Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of a Proposed Rule Change Relating to Section 1(c) of Schedule A to the FINRA By-Laws To Amend the Personnel Assessment and Gross Income Assessment, 62616-62623 [E9-28472]
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Federal Register / Vol. 74, No. 228 / Monday, November 30, 2009 / Notices
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
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.
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:
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2009–100 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–NYSEArca–2009–100. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission,15 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 inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549–1090 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
NYSE Arca’s principal office and on its
Internet Web site at www.nyse.com. All
proposed rules impact on efficiency, competition
and capital formation. See 15 U.S.C. 78c(f).
15 The text of the proposed rule change is
available on the Commission’s Web site at https://
www.sec.gov/.
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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
Number SR–NYSEArca–2009–100 and
should be submitted on or before
December 21, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–28535 Filed 11–27–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61042; File No. SR–FINRA–
2009–057]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Granting
Approval of a Proposed Rule Change
Relating to Section 1(c) of Schedule A
to the FINRA By-Laws To Amend the
Personnel Assessment and Gross
Income Assessment
November 20, 2009.
I. Introduction
On August 20, 2009, Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (formerly known as the
National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2 to
amend Section 1(c) of Schedule A to the
FINRA By-Laws (‘‘Schedule A’’) to
increase the Personnel Assessment and
to revise the formulation of the Gross
Income Assessment calculation to be
paid by each FINRA member. The
proposed rule change was published for
comment in the Federal Register on
September 11, 2009.3 The Commission
received 745 comment letters on the
proposal.4 FINRA submitted a response
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 60624
(September 3, 2009), 74 FR 46828 (September 11,
2009) (‘‘Notice’’).
4 676 of the letters were form comment letters. Of
these, four utilized ‘‘Letter Type A’’ and 672
utilized ‘‘Letter Type B.’’ An example of Letter Type
A and Letter B as well as all of the non-form
comment letters are posted on the Commission’s
Internet Web site (https://www.sec.gov/comments/sr1 15
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to the comment letters on November 18,
2009.5 This order approves the
proposal.
II. Description of FINRA’s Proposal
Currently, FINRA’s primary fee
structure to support its regulatory
programs consists of the following fees:
the Personnel Assessment (‘‘PA’’); the
Gross Income Assessment (‘‘GIA’’); the
Trading Activity Fee; and the Branch
Office Assessment. These fees are used
to fund FINRA’s regulatory activities,
including rulemaking and FINRA’s
examination and enforcement programs.
According to FINRA, the economic and
industry downturns experienced in
2008 and 2009 have strained FINRA’s
resources, yet its regulatory
responsibilities remain constant and its
programs robust. To stabilize its
revenues and provide protection against
future industry downturns, FINRA
proposes to increase the PA and revise
the calculation of the GIA. This will
enable FINRA to achieve a more
consistent and predictable funding
stream to carry out FINRA’s regulatory
mandate.
To those ends, the proposed rule
change will increase the PA for all
members. The PA currently is assessed
on a three-tiered rate structure based on
the number of the firm’s registered
representatives and principals
(‘‘registered persons’’) as follows:
members with one to five registered
persons are assessed $75 for each such
registered person; 6–25 registered
persons, $70 for each such registered
person; and 26 or more registered
persons, $65 for each such registered
person. The proposed rule change will
increase those rates, for the first time in
five years, to $150, $140, and $130,
respectively, based on the same tiered
structure. FINRA notes that there is a
correlation between the cost of FINRA’s
regulatory programs and the number of
registered persons within a firm and
that the population of registered persons
has remained fairly stable, even
throughout the recent economic
downturn.6 Accordingly, FINRA
believes that an increase of the PA is
finra-2009–057/finra2009057.shtml). See Exhibit 1
for a list of comment letters noted on the
Commission’s Internet Web site. All 745 comment
letters are available for inspection and copying at
the Commission’s Public Reference Room.
5 See letter from Phillip Shaikun, Associate Vice
President and Associate General Counsel, FINRA, to
Elizabeth M. Murphy, Secretary, Commission, dated
November 18, 2009. (‘‘Response Letter’’).
6 For example, FINRA records show that since
2000, the average number of registered persons per
year has been approximately 667,680 and that for
each of the past three years the population has been
669,626 (2009), 676,927 (2008) and 662,742 (2007)
(based on numbers at the end of the preceding
calendar year).
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both a fair and appropriate means to
achieve a more consistent and reliable
foundation to fund its regulatory
operations.
FINRA states that even with the
proposed increase of the PA, the GIA
remains the most important component
of FINRA’s regulatory funding. The GIA
is currently assessed through a seventier rate structure with a minimum GIA
of $1,200.00. Under the existing GIA
rate structure, members are required to
pay an annual GIA as follows:
(1) $1,200.00 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.
For 2010, the current year GIA will be
subject to the cap set forth in Regulatory
Notice 08–07 (February 2008), which
describes the funding structure that
resulted from the consolidation of
NASD’s and the New York Stock
Exchange’s member regulation
operations. FINRA states in Regulatory
Notice 08–07 that it will apply a 10%
cap on any increase or decrease to a
firm’s 2010 current year GIA 7 resulting
from the new pricing structure
implemented in January 2008.
According to FINRA, since the GIA is
assessed based on a member’s annual
gross revenue for the preceding calendar
year,8 FINRA’s revenues derived from
the GIA are subject to the year-to-year
volatility of member revenues. In years
when industry revenues are
significantly lower, FINRA’s operating
revenues can drop precipitously. In
2009, for example, GIA revenues are
down by approximately 37% compared
to 2008 due to 2008 fourth quarter
write-offs taken by members,
particularly the largest securities firms.
7 ‘‘2010 current year GIA’’ means the amount of
GIA assessment due under the proposed new
formulation. However, if 2010 current year GIA
represents an increase or decrease of more than
10% compared to 2009 current year GIA, the
increase or decrease will be capped at 10%.
8 Gross revenue for assessment purposes is set out
in Section 2 of Schedule A, which defines gross
revenue as total income as reported on FOCUS form
Part II or IIA excluding commodities income.
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The proposed rule change seeks to
ameliorate this vulnerability not only by
shifting some of FINRA’s revenue
generation to the more consistent PA
stream, but also by smoothing out the
volatility inherent in the GIA. To that
end, the proposed rule change will
amend Schedule A to assess a GIA that
is the greater of: (1) The amount that
will be the GIA based on the existing
rate structure (‘‘current year GIA’’); or
(2) a three-year average of the GIA to be
calculated by adding the current year
GIA plus the GIA assessed on the
member over the previous two calendar
years, divided by three. For a newer
firm that has been assessed only in the
prior year, FINRA will compare the
current year GIA to the two-year average
and assess the greater amount. The
existing GIA rate structure and phase-in
implementation through 2010 will
remain the same.9 Accordingly, the
proposed rule change will preserve the
current rate structure, while building a
buffer against industry downturns.
FINRA notes that it has a long history
of providing rebates to members when
revenues exceed the expenditures
necessary to discharge its regulatory
obligations and is committed to
continuing that practice in the future.
FINRA believes that the proposed rule
change will stabilize its operating cash
flows by augmenting revenues based on
the registered person population (on
which FINRA’s costs are more closely
aligned) and reducing dependency on,
and exposure to, less predictable
industry revenues. FINRA estimates
that, if the proposed rule change had
been in effect for 2009, it would have
replaced about 90% of the revenue
shortfall that resulted primarily from the
significant drop in GIA revenues.
FINRA notes that, in general, those
replacement revenues will come from
several larger firms whose steep income
declines in 2008 primarily account for
FINRA’s current revenue deficit.
FINRA intends to announce the
proposed rule change and its approval
by the Commission in a Regulatory
Notice. The proposed rule change will
become effective January 1, 2010.
III. Discussion of Comments and
Commission Findings
The Commission received 676 form
comment letters, and 69 individual
comment letters, regarding this
proposal. FINRA responded to the
comment letters on November 18,
2009.10 After careful review of the
proposal and consideration of the
comment letters and the Response
Letter, the Commission finds, for the
reasons discussed below, that the
proposed rule change 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 proposed
rule change is consistent with Section
15A(b)(5) of the Act,12 which requires,
among other things, that FINRA’s 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
which the association operates or
controls.
The commenters object to FINRA’s fee
proposal primarily for the following
reasons: (1) FINRA should have
anticipated the market downturn and
budgeted accordingly; (2) the proposed
assessment increases are unreasonable
in light of the difficult economic times
for the industry and fee increases
imposed by other entities, including
regulators and market operators; (3) the
percentage increase of the PA is too
steep and out of step with inflation; and
(4) the proposed increases will
disproportionately impact small and
independent broker-dealers that were
not responsible for FINRA’s revenue
shortfalls. Some commenters question
whether the proposed rule change meets
the statutory requirements of Section
15A(b)(5) of the Act. Several
commenters offer alternative approaches
to the proposed changes to the PA and
GIA fees, including: implementing caps
on the PA and GIA increases;
implementing a phase-in period for the
PA and GIA increases; reversing the
volume discount structure for the PA
assessment; and using a three-year GIA
average instead of the proposed higher
of actual year GIA or the three-year GIA
average.
As an initial matter, the Commission
notes that, as a national securities
association, FINRA is obligated to be so
organized and to have the capacity to be
able to carry out the purposes of the Act
and (subject to any rule or order of the
Commission pursuant to Section 17(d)
or 19(g)(2) of the Act) 13 to enforce
compliance by its members and persons
associated with its members, with the
provisions of the Act, and rules and
10 See
Response Letter, supra note 5.
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).
12 15 U.S.C. 78o–3(b)(5).
13 See 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2).
11 In
9 The actual amount of GIA assessed in any given
year, e.g., the current year GIA (including a cap, if
applicable) or the three-year average, will be used
to calculate subsequent three-year average
determinations.
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regulations thereunder, and FINRA’s
own rules.14 Adequate regulatory
funding is critical to FINRA’s ability to
meet these statutory requirements.
While some member firms
understandably question whether it is
reasonable for FINRA to increase
regulatory fees at a time when the
securities industry has faced declining
revenues as a result of the economic
downturn, it is incumbent on FINRA to
continue to support a robust regulatory
program irrespective of market events.
The discussion below addresses the
significant issues raised by the
commenters, FINRA’s response to those
comments, and the Commission’s views
with respect to those issues.
A. PA Increase Is Equitable
Currently, FINRA member firms are
charged annually per registered person
at the following rates: firms with up to
five registered persons pay $75 for each
such person; firms with between 6–25
registered persons pay $70 for each such
person (a 6.7% discount from $75);
firms with over 25 registered persons
pay $65 for each person (a 13.3%
discount from $75). The proposal will
increase the rates to $150, $140 (a 6.7%
discount from $150), and $130 (a 13.3%
discount from $150), respectively.
While most commenters, including the
672 Form B commenters, state
specifically that the GIA assessment
changes unfairly burden small
independent broker-dealers,15 some
commenters note in general that any
increase in fees, including the PA
increase, unfairly burdens independent
broker-dealers, especially in the current
economic climate.16 One of these
commenters advocates for a reversal of
the discount structure, noting that
FINRA should offer per person
discounts to the smallest firms instead
of the largest firms, to remedy the
alleged inequities.17 Another
commenter argues that the number of
representatives is not necessarily a
better indicator of FINRA resources
consumed than overall income.18 This
commenter advocates for a more
complex PA structure with additional
tiers and possible differentiation of PA
rates based on the activity that the
registered representative conducts, e.g.,
a higher PA rate for Series 7 registered
representatives than for Series 6.
Another commenter supports placing a
14 15
U.S.C. 78o–3(b)(2).
issue of whether the GIA fee revision is
equitable is addressed in Section III.C. infra.
16 See, e.g., First Independent Letter, Financial
Network Letter, Form Letter B, Sykes Financial
Letter, and Whitestone Letter, infra in Exhibit 1.
17 See Abel Noser Letter, infra in Exhibit 1.
18 See State Farm Letter, infra in Exhibit 1.
15 The
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limit on the annual percentage increase
in the PA to ten percent, if the PA
increase is approved.19 This commenter
favors a fee structure in which firms
engaging in higher-risk activities would
be subject to higher fees.
The Commission notes that the
current three-tiered PA structure,
including the discount percentages, was
found to be consistent with the Act and
was approved by the Commission nearly
seven years ago.20 The proposed
increase to the PA will not change the
three-tiered structure of the PA or the
level of the discount percentages for
larger firms. Also, the manner of
allocation of the PA fee among FINRA
members will remain unchanged.
Moreover, viewing the increase in
absolute dollar terms, FINRA estimates
that the average increase in total PA fees
for firms with 100 or fewer registered
persons, a population that constitutes
4,074 out of 4,868, or nearly 84%, of
FINRA firms, will amount to
approximately $1,000 per firm, whereas
the largest 100 firms (based on the
number of registered persons as of year
end 2008) will experience an average
increase of approximately $300,000.21
Lastly, as FINRA notes, the number of
registered representatives is a significant
factor that impacts FINRA’s oversight
responsibilities and thus is an equitable
criterion for assessing PA fees.22
Therefore, additional tiers and/or
differentiation based on Series 6 or
Series 7 or other criteria is not
necessarily a better solution. The
Commission finds that the PA increase
based on the current three-tiered PA fee
structure is an equitable allocation of
fees.23
B. PA Increase Is Reasonable
735 commenters argue that a 100%
increase in annual PA fees is an
unreasonably large increase.24 Many
commenters note that an increase of
100% is not commensurate with the rate
of inflation over the past five years and,
19 See
MetLife Letter, infra in Exhibit 1.
Securities Exchange Act Release No. 47106
(December 30, 2002), 68 FR 819 (January 7, 2003)
(NASD–2002–99) (order approving current PA fee
structure).
21 See Response Letter, supra note 5 at page 6.
22 In 2008, FINRA conducted 4,924 oversight and
cause examinations. These examinations, in large
part, focused on broker-dealer conduct and activity
involving interaction with customers. As result, in
that year, FINRA brought 586 formal disciplinary
actions against registered representatives and an
additional 115 formal actions against member firms
for failing to supervise their employees. See
Response Letter, supra note 5 at page 6.
23 A discussion of the appropriateness of a PA fee
increase given these economic circumstances
follows in Section III.E.2. infra.
24 See, e.g., Form Letter B, Sykes Financial Letter,
and Whitestone Letter, infra in Exhibit 1.
20 See
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in general, is not justified.25 FINRA
responds to these comments by stating
that assessing the proposed fee change
in percentage terms and measuring it
against an inflation benchmark such as
the Consumer Price Index is not the
proper method of analysis.26 FINRA
contends that the proper measure of
reasonableness is arrived at by
comparing the absolute dollar value of
the increase against the costs associated
with operating FINRA’s regulatory
oversight programs and examination
and enforcement responsibilities.27
FINRA notes that over the past two
years, a time marked by modest
inflation, FINRA’s annual funding
mechanisms have proven insufficient to
sustain its regulatory programs.28
FINRA believes that, by assessing the
fee increase from this perspective, the
PA increase is reasonable and will better
align FINRA’s revenues with its costs.
Based on projections that the registered
representative population will modulate
at a rate consistent with historical
trends, FINRA estimates that the
proposal will result in a total increase
of $42 million in PA fees, an average of
approximately $8,600 per firm. As noted
above, FINRA further estimates that the
average increase in total PA fees for
firms with 100 or fewer registered
persons—a population that constitutes
4,074 out of 4,868, or nearly 84%, of
FINRA firms—will amount to
approximately $1,000 per firm, whereas
the largest 100 firms (based on the
number of registered persons as of year
end 2008) will see an average increase
of approximately $300,000. FINRA
notes that these estimates assume that
firms do not pass along the PA to the
individual registered persons, a practice
that FINRA understands is done in
certain segments of the securities
industry. For firms that do engage in
such practice, FINRA notes that the
impact will shift from the firm to the
registered persons.29
Furthermore, FINRA believes that a
PA fee of between $130 and $150 per
year is reasonable, particularly when
compared to other professional
licensing fees.30 According to FINRA,
for the past two years, the PA has
accounted for approximately 10–11% of
FINRA’s regulatory revenue.31 With
25 See, e.g., Form Letter B, Curnes Financial
Letter, and Marvel Financial Letter, infra in Exhibit
1.
26 See Response Letter, supra note 5 at page 5.
27 See Id. at page 5.
28 See Id. at page 5.
29 See Id. at page 6.
30 See Id. at page 6.
31 In 2008, PA accounted for $44 million of $454
million in total revenue or 9.7% and in 2009, PA
accounted for $44 million of $383 million in total
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adoption of the proposed rule change,
PA assessments will account for
approximately 19% of FINRA’s
regulatory revenue.32 FINRA believes
that this PA increase as a percentage of
total regulatory revenue creates a more
stable funding source with respect to
FINRA’s ability to mitigate any
potentially negative fluctuations in GIA
due to market conditions. FINRA
believes that this is particularly
important because regulatory demands
typically rise in declining markets.33
After reviewing the comment letters
and considering FINRA’s response to
the commenters’ issues, the Commission
believes that the PA increase is
reasonable. As FINRA notes, PA
revenue is less vulnerable to economic
fluctuations than the GIA. As a result,
increasing the portion of regulatory
revenue FINRA derives from the PA
should reduce overall revenue volatility.
In addition, the Commission believes
that the dollar amount of the PA
increase is reasonably correlated to
FINRA’s oversight of member firms and
their registered representatives and will
assist FINRA to comply with the
statutory requirement that it have the
capacity to be able to carry out the
purposes of the Act and to enforce
compliance by its members and persons
associated with its members, with
provisions of the Act, the rules and
regulations thereunder, and FINRA’s
own rules.34 Therefore, the Commission
finds the increase in PA fees to be
reasonable.35
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C. GIA Reformulation Is Equitable
719 commenters argue that the
burdens resulting from the
reformulation of the GIA calculation
will fall disproportionately on small
firms and independent broker-dealers.
Under the existing GIA rate structure,
members are required to pay an annual
GIA as follows:
(1) $1,200.00 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;
revenue or 11.5% See Response Letter, supra note
5 at page 4.
32 See Id. at page 4.
33 See Id. at pages 4 and 6.
34 See 15 U.S.C. 78o–3(b)(1)–(2).
35 In addition, should large revenue surpluses
occur in the future, FINRA notes that it will
consider rebating those surpluses to members.
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(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 proposed rule change will leave
this seven-tiered structure unchanged
but will assess GIA based on the greater
of the amount that will be the current
year GIA or a three-year average of the
GIA to be calculated by adding the
current year GIA plus the GIA assessed
on the member over the previous two
calendar years.36 In its Response Letter,
FINRA disagrees with the commenters
that the revised GIA formulation will
disadvantage small firms.37 FINRA
believes that the proposal instead aligns
the fee revision with the largest 100
firms (based on the number of registered
persons as of year-end of 2008 for PA
and the amount of GIA assessed for
2008) 38 that primarily caused the GIA
shortfall because of substantial writedowns against their FOCUS income.
FINRA offers evidence, discussed in
detailed below, in the form of data and
projections to demonstrate that the
change to the GIA formulation will not
unfairly burden small firms and
independent broker-dealers but will
largely fall on the largest 100 firms
(based on the number of registered
persons as of year-end of 2008 for PA
and the amount of GIA assessed for
2008 for GIA) whose dramatic GIA
decline in 2009 resulted in FINRA’s
need for additional fees.
FINRA notes that revenues from the
GIA have dropped nearly $100 million
since 2008. Nearly $95 million of that
decline relates to the GIA paid in by the
largest 100 GIA-assessed firms. Had the
new proposed GIA calculation been in
place for the 2009 billing cycle, FINRA
projects that approximately $47 million
(nearly 49%) of the lost revenues would
have been replaced, and these largest
100 GIA-assessed firms would have
absorbed approximately $44 million, or
nearly 94%, of the shortfall. For 2010,
FINRA estimates that with the proposed
fee structure, the percentage of GIA paid
will shift back toward the largest 100
GIA-assessed firms, rising to 63% from
57% in 2009. If the current GIA
structure remains in place, these 100
firms are estimated to account for only
59% of GIA in 2010.39
36 For newer firms that have only been assessed
in the prior year, FINRA will use a two-year average
instead of a three-year average.
37 See Response Letter, supra note 5 at page 6.
38 See Id. at pages 6–7.
39 See Id. at page 7.
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62619
For firms with 100 or fewer registered
persons, FINRA estimates that, if the
proposal had been implemented for
2009, the new GIA calculation would
have resulted in an average increased
GIA of $850 as compared to the actual
amount assessed on those firms.40
FINRA notes that these firms currently
receive a rebate of $1,200 against their
GIA fee and that that rebate will
continue until at least 2012. Therefore,
under the current and the proposed
GIA, these firms, if they have FOCUS
revenues of less than $1 million,
effectively pay no GIA assessment.41
The Financial Services Institute
(‘‘FSI’’), which represents the interests
of independent broker-dealers, believes
that the GIA modification is inequitably
allocated and will ‘‘fall particularly
heavily on independent broker-dealer
firms. * * * ’’ 42 FINRA believes that its
data shows that the proposal, if
implemented, will not disparately
impact the GIA of independent firms.43
FINRA reports that, for 2009,
independent broker-dealers paid a total
of $11.63 million in GIA fees. Under the
proposal, that figure is estimated to fall
to $11.17 million for 2010. By
comparison, the GIA of the largest 100
GIA-assessed firms is projected to rise
from $94 million in 2009 to $123.53
million under the proposal. Thus,
FINRA believes that the increases
resulting from the proposed GIA
calculation will fall most heavily not on
independent broker-dealers but on the
largest 100 GIA-assessed firms, which
include the several largest firms whose
steep income declines primarily account
for FINRA’s current revenue deficit.
After reviewing the comment letters
and considering FINRA’s Response
Letter, the Commission believes that the
GIA reformulation is an equitable
allocation of fees. As FINRA notes,
nearly 95% of the $100 million in GIA
revenue drop since 2008 is attributable
to the largest 100 GIA-assessed firms.
Had the proposed new GIA calculation
been in place for the 2009 billing cycle,
FINRA projects that approximately $47
million (nearly 49%) of the lost
revenues would have been replaced,
and those largest 100 GIA-assessed firms
would have absorbed approximately $44
million, or nearly 94%, of the shortfall.
FINRA estimates also show that the new
GIA calculation will increase the GIA
burden for the largest 100 GIA-assessed
firms in 2010 from 57% to 63% of total
GIA revenue. The GIA assessments for
40 See
Id. at page 7.
Id. at page 7.
42 See FSI Letter, infra in Exhibit 1.
43 See Response Letter, supra note 5 at page at
page 7.
41 See
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the largest 100 GIA-assessed firms are
predicted to be $280,000 more per firm
in 2010 under the new formulation than
under the current formulation. The
expected average increase for all other
firms is expected to be only $1,000 per
firm. The totality of the data appears to
show that any increase that results from
the new GIA formulation falls primarily
on the largest 100 GIA-assessed firms,
the same firms largely responsible for
the revenue shortfall.
In addition, one commenter argues
that using income to determine
assessment fees is too simplified an
approach and ignores many other
factors that may be indicative of
FINRA’s regulatory costs relative to
member firms, such as significant
proprietary trading positions held by a
member firm, holding of customer funds
or securities by the member firm, and
whether a member firm is selfclearing.44 As FINRA notes, it has a
large and diverse membership of
differing sizes and business models and
therefore it is impossible for FINRA to
develop a pricing scheme that accounts
for the particulars of every firm.45
FINRA believes, and the Commission
agrees, that the current pricing structure
is reasonable in that it achieves a
generally equitable impact across
FINRA’s membership and correlates the
fees assessed to the regulatory services
provided by FINRA.46 Therefore, the
Commission finds that the proposed
change to the GIA calculation will result
in an equitable allocation that will help
reduce the risk of future fluctuations in
GIA income.
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
D. GIA Reformulation Is Reasonable
Based on two quarters of 2009 FOCUS
data, FINRA estimates that under the
proposed GIA revision, in 2010, the
assessment for the largest 100 firms
(based on the amount of GIA assessed
for 2008) will increase approximately
$280,00 per firm over the current
formulation.47 The remaining firms are
estimated to experience an average
increase of approximately $1,000 per
firm. FINRA believes that this increase
does not disproportionately burden the
firms outside of the largest 100 (based
on the amount of GIA assessed for 2008)
in terms of the revenue generated by
those firms. In addition, FINRA
contends that this increase is necessary
to cover its costs of regulatory oversight
and will ensure that it is able to
continue meet its regulatory
obligations.48
One commenter, while appreciative of
the need for stability resulting from the
use of a three-year average, suggested
that GIA should be based on a three-year
average instead of the proposed greater
of a three-year average or GIA based on
actual current year FOCUS revenue.49
The Commission notes that using the
greater of the two figures allows FINRA
to recoup any losses on a faster time
frame, thereby reducing the duration of
the risk that any deficits in funding
would affect FINRA’s ability to meet its
statutory obligations. Therefore, the
Commission finds that FINRA’s
proposed GIA reformulation is
reasonable as proposed.
In addition, the Commission notes
that the intent of the GIA reformulation
is not to impose additional burdens on
FINRA members. The intent is to enable
FINRA to fulfill its regulatory
obligations by guarding against future
revenue declines as a result of drastic
reductions in the FOCUS revenue of
FINRA members. The introduction of a
three-year average should make this
revenue stream less volatile and more
reliable for FINRA in the future.
Therefore, the Commission believes that
the proposed GIA increase is
appropriate.
E. Other Concerns of Commenters
1. FINRA Should Have Foreseen/
Prepared for the Inevitable Shortfall
727 commenters state that FINRA
should have predicted the market
downturn and taken budgetary steps to
account for it. As many commenters
stated in Letter Type B, ‘‘FINRA’s
failure to properly prepare for the
inevitable market downturn is the root
cause of their operating cash flow
concerns.’’ 50
The Commission notes that FINRA is
an SRO and is obligated under the Act
to carry out its regulatory obligations
even during a period of economic
downturn. FINRA notes that it actually
planned for a decline in GIA from 2008
to 2009 and accordingly adjusted its
2009 budget downward compared to
2008 in anticipation of the reduced
revenues.51 The Commission is aware
that, in a market downturn, each
element of FINRA’s funding sources is
vulnerable. A firm’s gross income
declines as its trading activity declines,
thereby affecting FINRA’s funding for its
48 See
Response Letter, supra note 5 at page 6.
Committee of Annuity Issuers Letter, infra
Exhibit 1.
50 See Letter Type B.
51 See Response Letter, supra note 5 at page 4–
5.
regulatory programs. It would be
difficult for FINRA to account for
economic events outside of its control
when planning its regulatory program
needs and its budget. This is because
one of FINRA’s primary means of
meeting its regulatory costs is the GIA,
and the funding FINRA receives from
the GIA is wholly dependent on firms’
revenues.52 Moreover, to the extent that
the commenters raise issues with
FINRA’s balance sheet investments, the
Commission agrees with FINRA that
those comments are misplaced. The
balance sheet is used to augment
FINRA’s funding and thereby decrease
the full cost of regulation assessed to
FINRA’s member firms; its value does
not negate the need to adequately fund
FINRA’s regulatory programs. As an
SRO, FINRA’s needs and requirements
differ from those of its members and it
would be improper for FINRA to cut its
regulatory programs to adjust to leaner
times when those programs are
necessary to meet its statutory
obligations. As FINRA has noted, it has
established a comprehensive costcutting program that so far has reduced
expenses that do not directly impact its
regulatory programs by more than $70
million from the prior year.53 This costcutting is in addition to the income
yield from its balance sheet portfolio
that supplements the PA and GIA fees.
In the Commission’s view, FINRA’s fee
proposal is fair and reasonable in light
of FINRA’s regulatory responsibilities.
2. Any Fee Increase Is Inappropriate
Given the Current Economic Conditions
728 commenters believe that the
proposal is unfair because it occurs at a
time when firms are suffering
financially and have incurred fee
increases from a variety of other entities,
including the Commission, the
Securities Investor Protection
Corporation, a national securities
exchange, the Municipal Securities
Rulemaking Board and several states. In
response, FINRA notes that its
regulatory responsibilities have not
lessened—if anything, they may have
increased.54 To that end, FINRA refers
to statistics that demonstrate that the
population of registered representatives
has remained fairly constant, even
throughout recent market events.55 The
Commission strongly believes that
FINRA must have sufficient resources to
carry out its statutory obligations,
particularly during periods of market
turmoil, even when its members also are
49 See
44 See
MetLife Letter, infra in Exhibit 1.
Response Letter, supra note 5 at page 2.
46 See Id. at page 2.
47 See Id. at page 2.
45 See
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14:58 Nov 27, 2009
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Sfmt 4703
52 See
Id. at page 4.
Id. at page 2.
54 See Id. at page 5.
55 See supra, note 6.
53 See
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Federal Register / Vol. 74, No. 228 / Monday, November 30, 2009 / Notices
assessed fees by other organizations or
governmental entities. In the
Commission’s view, fee increases
imposed by other regulators, market
operators or securities-related entities
are not dispositive regarding whether it
is appropriate for FINRA to increase its
regulatory fees. The proposed PA and
GIA fee increases are designed to allow
FINRA to maintain a robust regulatory
program, which the Commission
believes is both necessary and
appropriate so that FINRA can carry out
its regulatory responsibilities
effectively.
F. Other Approaches Suggested by
Commenters
In addition to the concerns and
suggestions raised by commenters that
are discussed above, commenters
offered several alternative approaches to
the proposed PA and GIA increases. For
example, some commenters suggest that
the proposed revisions to PA and GIA
assessments be capped at a certain
amount or phased in over a period of
years.56 Other commenters note that
FINRA has failed to sufficiently
demonstrate a need for additional
revenue in the form of increased PA and
GIA.57
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
1. Caps on Increases or Phase-In Period
Eight commenters suggest that any fee
increase should be subject to an annual
cap or a gradual phase-in period.58 One
commenter suggests a one year delay in
any fee increase 59 while another
commenter favors a three year phase-in
period for any fee increase.60 Three
other commenters recommend a phasein period of an unspecified length.61
Five of the commenters favored a cap on
any PA increase. Two of these
commenters support a 10% cap,62
another commenter prefers a 10%-15%
cap,63 and the two others do not suggest
a specific amount.64
In its Response Letter, FINRA states
that it is critical to implement the
proposed rule change as of January 2010
and without any limitations. FINRA
56 See e.g., SIFMA Letter, MetLife Letter, and GBS
Financial Letter, infra Exhibit 1.
57 See e.g., Whitestone Letter, PFS Investment
Letter, and SagePoint Financial Letter, infra Exhibit
1.
58 See Foresters Equity Letter, State Farm Letter,
FSI Letter, MetLife Letter, GBS Financial Letter,
SIFMA Letter, World Group Letter, and Committee
of Annuity Insurers Letter, infra Exhibit 1.
59 See Foresters Equity Letter, infra Exhibit 1.
60 See FSI Letter, infra Exhibit 1.
61 See GBS Financial Letter, SIFMA Letter, and
World Group Letter, infra Exhibit 1.
62 See State Farm Letter and Committee of
Annuity Insurers Letter, infra Exhibit 1.
63 See Foresters Equity Letter, infra Exhibit 1.
64 See SIFMA Letter and World Group Letter,
infra Exhibit 1.
VerDate Nov<24>2008
14:58 Nov 27, 2009
Jkt 220001
notes that it has already phased in the
need for additional assessed funding by
not charging firms in 2008 and 2009 for
cash flow shortfalls that are funded out
of its capital. FINRA points out that the
GIA will remain subject to an existing
cap for 2010,65 but notes that any
further caps could leave FINRA facing
the same fiscal quandary it currently
faces in the event of continuing
decreased revenue at firms. For the
same reason, FINRA opposes a phasedin implementation period. FINRA
believes that prolonging implementation
of these changes will only lead to a
‘‘geometric future fee increase, as
FINRA perpetuates a budget imbalance
and depletes its revenue-producing
assets.’’ 66
The Commission agrees with FINRA
that by not charging members increases
in 2008 and 2009 when its cash flow
shortfalls were occurring, FINRA
effectively has provided a type of
delayed or phased-in implementation of
the fee increases. The Commission also
agrees with FINRA’s view that any
further delay in implementing the fee
increases could result in a greater
financial impact to firms in the future
and, in the Commission’s view, could
potentially impact FINRA’s ability to
meet its statutory requirements.
Therefore, the Commission believes that
it is reasonable for FINRA to refrain
from implementing a yearly cap on, or
a phase-in period for, the PA and GIA
fee increases.
2. FINRA Does Not Need the Additional
Revenue
Nine commenters suggest that FINRA
has failed to sufficiently demonstrate a
need for additional revenue and thus
argue against any increase in the PA or
GIA.67 One commenter remarks that ‘‘it
is apparent from FINRA’s annual report
that the organization has more than
adequate assets and reserves to
withstand the recent downturn.’’ 68
Another commenter states that
‘‘FINRA’s proposed Rule Change lacks
proper and adequate support. Nowhere
does FINRA provide any disclosure of
what proportion PA and GIA fees
represent in its revenue or income. Nor
does FINRA describe its financial or
65 For 2010, any increase or decrease in GIA will
be capped at 10% of what a firm would have paid
under the prior NASD or NYSE rate structures that
it was subject to before FINRA’s GIA rate structure
was amended in 2008.
66 See Response Letter, supra note 5 at page 8.
67 See IBN Financial Letter, First Independent
Letter, Whitestone Letter, JanHobbs Financial
Letter, SagePoint Financial Letter, Magdaleno
Letter, GBS Financial Letter, FSC Securities Letter,
and PFS Investment Letter, infra Exhibit 1.
68 See e.g., First Independent Letter, infra Exhibit
1.
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
62621
investment models or state what if any
preparations or actions it took or has
taken in light of the economic and
industry downturns.’’ 69
In its Response Letter, FINRA states
that income from its reserves is used to
offset a part of the cost of its regulatory
program each year, and consequently
that funding stream is in lieu of a more
substantial fee increase on members.70
FINRA expects such income to offset
regulatory costs by approximately $50
million in 2010.71 Moreover, FINRA
notes that it delayed seeking any fee
increase for 2008 and 2009 by utilizing
the principal of its reserves. However,
FINRA does not believe that it would be
prudent to continue to exhaust its
reserves to cover all future operating
deficits, because such a practice is
unsustainable and would inevitably
result in a much more substantial fee
increase in the future.72
FINRA further notes that it has
minimized the proposed fee increases
through a comprehensive cost-cutting
program that so far has reduced
expenses that do not directly impact its
regulatory programs by more than $70
million from the prior year.73 According
to FINRA, it supplements, where
possible, member fees and assessments
with the income yield from its balance
sheet portfolio. FINRA states that by
reallocating assets it has reduced
performance volatility, while creating a
more reliable income stream to
subsidize fees. However, FINRA notes
that these actions alone have been
insufficient to make up the funding
deficits it has experienced over the prior
two years. According to FINRA, the
proposed rule change is intended to
remedy ongoing deficits and ameliorate
vulnerability to future revenue
shortfalls. Therefore, FINRA believes
that the proposed fee increases are
necessary and any delay in their
implementation will necessitate future
fee increases of much greater
magnitude.74
The Commission believes that FINRA
has sufficiently demonstrated that the
proposed increases in PA and GIA fees
are necessary to adequately support
FINRA’s regulatory programs. FINRA
makes a compelling argument that its
balance sheet resources are finite and
cannot be relied upon solely to
overcome a regulatory revenue shortfall.
As an SRO, FINRA needs to maintain
adequate reserves to ensure that it can
69 See
e.g., FSC Securities Letter, infra Exhibit 1.
Response Letter, supra note 5 at page 3.
71 See Id. at page 3.
72 See Id. at pages 3–4.
73 See Id. at page 2.
74 See Id. at page 2.
70 See
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Federal Register / Vol. 74, No. 228 / Monday, November 30, 2009 / Notices
continue to operate a vigorous
regulatory system. In addition, the
Commission notes that FINRA has
implemented cost cutting measures and
taken other steps to minimize the
magnitude of the proposed fee
increases. Therefore, the Commission
finds that the proposed fee increases are
equitable and consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,75 that the
proposed rule change (SR–FINRA–
2009–057), be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.76
Elizabeth M. Murphy,
Secretary.
EXHIBIT 1
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Comments on FINRA Rulemaking
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change Relating to
Section 1(c) of Schedule A to the FINRA
By-Laws to Amend the Personnel
Assessment and Gross Income
Assessment.
(Release No. 34–60624; File No. SR–
FINRA–2009–057).
Total Number of Comment Letters
Received—745.
Comments have been received from
individuals and entities using the
following Letter Types:
a. 4 individuals or entities using
Letter Type A.
b. 672 individuals or entities using
Letter Type B.
1. Jonathan Zulauf, dated September
2, 2009.
2. Richard J. Carlesco Jr., LUTCF, IBN
Financial Services, Inc., dated
September 17, 2009 (‘‘IBN Financial
Letter’’).
3. Phillip H. Palmer, ChFC, President
and CEO, First Independent Financial
Services Inc. dated September 17, 2009
(‘‘First Independent Letter’’).
4. William R. Sykes, President, Sykes
Financial Services LLC, dated
September 17, 2009 (‘‘Sykes Financial
Letter’’).
5. Anthony Pappas, Ph.D., President,
Whitestone Securities Inc., dated
September 21, 2009 (‘‘Whitestone
Letter’’).
6. David M. Sobel, Esq., EVP/COO,
Abel/Noser Corp., dated September 22,
2009 (‘‘Abel Noser Letter’’).
75 15
76 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
VerDate Nov<24>2008
14:58 Nov 27, 2009
Jkt 220001
7. Kevin Hart Korfield, Kevin Hart
Korfield & Co. Inc. dated September 23,
2009.
8. Nancy Wheeler Bertacini, Curnes
Financial Group, FNIC, dated
September 24, 2009 (‘‘Curnes Financial
Letter’’).
9. David L. Ehrig, dated September 24,
2009.
10. Janice Hobbs, President, JanHobbs
Financial Group, dated September 24,
2009 (‘‘JanHobbs Financial Letter’’).
11. Bryon Holz, dated September 24,
2009.
12. John Ikeda, Registered Principal
Financial Network Investment Corp.,
dated September 24, 2009 (‘‘Financial
Network Letter’’).
13. Timothy Jones, Chairman CJM
Wealth Advisers LTD, dated September
24, 2009.
14. Kate Marvel, President, Marvel
Financial Planning, Inc., dated
September 24, 2009 (‘‘Marvel Financial
Letter’).
15. Jonathan Meany, CFP, dated
September 24, 2009.
16. Gary Orler, Investment Executive,
Raymond James Financial Services, Inc.,
dated September 24, 2009.
17. Suzanne Seay, CFP, Royal
Alliance, dated September 24, 2009.
18. John Sklencar, Financial Advisor
FSC Securities Corp., dated September
24, 2009.
19. Frank L. Smith, President,
Foresters Equity Services, Inc., dated
September 24, 2009 (‘‘Foresters Equity
Letter’’).
20. Daniel G. Trout, Senior Associate,
Financial Principles LLC, dated
September 24, 2009.
21. James Woytcke, CEO/Owner,
Financial Success Ltd., dated September
24, 2009.
22. Tim, dated September 24, 2009.
23. Jeffrey M. Auld, President and
Chief Executive Officer, SagePoint
Financial Inc., dated September 24,
2009 (‘‘SagePoint Letter’’).
24. Kurt Dressler, Capital Investment
Counsel, dated September 25, 2009.
25. Bruce Ferguson, Managing
Member, Raymond James Financial,
dated September 25, 2009.
26. Pamela Fritz, CCO, MWA
Financial Services, dated September 25,
2009.
27. Robert B. Lyons, CLU, ChFC, ING
Financial Partners, dated September 25,
2009.
28. Brian Perley, ChFC, CFP,
Hammond Financial Inc., dated
September 25, 2009.
29. S. Ann Pugh, CFP, ING Financial
Partners, dated September 25, 2009.
30. William Robbins, Registered
Representative, Coordinated Capital
Securities, Inc., dated September 25,
2009.
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Fmt 4703
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31. Stephen Russell, Senior Vice
President, VSR Financial Services,
dated September 25, 2009.
32. James G. Timpa, dated September
25, 2009.
33. Sherri White, CPA/PFS, dated
September 25, 2009.
34. Martin Cohen, President, Balanced
Financial Securities, dated September
26, 2009.
35. Joel Dash, dated September 28,
2009.
36. D.W. Hadley, Jr., Capital Analyst
of NC Inc., dated September 28, 2009.
37. Michelle E. Heyne, CCO,
McAdams Wright Ragen, Inc., dated
September 28, 2009.
38. Penn Rettig, Branch Manager,
Multi Financial Securities Corp., dated
September 28, 2009.
39. Donna M. Stevenson, dated
September 28, 2009.
40. John Terry, President, High Street
Securities Inc., dated September 28,
2009.
41. Russell L. Bacon, MBA, CSA,
Director, Montgomery Wealth
Management, dated September 29, 2009.
42. Robert Black, Jr., President, Legacy
Planning Group, dated September 29,
2009.
43. Nicholas C. Cochran, Vice
President, American Investors
Company, dated September 29, 2009.
44. Pamela Goodall, dated September
29, 2009.
45. Cynthia Iquinto, Registered
Representative, FSC Securities
Corporation, dated September 29, 2009.
46. Jim Loessberg, Financial Advisor,
Raymond James Financial, dated
September 29, 2009.
47. Sandra Hay Magdaleno, CFP,
dated September 29, 2009 (‘‘Magdaleno
Letter’’).
48. Edward Skelly, President, Sterling
Financial Planners, dated September 29,
2009.
49. Neal E. Nakagiri, President, CEO,
CCO, NPB Financial Group LLC, dated
September 30, 2009.
50. Kevin Tucker, dated September
30, 2009.
51. Paige W. Pierce, CEO, RW Smith
Associates Inc., dated October 1, 2009.
52. Richard P. Woltman, CEO &
Chairman, Girard Securities Inc., dated
October 1, 2009.
53. David E. Axtell, Compliance
Director, State Farm Investment
Management Corp, dated October 2,
2009 (‘‘State Farm Letter’’).
54. Dale E. Brown, CAE, President &
CEO, Financial Services Institute, Inc.,
dated October 2, 2009.
55. Paul Cellupica, Chief Counsel,
Securities Regulation & Corporate
Services, MetLife, Inc., dated October 2,
2009 (‘‘MetLife Letter’’).
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56. James M. Clous, Registered
Representative, dated October 2, 2009.
57. Gerard P. Gloisten, President, GBS
Financial Corp, dated October 2, 2009
(‘‘GBS Financial Letter’’).
58. Ronald C. Long, Director,
Regulatory Affairs, Wells Fargo
Advisors, dated October 2, 2009.
59. Debra G. McGuire, CPA, McGuire
Dyke Investment Group, dated October
2, 2009.
60. E. John Moloney, Chairman,
SIFMA Small Firms Committee,
Securities Industry and Financial
Markets Association, dated October 2,
2009 (‘‘SIFMA Letter’’).
61. Kevin L. Palmer, CEO/President,
World Group Securities Inc., dated
October 2, 2009 (‘‘World Group Letter’’).
62. Mark J. Schlafly, President & CEO,
FSC Securities Corporation, dated
October 2, 2009 (‘‘FSC Securities
Letter’’).
63. Sutherland Asbill & Brennan LLP,
on behalf of Committee of Annuity
Insurers, dated October 2, 2009
(‘‘Committee of Annuity Insurers
Letter’’).
64. John S. Watts, SVP & Chief
Counsel, PFS Investment Inc., dated
October 2, 2009 (‘‘PFS Investment
Letter’’).
65. Edward Wiles, SVP & CCO,
Genworth Financial Securities Corp,
dated October 2, 2009.
66. Cuneo, Gilbert & Laduca LLP and
Greenfield & Goodman LLC, on behalf of
Standard Investment Chartered Inc.,
dated October 5, 2009.
67. Elliott Harris, dated October 5,
2009.
68. Daniel W. Roberts, President/CEO,
Roberts & Ryan Investments Inc., dated
October 5, 2009.
69. Mark E. Larson, Esquire, CPA,
Academic Director of the Certificate in
Financial planning Program at
Marquette University, dated October 13,
2009.
[FR Doc. E9–28472 Filed 11–27–09; 8:45 am]
BILLING CODE 8011–01–P
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
[Release No. 34–61041; File No. SR–BX–
2009–073]
The Exchange proposes to amend
Chapter IV, Section 6 (Series of Options
Contracts Open for Trading) of the Rules
of the Boston Options Exchange Group,
LLC (‘‘BOX’’) to amend the $1 Strike
Price Program. The text of the proposed
rule change is available from the
principal office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s Internet Web
site at https://
nasdaqomxbx.cchwallstreet.com/
NASDAQOMXBX/Filings/.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1. Purpose
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend the
$1.00 Strike Program To Allow LowStrike LEAPS on the Boston Options
Exchange Facility
The purpose of the proposed rule
change is to expand the $1 Strike Price
Program (‘‘Program’’) in a limited
fashion to allow BOX to list new series
in $1 intervals up to $5 in long-term
option series (‘‘LEAPS’’) in up to 200
1 15
November 20, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
14:58 Nov 27, 2009
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
VerDate Nov<24>2008
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
19, 2009, NASDAQ OMX BX, Inc. (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
Jkt 220001
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
62623
option classes on individual stocks.5
Currently, under the Program, BOX may
not list LEAPS at $1 strike price
intervals for any class selected for the $1
Strike Price Program. BOX also is
restricted from listing any series that
would result in strike prices being $0.50
apart, unless the series are part of the
$0.50 Strike Price Program.6
The Exchange believes that this
proposal is appropriate and will allow
investors to establish option positions
that are better tailored to meet their
`
investment objectives, vis-a-vis credit
risk, using deep out-of-the-money put
options. Deep out-of-the-money put
options are viewed as a viable, liquid
alternative to OTC-traded credit default
swaps (‘‘CDS’’). These options do not
possess the negative characteristics
associated with CDS, namely, lack of
transparency, insufficient collateral
requirements, and inefficient trade
processing. Moreover, deep out-of-themoney put options and CDS are
functionally similar, as there is a high
correlation between low-strike put
prices and CDS spreads.
BOX notes that its proposal is limited
in scope, as $1 strikes in LEAPS may
only be listed up to $5 and in only up
to 200 option classes. As is currently the
case, BOX would not list series with
$1.00 intervals within $0.50 of an
existing $2.50 strike price in the same
series. As a result, the Exchange does
not believe that this proposal will cause
a significant increase in quote traffic.
Moreover, as the SEC is aware, BOX
has adopted various quote mitigation
strategies in an effort to lessen the
growth rate of quotations. When it
expanded the $1 Strike Price Program
several months ago, BOX included a
delisting policy that would be
applicable with regard to this proposed
expansion.7 The Exchange and the other
options exchanges amended the Options
Listing Procedures Plan (‘‘OLPP’’) in
2008 to impose a minimum volume
threshold of 1,000 contracts national
average daily volume per underlying
class to qualify for an additional year of
LEAP series.8 Most recently, the
Exchange, along with the other options
exchanges, amended the OLPP to adopt
objective, exercise price range
5 Under the Chapter IV, Section 8 of the BOX
Rules LEAPS expire from 12–39 months from the
time they are listed.
6 On October 6, 2009, BOX filed SR–BX–2009–
063 for immediate effectiveness, which filing
established a $0.50 Strike Price Program.
7 The delisting policy includes a provision that
states BOX may grant Participant requests to add
strikes and/or maintain strikes in series of options
classes traded pursuant to the $1 Strike Price
Program that are otherwise eligible for delisting.
8 See SEC Release No. 34–58630 (September 24,
2008), approving Amendment No. 2 to the OLPP.
E:\FR\FM\30NON1.SGM
30NON1
]]>Agencies
[Federal Register Volume 74, Number 228 (Monday, November 30, 2009)]
[Notices]
[Pages 62616-62623]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-28472]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61042; File No. SR-FINRA-2009-057]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Granting Approval of a Proposed Rule Change
Relating to Section 1(c) of Schedule A to the FINRA By-Laws To Amend
the Personnel Assessment and Gross Income Assessment
November 20, 2009.
I. Introduction
On August 20, 2009, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (formerly known as the National Association of Securities
Dealers, Inc. (``NASD'')) filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder \2\ to amend Section 1(c) of Schedule A to the FINRA
By-Laws (``Schedule A'') to increase the Personnel Assessment and to
revise the formulation of the Gross Income Assessment calculation to be
paid by each FINRA member. The proposed rule change was published for
comment in the Federal Register on September 11, 2009.\3\ The
Commission received 745 comment letters on the proposal.\4\ FINRA
submitted a response to the comment letters on November 18, 2009.\5\
This order approves the proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 60624 (September 3,
2009), 74 FR 46828 (September 11, 2009) (``Notice'').
\4\ 676 of the letters were form comment letters. Of these, four
utilized ``Letter Type A'' and 672 utilized ``Letter Type B.'' An
example of Letter Type A and Letter B as well as all of the non-form
comment letters are posted on the Commission's Internet Web site
(https://www.sec.gov/comments/sr-finra-2009-057/finra2009057.shtml).
See Exhibit 1 for a list of comment letters noted on the
Commission's Internet Web site. All 745 comment letters are
available for inspection and copying at the Commission's Public
Reference Room.
\5\ See letter from Phillip Shaikun, Associate Vice President
and Associate General Counsel, FINRA, to Elizabeth M. Murphy,
Secretary, Commission, dated November 18, 2009. (``Response
Letter'').
---------------------------------------------------------------------------
II. Description of FINRA's Proposal
Currently, FINRA's primary fee structure to support its regulatory
programs consists of the following fees: the Personnel Assessment
(``PA''); the Gross Income Assessment (``GIA''); the Trading Activity
Fee; and the Branch Office Assessment. These fees are used to fund
FINRA's regulatory activities, including rulemaking and FINRA's
examination and enforcement programs. According to FINRA, the economic
and industry downturns experienced in 2008 and 2009 have strained
FINRA's resources, yet its regulatory responsibilities remain constant
and its programs robust. To stabilize its revenues and provide
protection against future industry downturns, FINRA proposes to
increase the PA and revise the calculation of the GIA. This will enable
FINRA to achieve a more consistent and predictable funding stream to
carry out FINRA's regulatory mandate.
To those ends, the proposed rule change will increase the PA for
all members. The PA currently is assessed on a three-tiered rate
structure based on the number of the firm's registered representatives
and principals (``registered persons'') as follows: members with one to
five registered persons are assessed $75 for each such registered
person; 6-25 registered persons, $70 for each such registered person;
and 26 or more registered persons, $65 for each such registered person.
The proposed rule change will increase those rates, for the first time
in five years, to $150, $140, and $130, respectively, based on the same
tiered structure. FINRA notes that there is a correlation between the
cost of FINRA's regulatory programs and the number of registered
persons within a firm and that the population of registered persons has
remained fairly stable, even throughout the recent economic
downturn.\6\ Accordingly, FINRA believes that an increase of the PA is
[[Page 62617]]
both a fair and appropriate means to achieve a more consistent and
reliable foundation to fund its regulatory operations.
---------------------------------------------------------------------------
\6\ For example, FINRA records show that since 2000, the average
number of registered persons per year has been approximately 667,680
and that for each of the past three years the population has been
669,626 (2009), 676,927 (2008) and 662,742 (2007) (based on numbers
at the end of the preceding calendar year).
---------------------------------------------------------------------------
FINRA states that even with the proposed increase of the PA, the
GIA remains the most important component of FINRA's regulatory funding.
The GIA is currently assessed through a seven-tier rate structure with
a minimum GIA of $1,200.00. Under the existing GIA rate structure,
members are required to pay an annual GIA as follows:
(1) $1,200.00 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.
For 2010, the current year GIA will be subject to the cap set forth
in Regulatory Notice 08-07 (February 2008), which describes the funding
structure that resulted from the consolidation of NASD's and the New
York Stock Exchange's member regulation operations. FINRA states in
Regulatory Notice 08-07 that it will apply a 10% cap on any increase or
decrease to a firm's 2010 current year GIA \7\ resulting from the new
pricing structure implemented in January 2008.
---------------------------------------------------------------------------
\7\ ``2010 current year GIA'' means the amount of GIA assessment
due under the proposed new formulation. However, if 2010 current
year GIA represents an increase or decrease of more than 10%
compared to 2009 current year GIA, the increase or decrease will be
capped at 10%.
---------------------------------------------------------------------------
According to FINRA, since the GIA is assessed based on a member's
annual gross revenue for the preceding calendar year,\8\ FINRA's
revenues derived from the GIA are subject to the year-to-year
volatility of member revenues. In years when industry revenues are
significantly lower, FINRA's operating revenues can drop precipitously.
In 2009, for example, GIA revenues are down by approximately 37%
compared to 2008 due to 2008 fourth quarter write-offs taken by
members, particularly the largest securities firms.
---------------------------------------------------------------------------
\8\ Gross revenue for assessment purposes is set out in Section
2 of Schedule A, which defines gross revenue as total income as
reported on FOCUS form Part II or IIA excluding commodities income.
---------------------------------------------------------------------------
The proposed rule change seeks to ameliorate this vulnerability not
only by shifting some of FINRA's revenue generation to the more
consistent PA stream, but also by smoothing out the volatility inherent
in the GIA. To that end, the proposed rule change will amend Schedule A
to assess a GIA that is the greater of: (1) The amount that will be the
GIA based on the existing rate structure (``current year GIA''); or (2)
a three-year average of the GIA to be calculated by adding the current
year GIA plus the GIA assessed on the member over the previous two
calendar years, divided by three. For a newer firm that has been
assessed only in the prior year, FINRA will compare the current year
GIA to the two-year average and assess the greater amount. The existing
GIA rate structure and phase-in implementation through 2010 will remain
the same.\9\ Accordingly, the proposed rule change will preserve the
current rate structure, while building a buffer against industry
downturns. FINRA notes that it has a long history of providing rebates
to members when revenues exceed the expenditures necessary to discharge
its regulatory obligations and is committed to continuing that practice
in the future.
---------------------------------------------------------------------------
\9\ The actual amount of GIA assessed in any given year, e.g.,
the current year GIA (including a cap, if applicable) or the three-
year average, will be used to calculate subsequent three-year
average determinations.
---------------------------------------------------------------------------
FINRA believes that the proposed rule change will stabilize its
operating cash flows by augmenting revenues based on the registered
person population (on which FINRA's costs are more closely aligned) and
reducing dependency on, and exposure to, less predictable industry
revenues. FINRA estimates that, if the proposed rule change had been in
effect for 2009, it would have replaced about 90% of the revenue
shortfall that resulted primarily from the significant drop in GIA
revenues. FINRA notes that, in general, those replacement revenues will
come from several larger firms whose steep income declines in 2008
primarily account for FINRA's current revenue deficit.
FINRA intends to announce the proposed rule change and its approval
by the Commission in a Regulatory Notice. The proposed rule change will
become effective January 1, 2010.
III. Discussion of Comments and Commission Findings
The Commission received 676 form comment letters, and 69 individual
comment letters, regarding this proposal. FINRA responded to the
comment letters on November 18, 2009.\10\ After careful review of the
proposal and consideration of the comment letters and the Response
Letter, the Commission finds, for the reasons discussed below, that the
proposed rule change 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 proposed rule change is consistent with Section 15A(b)(5) of the
Act,\12\ which requires, among other things, that FINRA's 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 which the association operates or controls.
---------------------------------------------------------------------------
\10\ See Response Letter, supra note 5.
\11\ 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).
\12\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------
The commenters object to FINRA's fee proposal primarily for the
following reasons: (1) FINRA should have anticipated the market
downturn and budgeted accordingly; (2) the proposed assessment
increases are unreasonable in light of the difficult economic times for
the industry and fee increases imposed by other entities, including
regulators and market operators; (3) the percentage increase of the PA
is too steep and out of step with inflation; and (4) the proposed
increases will disproportionately impact small and independent broker-
dealers that were not responsible for FINRA's revenue shortfalls. Some
commenters question whether the proposed rule change meets the
statutory requirements of Section 15A(b)(5) of the Act. Several
commenters offer alternative approaches to the proposed changes to the
PA and GIA fees, including: implementing caps on the PA and GIA
increases; implementing a phase-in period for the PA and GIA increases;
reversing the volume discount structure for the PA assessment; and
using a three-year GIA average instead of the proposed higher of actual
year GIA or the three-year GIA average.
As an initial matter, the Commission notes that, as a national
securities association, FINRA is obligated to be so organized and to
have the capacity to be able to carry out the purposes of the Act and
(subject to any rule or order of the Commission pursuant to Section
17(d) or 19(g)(2) of the Act) \13\ to enforce compliance by its members
and persons associated with its members, with the provisions of the
Act, and rules and
[[Page 62618]]
regulations thereunder, and FINRA's own rules.\14\ Adequate regulatory
funding is critical to FINRA's ability to meet these statutory
requirements.
---------------------------------------------------------------------------
\13\ See 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2).
\14\ 15 U.S.C. 78o-3(b)(2).
---------------------------------------------------------------------------
While some member firms understandably question whether it is
reasonable for FINRA to increase regulatory fees at a time when the
securities industry has faced declining revenues as a result of the
economic downturn, it is incumbent on FINRA to continue to support a
robust regulatory program irrespective of market events. The discussion
below addresses the significant issues raised by the commenters,
FINRA's response to those comments, and the Commission's views with
respect to those issues.
A. PA Increase Is Equitable
Currently, FINRA member firms are charged annually per registered
person at the following rates: firms with up to five registered persons
pay $75 for each such person; firms with between 6-25 registered
persons pay $70 for each such person (a 6.7% discount from $75); firms
with over 25 registered persons pay $65 for each person (a 13.3%
discount from $75). The proposal will increase the rates to $150, $140
(a 6.7% discount from $150), and $130 (a 13.3% discount from $150),
respectively. While most commenters, including the 672 Form B
commenters, state specifically that the GIA assessment changes unfairly
burden small independent broker-dealers,\15\ some commenters note in
general that any increase in fees, including the PA increase, unfairly
burdens independent broker-dealers, especially in the current economic
climate.\16\ One of these commenters advocates for a reversal of the
discount structure, noting that FINRA should offer per person discounts
to the smallest firms instead of the largest firms, to remedy the
alleged inequities.\17\ Another commenter argues that the number of
representatives is not necessarily a better indicator of FINRA
resources consumed than overall income.\18\ This commenter advocates
for a more complex PA structure with additional tiers and possible
differentiation of PA rates based on the activity that the registered
representative conducts, e.g., a higher PA rate for Series 7 registered
representatives than for Series 6. Another commenter supports placing a
limit on the annual percentage increase in the PA to ten percent, if
the PA increase is approved.\19\ This commenter favors a fee structure
in which firms engaging in higher-risk activities would be subject to
higher fees.
---------------------------------------------------------------------------
\15\ The issue of whether the GIA fee revision is equitable is
addressed in Section III.C. infra.
\16\ See, e.g., First Independent Letter, Financial Network
Letter, Form Letter B, Sykes Financial Letter, and Whitestone
Letter, infra in Exhibit 1.
\17\ See Abel Noser Letter, infra in Exhibit 1.
\18\ See State Farm Letter, infra in Exhibit 1.
\19\ See MetLife Letter, infra in Exhibit 1.
---------------------------------------------------------------------------
The Commission notes that the current three-tiered PA structure,
including the discount percentages, was found to be consistent with the
Act and was approved by the Commission nearly seven years ago.\20\ The
proposed increase to the PA will not change the three-tiered structure
of the PA or the level of the discount percentages for larger firms.
Also, the manner of allocation of the PA fee among FINRA members will
remain unchanged. Moreover, viewing the increase in absolute dollar
terms, FINRA estimates that the average increase in total PA fees for
firms with 100 or fewer registered persons, a population that
constitutes 4,074 out of 4,868, or nearly 84%, of FINRA firms, will
amount to approximately $1,000 per firm, whereas the largest 100 firms
(based on the number of registered persons as of year end 2008) will
experience an average increase of approximately $300,000.\21\ Lastly,
as FINRA notes, the number of registered representatives is a
significant factor that impacts FINRA's oversight responsibilities and
thus is an equitable criterion for assessing PA fees.\22\ Therefore,
additional tiers and/or differentiation based on Series 6 or Series 7
or other criteria is not necessarily a better solution. The Commission
finds that the PA increase based on the current three-tiered PA fee
structure is an equitable allocation of fees.\23\
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 47106 (December 30,
2002), 68 FR 819 (January 7, 2003) (NASD-2002-99) (order approving
current PA fee structure).
\21\ See Response Letter, supra note 5 at page 6.
\22\ In 2008, FINRA conducted 4,924 oversight and cause
examinations. These examinations, in large part, focused on broker-
dealer conduct and activity involving interaction with customers. As
result, in that year, FINRA brought 586 formal disciplinary actions
against registered representatives and an additional 115 formal
actions against member firms for failing to supervise their
employees. See Response Letter, supra note 5 at page 6.
\23\ A discussion of the appropriateness of a PA fee increase
given these economic circumstances follows in Section III.E.2.
infra.
---------------------------------------------------------------------------
B. PA Increase Is Reasonable
735 commenters argue that a 100% increase in annual PA fees is an
unreasonably large increase.\24\ Many commenters note that an increase
of 100% is not commensurate with the rate of inflation over the past
five years and, in general, is not justified.\25\ FINRA responds to
these comments by stating that assessing the proposed fee change in
percentage terms and measuring it against an inflation benchmark such
as the Consumer Price Index is not the proper method of analysis.\26\
FINRA contends that the proper measure of reasonableness is arrived at
by comparing the absolute dollar value of the increase against the
costs associated with operating FINRA's regulatory oversight programs
and examination and enforcement responsibilities.\27\
---------------------------------------------------------------------------
\24\ See, e.g., Form Letter B, Sykes Financial Letter, and
Whitestone Letter, infra in Exhibit 1.
\25\ See, e.g., Form Letter B, Curnes Financial Letter, and
Marvel Financial Letter, infra in Exhibit 1.
\26\ See Response Letter, supra note 5 at page 5.
\27\ See Id. at page 5.
---------------------------------------------------------------------------
FINRA notes that over the past two years, a time marked by modest
inflation, FINRA's annual funding mechanisms have proven insufficient
to sustain its regulatory programs.\28\ FINRA believes that, by
assessing the fee increase from this perspective, the PA increase is
reasonable and will better align FINRA's revenues with its costs. Based
on projections that the registered representative population will
modulate at a rate consistent with historical trends, FINRA estimates
that the proposal will result in a total increase of $42 million in PA
fees, an average of approximately $8,600 per firm. As noted above,
FINRA further estimates that the average increase in total PA fees for
firms with 100 or fewer registered persons--a population that
constitutes 4,074 out of 4,868, or nearly 84%, of FINRA firms--will
amount to approximately $1,000 per firm, whereas the largest 100 firms
(based on the number of registered persons as of year end 2008) will
see an average increase of approximately $300,000. FINRA notes that
these estimates assume that firms do not pass along the PA to the
individual registered persons, a practice that FINRA understands is
done in certain segments of the securities industry. For firms that do
engage in such practice, FINRA notes that the impact will shift from
the firm to the registered persons.\29\
---------------------------------------------------------------------------
\28\ See Id. at page 5.
\29\ See Id. at page 6.
---------------------------------------------------------------------------
Furthermore, FINRA believes that a PA fee of between $130 and $150
per year is reasonable, particularly when compared to other
professional licensing fees.\30\ According to FINRA, for the past two
years, the PA has accounted for approximately 10-11% of FINRA's
regulatory revenue.\31\ With
[[Page 62619]]
adoption of the proposed rule change, PA assessments will account for
approximately 19% of FINRA's regulatory revenue.\32\ FINRA believes
that this PA increase as a percentage of total regulatory revenue
creates a more stable funding source with respect to FINRA's ability to
mitigate any potentially negative fluctuations in GIA due to market
conditions. FINRA believes that this is particularly important because
regulatory demands typically rise in declining markets.\33\
---------------------------------------------------------------------------
\30\ See Id. at page 6.
\31\ In 2008, PA accounted for $44 million of $454 million in
total revenue or 9.7% and in 2009, PA accounted for $44 million of
$383 million in total revenue or 11.5% See Response Letter, supra
note 5 at page 4.
\32\ See Id. at page 4.
\33\ See Id. at pages 4 and 6.
---------------------------------------------------------------------------
After reviewing the comment letters and considering FINRA's
response to the commenters' issues, the Commission believes that the PA
increase is reasonable. As FINRA notes, PA revenue is less vulnerable
to economic fluctuations than the GIA. As a result, increasing the
portion of regulatory revenue FINRA derives from the PA should reduce
overall revenue volatility. In addition, the Commission believes that
the dollar amount of the PA increase is reasonably correlated to
FINRA's oversight of member firms and their registered representatives
and will assist FINRA to comply with the statutory requirement that it
have the capacity to be able to carry out the purposes of the Act and
to enforce compliance by its members and persons associated with its
members, with provisions of the Act, the rules and regulations
thereunder, and FINRA's own rules.\34\ Therefore, the Commission finds
the increase in PA fees to be reasonable.\35\
---------------------------------------------------------------------------
\34\ See 15 U.S.C. 78o-3(b)(1)-(2).
\35\ In addition, should large revenue surpluses occur in the
future, FINRA notes that it will consider rebating those surpluses
to members.
---------------------------------------------------------------------------
C. GIA Reformulation Is Equitable
719 commenters argue that the burdens resulting from the
reformulation of the GIA calculation will fall disproportionately on
small firms and independent broker-dealers. Under the existing GIA rate
structure, members are required to pay an annual GIA as follows:
(1) $1,200.00 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 proposed rule change will leave this seven-tiered structure
unchanged but will assess GIA based on the greater of the amount that
will be the current year GIA or a three-year average of the GIA to be
calculated by adding the current year GIA plus the GIA assessed on the
member over the previous two calendar years.\36\ In its Response
Letter, FINRA disagrees with the commenters that the revised GIA
formulation will disadvantage small firms.\37\ FINRA believes that the
proposal instead aligns the fee revision with the largest 100 firms
(based on the number of registered persons as of year-end of 2008 for
PA and the amount of GIA assessed for 2008) \38\ that primarily caused
the GIA shortfall because of substantial write-downs against their
FOCUS income. FINRA offers evidence, discussed in detailed below, in
the form of data and projections to demonstrate that the change to the
GIA formulation will not unfairly burden small firms and independent
broker-dealers but will largely fall on the largest 100 firms (based on
the number of registered persons as of year-end of 2008 for PA and the
amount of GIA assessed for 2008 for GIA) whose dramatic GIA decline in
2009 resulted in FINRA's need for additional fees.
---------------------------------------------------------------------------
\36\ For newer firms that have only been assessed in the prior
year, FINRA will use a two-year average instead of a three-year
average.
\37\ See Response Letter, supra note 5 at page 6.
\38\ See Id. at pages 6-7.
---------------------------------------------------------------------------
FINRA notes that revenues from the GIA have dropped nearly $100
million since 2008. Nearly $95 million of that decline relates to the
GIA paid in by the largest 100 GIA-assessed firms. Had the new proposed
GIA calculation been in place for the 2009 billing cycle, FINRA
projects that approximately $47 million (nearly 49%) of the lost
revenues would have been replaced, and these largest 100 GIA-assessed
firms would have absorbed approximately $44 million, or nearly 94%, of
the shortfall. For 2010, FINRA estimates that with the proposed fee
structure, the percentage of GIA paid will shift back toward the
largest 100 GIA-assessed firms, rising to 63% from 57% in 2009. If the
current GIA structure remains in place, these 100 firms are estimated
to account for only 59% of GIA in 2010.\39\
---------------------------------------------------------------------------
\39\ See Id. at page 7.
---------------------------------------------------------------------------
For firms with 100 or fewer registered persons, FINRA estimates
that, if the proposal had been implemented for 2009, the new GIA
calculation would have resulted in an average increased GIA of $850 as
compared to the actual amount assessed on those firms.\40\ FINRA notes
that these firms currently receive a rebate of $1,200 against their GIA
fee and that that rebate will continue until at least 2012. Therefore,
under the current and the proposed GIA, these firms, if they have FOCUS
revenues of less than $1 million, effectively pay no GIA
assessment.\41\
---------------------------------------------------------------------------
\40\ See Id. at page 7.
\41\ See Id. at page 7.
---------------------------------------------------------------------------
The Financial Services Institute (``FSI''), which represents the
interests of independent broker-dealers, believes that the GIA
modification is inequitably allocated and will ``fall particularly
heavily on independent broker-dealer firms. * * * '' \42\ FINRA
believes that its data shows that the proposal, if implemented, will
not disparately impact the GIA of independent firms.\43\ FINRA reports
that, for 2009, independent broker-dealers paid a total of $11.63
million in GIA fees. Under the proposal, that figure is estimated to
fall to $11.17 million for 2010. By comparison, the GIA of the largest
100 GIA-assessed firms is projected to rise from $94 million in 2009 to
$123.53 million under the proposal. Thus, FINRA believes that the
increases resulting from the proposed GIA calculation will fall most
heavily not on independent broker-dealers but on the largest 100 GIA-
assessed firms, which include the several largest firms whose steep
income declines primarily account for FINRA's current revenue deficit.
---------------------------------------------------------------------------
\42\ See FSI Letter, infra in Exhibit 1.
\43\ See Response Letter, supra note 5 at page at page 7.
---------------------------------------------------------------------------
After reviewing the comment letters and considering FINRA's
Response Letter, the Commission believes that the GIA reformulation is
an equitable allocation of fees. As FINRA notes, nearly 95% of the $100
million in GIA revenue drop since 2008 is attributable to the largest
100 GIA-assessed firms. Had the proposed new GIA calculation been in
place for the 2009 billing cycle, FINRA projects that approximately $47
million (nearly 49%) of the lost revenues would have been replaced, and
those largest 100 GIA-assessed firms would have absorbed approximately
$44 million, or nearly 94%, of the shortfall. FINRA estimates also show
that the new GIA calculation will increase the GIA burden for the
largest 100 GIA-assessed firms in 2010 from 57% to 63% of total GIA
revenue. The GIA assessments for
[[Page 62620]]
the largest 100 GIA-assessed firms are predicted to be $280,000 more
per firm in 2010 under the new formulation than under the current
formulation. The expected average increase for all other firms is
expected to be only $1,000 per firm. The totality of the data appears
to show that any increase that results from the new GIA formulation
falls primarily on the largest 100 GIA-assessed firms, the same firms
largely responsible for the revenue shortfall.
In addition, one commenter argues that using income to determine
assessment fees is too simplified an approach and ignores many other
factors that may be indicative of FINRA's regulatory costs relative to
member firms, such as significant proprietary trading positions held by
a member firm, holding of customer funds or securities by the member
firm, and whether a member firm is self-clearing.\44\ As FINRA notes,
it has a large and diverse membership of differing sizes and business
models and therefore it is impossible for FINRA to develop a pricing
scheme that accounts for the particulars of every firm.\45\ FINRA
believes, and the Commission agrees, that the current pricing structure
is reasonable in that it achieves a generally equitable impact across
FINRA's membership and correlates the fees assessed to the regulatory
services provided by FINRA.\46\ Therefore, the Commission finds that
the proposed change to the GIA calculation will result in an equitable
allocation that will help reduce the risk of future fluctuations in GIA
income.
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\44\ See MetLife Letter, infra in Exhibit 1.
\45\ See Response Letter, supra note 5 at page 2.
\46\ See Id. at page 2.
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D. GIA Reformulation Is Reasonable
Based on two quarters of 2009 FOCUS data, FINRA estimates that
under the proposed GIA revision, in 2010, the assessment for the
largest 100 firms (based on the amount of GIA assessed for 2008) will
increase approximately $280,00 per firm over the current
formulation.\47\ The remaining firms are estimated to experience an
average increase of approximately $1,000 per firm. FINRA believes that
this increase does not disproportionately burden the firms outside of
the largest 100 (based on the amount of GIA assessed for 2008) in terms
of the revenue generated by those firms. In addition, FINRA contends
that this increase is necessary to cover its costs of regulatory
oversight and will ensure that it is able to continue meet its
regulatory obligations.\48\
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\47\ See Id. at page 2.
\48\ See Response Letter, supra note 5 at page 6.
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One commenter, while appreciative of the need for stability
resulting from the use of a three-year average, suggested that GIA
should be based on a three-year average instead of the proposed greater
of a three-year average or GIA based on actual current year FOCUS
revenue.\49\ The Commission notes that using the greater of the two
figures allows FINRA to recoup any losses on a faster time frame,
thereby reducing the duration of the risk that any deficits in funding
would affect FINRA's ability to meet its statutory obligations.
Therefore, the Commission finds that FINRA's proposed GIA reformulation
is reasonable as proposed.
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\49\ See Committee of Annuity Issuers Letter, infra Exhibit 1.
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In addition, the Commission notes that the intent of the GIA
reformulation is not to impose additional burdens on FINRA members. The
intent is to enable FINRA to fulfill its regulatory obligations by
guarding against future revenue declines as a result of drastic
reductions in the FOCUS revenue of FINRA members. The introduction of a
three-year average should make this revenue stream less volatile and
more reliable for FINRA in the future. Therefore, the Commission
believes that the proposed GIA increase is appropriate.
E. Other Concerns of Commenters
1. FINRA Should Have Foreseen/Prepared for the Inevitable Shortfall
727 commenters state that FINRA should have predicted the market
downturn and taken budgetary steps to account for it. As many
commenters stated in Letter Type B, ``FINRA's failure to properly
prepare for the inevitable market downturn is the root cause of their
operating cash flow concerns.'' \50\
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\50\ See Letter Type B.
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The Commission notes that FINRA is an SRO and is obligated under
the Act to carry out its regulatory obligations even during a period of
economic downturn. FINRA notes that it actually planned for a decline
in GIA from 2008 to 2009 and accordingly adjusted its 2009 budget
downward compared to 2008 in anticipation of the reduced revenues.\51\
The Commission is aware that, in a market downturn, each element of
FINRA's funding sources is vulnerable. A firm's gross income declines
as its trading activity declines, thereby affecting FINRA's funding for
its regulatory programs. It would be difficult for FINRA to account for
economic events outside of its control when planning its regulatory
program needs and its budget. This is because one of FINRA's primary
means of meeting its regulatory costs is the GIA, and the funding FINRA
receives from the GIA is wholly dependent on firms' revenues.\52\
Moreover, to the extent that the commenters raise issues with FINRA's
balance sheet investments, the Commission agrees with FINRA that those
comments are misplaced. The balance sheet is used to augment FINRA's
funding and thereby decrease the full cost of regulation assessed to
FINRA's member firms; its value does not negate the need to adequately
fund FINRA's regulatory programs. As an SRO, FINRA's needs and
requirements differ from those of its members and it would be improper
for FINRA to cut its regulatory programs to adjust to leaner times when
those programs are necessary to meet its statutory obligations. As
FINRA has noted, it has established a comprehensive cost-cutting
program that so far has reduced expenses that do not directly impact
its regulatory programs by more than $70 million from the prior
year.\53\ This cost-cutting is in addition to the income yield from its
balance sheet portfolio that supplements the PA and GIA fees. In the
Commission's view, FINRA's fee proposal is fair and reasonable in light
of FINRA's regulatory responsibilities.
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\51\ See Response Letter, supra note 5 at page 4-5.
\52\ See Id. at page 4.
\53\ See Id. at page 2.
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2. Any Fee Increase Is Inappropriate Given the Current Economic
Conditions
728 commenters believe that the proposal is unfair because it
occurs at a time when firms are suffering financially and have incurred
fee increases from a variety of other entities, including the
Commission, the Securities Investor Protection Corporation, a national
securities exchange, the Municipal Securities Rulemaking Board and
several states. In response, FINRA notes that its regulatory
responsibilities have not lessened--if anything, they may have
increased.\54\ To that end, FINRA refers to statistics that demonstrate
that the population of registered representatives has remained fairly
constant, even throughout recent market events.\55\ The Commission
strongly believes that FINRA must have sufficient resources to carry
out its statutory obligations, particularly during periods of market
turmoil, even when its members also are
[[Page 62621]]
assessed fees by other organizations or governmental entities. In the
Commission's view, fee increases imposed by other regulators, market
operators or securities-related entities are not dispositive regarding
whether it is appropriate for FINRA to increase its regulatory fees.
The proposed PA and GIA fee increases are designed to allow FINRA to
maintain a robust regulatory program, which the Commission believes is
both necessary and appropriate so that FINRA can carry out its
regulatory responsibilities effectively.
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\54\ See Id. at page 5.
\55\ See supra, note 6.
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F. Other Approaches Suggested by Commenters
In addition to the concerns and suggestions raised by commenters
that are discussed above, commenters offered several alternative
approaches to the proposed PA and GIA increases. For example, some
commenters suggest that the proposed revisions to PA and GIA
assessments be capped at a certain amount or phased in over a period of
years.\56\ Other commenters note that FINRA has failed to sufficiently
demonstrate a need for additional revenue in the form of increased PA
and GIA.\57\
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\56\ See e.g., SIFMA Letter, MetLife Letter, and GBS Financial
Letter, infra Exhibit 1.
\57\ See e.g., Whitestone Letter, PFS Investment Letter, and
SagePoint Financial Letter, infra Exhibit 1.
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1. Caps on Increases or Phase-In Period
Eight commenters suggest that any fee increase should be subject to
an annual cap or a gradual phase-in period.\58\ One commenter suggests
a one year delay in any fee increase \59\ while another commenter
favors a three year phase-in period for any fee increase.\60\ Three
other commenters recommend a phase-in period of an unspecified
length.\61\ Five of the commenters favored a cap on any PA increase.
Two of these commenters support a 10% cap,\62\ another commenter
prefers a 10%-15% cap,\63\ and the two others do not suggest a specific
amount.\64\
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\58\ See Foresters Equity Letter, State Farm Letter, FSI Letter,
MetLife Letter, GBS Financial Letter, SIFMA Letter, World Group
Letter, and Committee of Annuity Insurers Letter, infra Exhibit 1.
\59\ See Foresters Equity Letter, infra Exhibit 1.
\60\ See FSI Letter, infra Exhibit 1.
\61\ See GBS Financial Letter, SIFMA Letter, and World Group
Letter, infra Exhibit 1.
\62\ See State Farm Letter and Committee of Annuity Insurers
Letter, infra Exhibit 1.
\63\ See Foresters Equity Letter, infra Exhibit 1.
\64\ See SIFMA Letter and World Group Letter, infra Exhibit 1.
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In its Response Letter, FINRA states that it is critical to
implement the proposed rule change as of January 2010 and without any
limitations. FINRA notes that it has already phased in the need for
additional assessed funding by not charging firms in 2008 and 2009 for
cash flow shortfalls that are funded out of its capital. FINRA points
out that the GIA will remain subject to an existing cap for 2010,\65\
but notes that any further caps could leave FINRA facing the same
fiscal quandary it currently faces in the event of continuing decreased
revenue at firms. For the same reason, FINRA opposes a phased-in
implementation period. FINRA believes that prolonging implementation of
these changes will only lead to a ``geometric future fee increase, as
FINRA perpetuates a budget imbalance and depletes its revenue-producing
assets.'' \66\
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\65\ For 2010, any increase or decrease in GIA will be capped at
10% of what a firm would have paid under the prior NASD or NYSE rate
structures that it was subject to before FINRA's GIA rate structure
was amended in 2008.
\66\ See Response Letter, supra note 5 at page 8.
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The Commission agrees with FINRA that by not charging members
increases in 2008 and 2009 when its cash flow shortfalls were
occurring, FINRA effectively has provided a type of delayed or phased-
in implementation of the fee increases. The Commission also agrees with
FINRA's view that any further delay in implementing the fee increases
could result in a greater financial impact to firms in the future and,
in the Commission's view, could potentially impact FINRA's ability to
meet its statutory requirements. Therefore, the Commission believes
that it is reasonable for FINRA to refrain from implementing a yearly
cap on, or a phase-in period for, the PA and GIA fee increases.
2. FINRA Does Not Need the Additional Revenue
Nine commenters suggest that FINRA has failed to sufficiently
demonstrate a need for additional revenue and thus argue against any
increase in the PA or GIA.\67\ One commenter remarks that ``it is
apparent from FINRA's annual report that the organization has more than
adequate assets and reserves to withstand the recent downturn.'' \68\
Another commenter states that ``FINRA's proposed Rule Change lacks
proper and adequate support. Nowhere does FINRA provide any disclosure
of what proportion PA and GIA fees represent in its revenue or income.
Nor does FINRA describe its financial or investment models or state
what if any preparations or actions it took or has taken in light of
the economic and industry downturns.'' \69\
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\67\ See IBN Financial Letter, First Independent Letter,
Whitestone Letter, JanHobbs Financial Letter, SagePoint Financial
Letter, Magdaleno Letter, GBS Financial Letter, FSC Securities
Letter, and PFS Investment Letter, infra Exhibit 1.
\68\ See e.g., First Independent Letter, infra Exhibit 1.
\69\ See e.g., FSC Securities Letter, infra Exhibit 1.
---------------------------------------------------------------------------
In its Response Letter, FINRA states that income from its reserves
is used to offset a part of the cost of its regulatory program each
year, and consequently that funding stream is in lieu of a more
substantial fee increase on members.\70\ FINRA expects such income to
offset regulatory costs by approximately $50 million in 2010.\71\
Moreover, FINRA notes that it delayed seeking any fee increase for 2008
and 2009 by utilizing the principal of its reserves. However, FINRA
does not believe that it would be prudent to continue to exhaust its
reserves to cover all future operating deficits, because such a
practice is unsustainable and would inevitably result in a much more
substantial fee increase in the future.\72\
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\70\ See Response Letter, supra note 5 at page 3.
\71\ See Id. at page 3.
\72\ See Id. at pages 3-4.
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FINRA further notes that it has minimized the proposed fee
increases through a comprehensive cost-cutting program that so far has
reduced expenses that do not directly impact its regulatory programs by
more than $70 million from the prior year.\73\ According to FINRA, it
supplements, where possible, member fees and assessments with the
income yield from its balance sheet portfolio. FINRA states that by
reallocating assets it has reduced performance volatility, while
creating a more reliable income stream to subsidize fees. However,
FINRA notes that these actions alone have been insufficient to make up
the funding deficits it has experienced over the prior two years.
According to FINRA, the proposed rule change is intended to remedy
ongoing deficits and ameliorate vulnerability to future revenue
shortfalls. Therefore, FINRA believes that the proposed fee increases
are necessary and any delay in their implementation will necessitate
future fee increases of much greater magnitude.\74\
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\73\ See Id. at page 2.
\74\ See Id. at page 2.
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The Commission believes that FINRA has sufficiently demonstrated
that the proposed increases in PA and GIA fees are necessary to
adequately support FINRA's regulatory programs. FINRA makes a
compelling argument that its balance sheet resources are finite and
cannot be relied upon solely to overcome a regulatory revenue
shortfall. As an SRO, FINRA needs to maintain adequate reserves to
ensure that it can
[[Page 62622]]
continue to operate a vigorous regulatory system. In addition, the
Commission notes that FINRA has implemented cost cutting measures and
taken other steps to minimize the magnitude of the proposed fee
increases. Therefore, the Commission finds that the proposed fee
increases are equitable and consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\75\ that the proposed rule change (SR-FINRA-2009-057), be, and it
hereby is, approved.
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\75\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
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\76\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
EXHIBIT 1
Comments on FINRA Rulemaking
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to
Section 1(c) of Schedule A to the FINRA By-Laws to Amend the Personnel
Assessment and Gross Income Assessment.
(Release No. 34-60624; File No. SR-FINRA-2009-057).
Total Number of Comment Letters Received--745.
Comments have been received from individuals and entities using the
following Letter Types:
a. 4 individuals or entities using Letter Type A.
b. 672 individuals or entities using Letter Type B.
1. Jonathan Zulauf, dated September 2, 2009.
2. Richard J. Carlesco Jr., LUTCF, IBN Financial Services, Inc.,
dated September 17, 2009 (``IBN Financial Letter'').
3. Phillip H. Palmer, ChFC, President and CEO, First Independent
Financial Services Inc. dated September 17, 2009 (``First Independent
Letter'').
4. William R. Sykes, President, Sykes Financial Services LLC, dated
September 17, 2009 (``Sykes Financial Letter'').
5. Anthony Pappas, Ph.D., President, Whitestone Securities Inc.,
dated September 21, 2009 (``Whitestone Letter'').
6. David M. Sobel, Esq., EVP/COO, Abel/Noser Corp., dated September
22, 2009 (``Abel Noser Letter'').
7. Kevin Hart Korfield, Kevin Hart Korfield & Co. Inc. dated
September 23, 2009.
8. Nancy Wheeler Bertacini, Curnes Financial Group, FNIC, dated
September 24, 2009 (``Curnes Financial Letter'').
9. David L. Ehrig, dated September 24, 2009.
10. Janice Hobbs, President, JanHobbs Financial Group, dated
September 24, 2009 (``JanHobbs Financial Letter'').
11. Bryon Holz, dated September 24, 2009.
12. John Ikeda, Registered Principal Financial Network Investment
Corp., dated September 24, 2009 (``Financial Network Letter'').
13. Timothy Jones, Chairman CJM Wealth Advisers LTD, dated
September 24, 2009.
14. Kate Marvel, President, Marvel Financial Planning, Inc., dated
September 24, 2009 (``Marvel Financial Letter').
15. Jonathan Meany, CFP, dated September 24, 2009.
16. Gary Orler, Investment Executive, Raymond James Financial
Services, Inc., dated September 24, 2009.
17. Suzanne Seay, CFP, Royal Alliance, dated September 24, 2009.
18. John Sklencar, Financial Advisor FSC Securities Corp., dated
September 24, 2009.
19. Frank L. Smith, President, Foresters Equity Services, Inc.,
dated September 24, 2009 (``Foresters Equity Letter'').
20. Daniel G. Trout, Senior Associate, Financial Principles LLC,
dated September 24, 2009.
21. James Woytcke, CEO/Owner, Financial Success Ltd., dated
September 24, 2009.
22. Tim, dated September 24, 2009.
23. Jeffrey M. Auld, President and Chief Executive Officer,
SagePoint Financial Inc., dated September 24, 2009 (``SagePoint
Letter'').
24. Kurt Dressler, Capital Investment Counsel, dated September 25,
2009.
25. Bruce Ferguson, Managing Member, Raymond James Financial, dated
September 25, 2009.
26. Pamela Fritz, CCO, MWA Financial Services, dated September 25,
2009.
27. Robert B. Lyons, CLU, ChFC, ING Financial Partners, dated
September 25, 2009.
28. Brian Perley, ChFC, CFP, Hammond Financial Inc., dated
September 25, 2009.
29. S. Ann Pugh, CFP, ING Financial Partners, dated September 25,
2009.
30. William Robbins, Registered Representative, Coordinated Capital
Securities, Inc., dated September 25, 2009.
31. Stephen Russell, Senior Vice President, VSR Financial Services,
dated September 25, 2009.
32. James G. Timpa, dated September 25, 2009.
33. Sherri White, CPA/PFS, dated September 25, 2009.
34. Martin Cohen, President, Balanced Financial Securities, dated
September 26, 2009.
35. Joel Dash, dated September 28, 2009.
36. D.W. Hadley, Jr., Capital Analyst of NC Inc., dated September
28, 2009.
37. Michelle E. Heyne, CCO, McAdams Wright Ragen, Inc., dated
September 28, 2009.
38. Penn Rettig, Branch Manager, Multi Financial Securities Corp.,
dated September 28, 2009.
39. Donna M. Stevenson, dated September 28, 2009.
40. John Terry, President, High Street Securities Inc., dated
September 28, 2009.
41. Russell L. Bacon, MBA, CSA, Director, Montgomery Wealth
Management, dated September 29, 2009.
42. Robert Black, Jr., President, Legacy Planning Group, dated
September 29, 2009.
43. Nicholas C. Cochran, Vice President, American Investors
Company, dated September 29, 2009.
44. Pamela Goodall, dated September 29, 2009.
45. Cynthia Iquinto, Registered Representative, FSC Securities
Corporation, dated September 29, 2009.
46. Jim Loessberg, Financial Advisor, Raymond James Financial,
dated September 29, 2009.
47. Sandra Hay Magdaleno, CFP, dated September 29, 2009
(``Magdaleno Letter'').
48. Edward Skelly, President, Sterling Financial Planners, dated
September 29, 2009.
49. Neal E. Nakagiri, President, CEO, CCO, NPB Financial Group LLC,
dated September 30, 2009.
50. Kevin Tucker, dated September 30, 2009.
51. Paige W. Pierce, CEO, RW Smith Associates Inc., dated October
1, 2009.
52. Richard P. Woltman, CEO & Chairman, Girard Securities Inc.,
dated October 1, 2009.
53. David E. Axtell, Compliance Director, State Farm Investment
Management Corp, dated October 2, 2009 (``State Farm Letter'').
54. Dale E. Brown, CAE, President & CEO, Financial Services
Institute, Inc., dated October 2, 2009.
55. Paul Cellupica, Chief Counsel, Securities Regulation &
Corporate Services, MetLife, Inc., dated October 2, 2009 (``MetLife
Letter'').
[[Page 62623]]
56. James M. Clous, Registered Representative, dated October 2,
2009.
57. Gerard P. Gloisten, President, GBS Financial Corp, dated
October 2, 2009 (``GBS Financial Letter'').
58. Ronald C. Long, Director, Regulatory Affairs, Wells Fargo
Advisors, dated October 2, 2009.
59. Debra G. McGuire, CPA, McGuire Dyke Investment Group, dated
October 2, 2009.
60. E. John Moloney, Chairman, SIFMA Small Firms Committee,
Securities Industry and Financial Markets Association, dated October 2,
2009 (``SIFMA Letter'').
61. Kevin L. Palmer, CEO/President, World Group Securities Inc.,
dated October 2, 2009 (``World Group Letter'').
62. Mark J. Schlafly, President & CEO, FSC Securities Corporation,
dated October 2, 2009 (``FSC Securities Letter'').
63. Sutherland Asbill & Brennan LLP, on behalf of Committee of
Annuity Insurers, dated October 2, 2009 (``Committee of Annuity
Insurers Letter'').
64. John S. Watts, SVP & Chief Counsel, PFS Investment Inc., dated
October 2, 2009 (``PFS Investment Letter'').
65. Edward Wiles, SVP & CCO, Genworth Financial Securities Corp,
dated October 2, 2009.
66. Cuneo, Gilbert & Laduca LLP and Greenfield & Goodman LLC, on
behalf of Standard Investment Chartered Inc., dated October 5, 2009.
67. Elliott Harris, dated October 5, 2009.
68. Daniel W. Roberts, President/CEO, Roberts & Ryan Investments
Inc., dated October 5, 2009.
69. Mark E. Larson, Esquire, CPA, Academic Director of the
Certificate in Financial planning Program at Marquette University,
dated October 13, 2009.
[FR Doc. E9-28472 Filed 11-27-09; 8:45 am]
BILLING CODE 8011-01-P
