements to transactions in
ABS in the TRACE rules.\6\ In addition, the TRACE reporting fees in
effect for transactions in corporate bonds and Agency Debt Securities
were extended to transactions in ABS in Rule 7730.\7\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 61566 (February 22,
2010), 75 FR 9262 (March 1, 2010) (order approving File No. SR-
FINRA-2009-065) (``TRACE ABS filing''); Securities Exchange Act
Release No. 64364 (April 28, 2011), 76 FR 25385 (May 4, 2011) (order
approving File No. SR-FINRA-2011-012) (``supplemental TRACE ABS
filing''); Regulatory Notice 10-55 (October 2010) (establishing May
16, 2011 as the effective date for the TRACE ABS filing); and
Regulatory Notice 11-20 (May 2011) (establishing May 16, 2011 as the
effective date for the supplemental TRACE ABS filing).
\6\ ``Asset-Backed Security'' and ``TRACE-Eligible Security''
are defined in, respectively, Rule 6710(m) and Rule 6710(a).
\7\ ``Agency Debt Security'' is defined in Rule 6710(l).
---------------------------------------------------------------------------
As a result, currently the reporting fee for transactions in ABS,
including Agency Pass-Through Mortgage-Backed Securities (``Agency
Pass-Through MBS'') traded to-be-announced
[[Page 65314]]
(``TBA''),\8\ is based upon a sliding scale and ranges from $0.475 to
$2.375 per transaction depending upon the size (volume) of the reported
transaction.\9\ Most ABS transactions, including Agency Pass-Through
MBS traded TBA (``TBA transactions''), are in excess of $1,000,000 par
value (or, in the case of certain ABS, in excess of $1,000,000 as
measured by the original face value or Remaining Principal Balance of
the security, as applicable).\10\ Thus, for most ABS transactions, the
highest reporting fee, $2.375 per transaction, applies.
---------------------------------------------------------------------------
\8\ As provided in Rule 6710(v), ``Agency Pass-Through Mortgage-
Backed Security'' means
``a mortgage-backed security issued by an Agency or a
Government-Sponsored Enterprise, for which the timely payment of
principal and interest is guaranteed by an Agency or a Government-
Sponsored Enterprise, representing ownership interests in a pool or
pools of residential mortgage loans with the security structured to
``pass through'' the principal and interest payments made by the
mortgagees to the owners of the pool(s) on a pro rata basis.''
``Agency'' and ``Government-Sponsored Enterprise'' (``GSE'') are
defined in, respectively, Rule 6710(k) and Rule 6710(n).
As provided in Rule 6710(u), ``TBA'' means
`` `to be announced' and refers to a transaction in an Agency
Pass-Through Mortgage-Backed Security * * * where the parties agree
that the seller will deliver to the buyer an Agency Pass-Through
Mortgage-Backed Security of a specified face amount and coupon from
a specified Agency or Government-Sponsored Enterprise program
representing a pool (or pools) of mortgages (that are not specified
by unique pool number).''
In a transaction traded TBA, the parties agree on a price for
delivering a given volume of Agency Pass-Through MBS at a specified
future date.
\9\ As set forth in Rule 7730(b)(1)(A), for trades up to and
including $200,000 par value, the reporting fee is $0.475 per trade;
for trades over $200,000 and up to and including $999,999.99 par
value, the reporting fee is $0.000002375 times par value (i.e.,
$0.002375 per $1000 par value) per trade; and for trades of
$1,000,000 par value or more, the reporting fee is $2.375 per trade.
(Trade reporting and other TRACE fees are also summarized in a fee
chart in Rule 7730.)
\10\ For some ABS transactions, including TBA transactions, par
value is not the correct term to describe the size (volume) of a
transaction. When calculating reporting fees for transactions in
such securities, Rule 7730(b)(1)(B) provides that the size (volume)
of a transaction is the lesser of the original face value or the
Remaining Principal Balance. ``Remaining Principal Balance'' and
``Time of Execution'' are defined in, respectively, Rule 6710(aa)
and Rule 6710(d).
---------------------------------------------------------------------------
FINRA proposes to amend the transaction reporting fee in Rule 7730
applicable to TBA transactions. Specifically, FINRA proposes to charge
a member a flat fee of $1.50 per TBA transaction in lieu of the current
reporting fee that is based upon a sliding scale depending on the size
(volume) of the transaction.\11\
---------------------------------------------------------------------------
\11\ The proposed TBA transaction fee would be set forth in Rule
7730(b)(1)(B). FINRA also proposes three minor technical amendments
to Rule 7730(b)(1). The provision regarding the sliding scale, which
determines a reporting fee based on the size (volume) of a
transaction, would be incorporated in Rule 7730(b)(1)(B) and deleted
in Rule 7730(b)(1)(A). The provision indicating that, for ABS where
par value is not used to determine the size (volume) of a
transaction, for purposes of trade reporting fees, the size (volume)
of a transaction is the lesser of the original face value or the
Remaining Principal Balance would be incorporated in Rule
7730(b)(1)(A) and deleted in Rule 7730(b)(1)(B). In addition, the
final sentence of current Rule 7730(b)(1)(B) would be deleted.
---------------------------------------------------------------------------
Agency Pass-Through MBS are the most liquid sector among all ABS,
and transactions in Agency Pass-Through MBS are a significant share of
the volume of all ABS transactions. Many Agency Pass-Through MBS are
TBA transactions. The proposed amendment to Rule 7730 to modify the
reporting fee from multiple rates based upon transaction size (volume)
to a flat rate of $1.50 per transaction for TBA transactions regardless
of transaction size (volume) would reduce the reporting fee for
approximately 95 percent of all TBA transactions.\12\ In addition, the
proposed fee reduction would substantially reduce reporting fees that
members pay in connection with ABS transactions in general, as TBA
transactions account for approximately 85 percent of the total volume
(size) traded in ABS and approximately 51 percent of all ABS
transactions.\13\
---------------------------------------------------------------------------
\12\ A review of ABS transaction data reported to TRACE between
May 16, 2011 and July 31, 2011, indicates that more than 95 percent
of all TBA transactions are larger than $1 million and, thus, are
billed at the rate of $2.375 per transaction. Reducing the reporting
fee to a flat fee of $1.50 per transaction will raise fees on
approximately five percent of TBA transactions, and lower fees on
approximately 95 percent of such transactions.
\13\ A review of ABS transaction data reported to TRACE between
May 16, 2011 and July 31, 2011, showed that TBAs trade in a liquid
market. The average daily volume of TBA transactions is
approximately $219 billion. The average daily number of trades is
slightly more than 7,000. The average daily volume of TBA
transactions is approximately ten times the average daily volume of
all corporate bonds.
---------------------------------------------------------------------------
FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date will be November 1, 2011.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\14\ 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 amendment, which will
establish a flat fee per transaction for reporting TBA transactions
regardless of the size (volume) of the TBA transaction, is a reasonable
and fair adjustment to TRACE reporting fees in that, currently, for TBA
transactions, members are subject to the highest TRACE reporting fee
for almost all such transactions, and the proposed amendment will
reduce the reporting fee for 95 percent of such transactions, and will
result in a more equitable allocation among members for ABS reporting
fees.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------
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 \15\ and paragraph (f)(2) of Rule 19b-4
thereunder.\16\ 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.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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 e-mail to [email protected]. Please include
File Number SR-FINRA-2011-056 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary,
[[Page 65315]]
Securities and Exchange Commission, 100 F Street, NE., Washington DC
20549-1090.
All submissions should refer to File Number SR-FINRA-2011-056. 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 Web site
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 the filing will also 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-2011-056
and should be submitted on or before November 10, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-27132 Filed 10-19-11; 8:45 am]
BILLING CODE 8011-01-P