Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Gross Income Assessment Pricing Structure, 69937-69939 [2014-27708]
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Federal Register / Vol. 79, No. 226 / Monday, November 24, 2014 / Notices
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73626; File No. SR–CME–
2014–31]
[Release No. 34–73632; File No. SR–FINRA–
2014–046]
Self-Regulatory Organizations;
Chicago Mercantile Exchange Inc.;
Notice of Withdrawal of Proposed Rule
Change Related to Clearing of Certain
iTraxx Europe Index Untranched CDS
Contracts on Indices Administered by
Markit
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify the Gross
Income Assessment Pricing Structure
November 18, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
7, 2014, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
‘‘establishing or changing a due, fee or
other charge’’ under Section
19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
4(f)(2) thereunder,4 which renders the
proposal effective upon receipt of this
filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
On August 11, 2014, Chicago
Mercantile Exchange Inc. (‘‘CME’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 1 and Rule 19b–
4 thereunder,2 a proposed rule change
(SR–CME–2014–31) seeking to enable
CME to offer clearing of certain iTraxx
Europe index untranched CDS contracts
on indices administered by Markit
(‘‘iTraxx Contracts’’). Specifically, the
proposed rule change would update
CME’s CDS Product Rules to provide for
the clearing of the iTraxx Contracts.
Notice of the proposed rule change was
published in the Federal Register on
August 18, 2014.3 Notice of Amendment
No. 2 to the proposed rule change was
published in the Federal Register on
October 1, 2014.4 The Commission did
not receive comments on the proposal.
On October 2, 2014, the Commission
extended the time period in which to
either approve the proposed rule
change, disapprove the proposed rule
change, or institute proceedings to
determine whether to disapprove the
proposed rule change to November 16,
2014.5 On November 14, 2014, CME
withdrew the proposed rule change
(SR–CME–2014–31).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–27704 Filed 11–21–14; 8:45 am]
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–72833
(August 13, 2014), 79 FR 48797 (August 18, 2014)
(SR–CME–2014–31).
4 Securities Exchange Act Release No. 34–73275
(October 1, 2014), 79 FR 60563 (October 7, 2014)
(SR–CME–2014–31). On August 18, 2014, CME filed
Amendment No. 1 to the proposed rule change.
CME withdrew Amendment No. 1 on August 29,
2014.
5 Securities Exchange Act Release No. 34–73290
(October 2, 2014), 79 FR 60873 (October 8, 2014)
(SR–CME–2014–31).
6 17 CFR 200.30–3(a)(12).
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2 17
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November 18, 2014.
II. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to modify the
Gross Income Assessment pricing
structure in Section 1(c) of Schedule A
to the FINRA By-Laws.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
2 17
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69937
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for,the Proposed Rule
Change
1. Purpose
The proposed rule change is intended
to provide limited relief from the Gross
Income Assessment (‘‘GIA’’) for some
smaller FINRA members due to the
unanticipated effect of a 2009 change to
the method of calculating the
assessment. The GIA is one of a few
primary revenue sources that funds
FINRA’s regulatory operations 5 and is
based on a firm’s annual gross revenue.6
In 2008, FINRA established a seven-tier
rate structure to assess the GIA, with a
minimum assessment of $1,200. The
tiered rates, which have remained
unchanged, are 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.
As a result of this structure, GIA
revenues are derived overwhelmingly
from medium-sized and larger firms.
Due to rebates, firms with revenues of
$1 million or less effectively have paid
no GIA since 2008.
In November 2009, the Commission
approved changes to the GIA and PA
intended to help FINRA achieve a more
consistent and predictable funding
stream to carry out its regulatory
mandate.7 The economic and industry
downturns in 2008 and 2009 had
exposed FINRA’s vulnerability to yearto-year volatility in members’ gross
revenues. GIA revenues in 2009
dropped precipitously due to write-offs
5 FINRA’s primary member regulatory pricing
structure also includes the Trading Activity Fee, the
Personnel Assessment (‘‘PA’’) and the Branch Office
Assessment, as well as the processing of new and
continuing membership applications.
6 Schedule A to the FINRA By-Laws defines gross
revenue for assessment purposes as total income as
reported on FOCUS form Part II or IIA, excluding
commodities income.
7 See Securities Exchange Act Release No. 61042
(November 20, 2009), 74 FR 62616 (November 30,
2009) (Order Approving File No. SR–FINRA–2009–
057).
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Federal Register / Vol. 79, No. 226 / Monday, November 24, 2014 / Notices
taken in late 2008, particularly by the
largest securities firms.
To ameliorate this vulnerability and
smooth out the volatility inherent in the
GIA, FINRA amended Schedule A to
base the GIA on the greater of (1) the tier
rate applied to a member’s annual gross
revenue from the preceding calendar
year (‘‘current year GIA’’) or (2) a three-
year average of GIA to be calculated by
adding the current year GIA to the GIA
assessed on the member in the previous
two calendar years and dividing by
three (‘‘averaged GIA’’) (together ‘‘the
reformulated calculation’’). Thus, the
change was intended to maintain the
GIA rate structure, while building a
buffer against industry downturns.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
2008
2009
2010
2011
2012
2013
2014
................................................................
................................................................
................................................................
................................................................
................................................................
................................................................
................................................................
Thus, in years 2012 through 2014, the
firm would be assessed an amount
based on the average GIA that is
significantly greater than the current
GIA calculation, despite declining or
flattening revenues during those years.
This is due to the knock-on effect that
the higher GIA fee in 2011 has created
on the rolling three-year average
calculations.
The original purpose of the previous
rule change was to minimize the impact
on FINRA revenues of down years
suffered by mid-sized and large firms.
FINRA had not contemplated the effect
that intermittent significant increases in
gross revenue could have on the GIA in
subsequent years for smaller firms,
where the relative impact can be greater.
Accordingly, the proposed rule change
would eliminate the averaged GIA
component of the assessment
calculation where a firm’s prior year
gross revenue does not exceed $25
million; i.e., those firms that fall within
the lowest two tiers. In those
circumstances, the firm would be
assessed the current year GIA.
Based on 2013 FOCUS revenues,
FINRA estimates that 87% (1,365) of the
firms with revenues of $25 million or
less would benefit from the pricing
change. FINRA further estimates that
the change would result in savings to
those firms of approximately $3.5
million, or approximately 2.0% of total
GIA revenue. FINRA found that the
proposed assessment approach would
have had similar impacts as applied to
firm revenues in 2011 and 2012; in
other words, the back tested impact is
generally consistent for the past three
years’ worth of FOCUS data for active
firms. FINRA notes that no firms would
be worse off due to the pricing change.
Since the current reformulated
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GIA based on
prior year
revenue only
Prior year assessable
gross FOCUS revenue
Year
Jkt 235001
While the reformulated calculation
has been effective in stabilizing FINRA’s
GIA revenues, an unanticipated impact
of the new structure has been that firms
can be locked in to a higher GIA as the
result of a spike in gross revenue during
a single year. The following example of
a hypothetical Tier 2 firm illustrates the
effect:
$4 million ........................................................
$4 million ........................................................
$4 million ........................................................
$10 million ......................................................
$6 million ........................................................
$4 million ........................................................
$3 million ........................................................
calculation assesses the greater of
current year GIA or averaged GIA, the
firms that would benefit from the
change are those firms that have been
subject to the higher averaged GIA. The
remaining firms have paid only the
current year GIA, which would continue
under the proposed rule change, even if
their revenues decrease.
FINRA recognizes this effect of
averaging potentially affects all firms, so
FINRA also considered the impact of
eliminating the averaging component
from the remaining tiers. Based on an
analysis, FINRA found that a
significantly lower number of firms with
revenues in these higher revenue tiers
were impacted by the averaging
calculation. However, extending this
pricing change to these firms would
have a material financial impact on the
funding of FINRA’s regulatory program.
Therefore, FINRA is proposing to
apply the modified pricing structure to
firms that do not exceed the $25 million
tier. The relative negative impact of the
current calculation falls
disproportionately on those firms with
gross revenues of $25 million or less,
while the revenue impact on FINRA
would be less at that threshold. At the
same time, with a $25 million threshold,
the reformulated calculation that
includes the averaged GIA would
continue to apply to the largest
concentration of firms with potentially
significant year-to-year volatility in
gross revenues.
FINRA has filed the proposed rule
change for immediate effectiveness.
FINRA is proposing that the
implementation date of the proposed
rule change will be January 1, 2015.
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$4,860
4,860
4,860
12,150
7,290
4,860
3,645
GIA based
reformulated
calculation
(current rule)
n/a
n/a
$4,860
12,150
8,100
8,370
6,705
Variance in
GIA fee
n/a
n/a
$0
0
810
3,510
3,060
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(5) of the Act,8 which
requires, among other things, that
FINRA rules provide for the equitable
allocation of reasonable dues, fees and
other charges among members and
issuers and other persons using any
facility or system that FINRA operates
or controls. The Commission previously
found both the current year GIA and the
reformulated calculation to be an
equitable allocation of reasonable fees.9
FINRA believes the proposed
modification to the GIA pricing
structure remains reasonable, since it
continues to apply either the current
year GIA or the averaged GIA to all
members and does not increase the
assessment rates. FINRA also believes
the proposed rule change retains an
equitable allocation of fees, as it would
continue to apply the reformulated
calculation on members that accounted
for approximately 98% of the revenue
from GIA in 2013, while potentially
lessening, under very particular
circumstances, the assessment on
members that accounted for only about
2% of revenue from the GIA.
Furthermore, the proposed rule change
is both reasonable and equitable with
respect to the firms in the $25 million
tier, as no firm within that tier would be
worse off. Instead, the proposed rule
change would align those firms that
have had to pay the higher averaged GIA
8 15
U.S.C. 78o–3(b)(5).
Securities Exchange Release No. 57474
(March 11, 2008), 73 FR 14517 (March 18, 2008)
(Order Approving File No. SR–FINRA–2008–001)
and Securities Exchange Act Release No. 61042
(November 20, 2009), 74 FR 62616 (November 30,
2009) (Order Approving File No. SR–FINRA–2009–
057).
9 See
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Federal Register / Vol. 79, No. 226 / Monday, November 24, 2014 / Notices
with those firms that have only paid the
current year GIA.
The GIA is predicated on the fact that
larger firms individually require greater
regulatory resources. The proposed rule
change largely keeps in place a GIA
pricing structure that, as the
Commission noted in approving the
reformulated calculation in SR–FINRA–
2009–057, ‘‘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.’’ 10
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change would reduce the
costs of approximately one-third of
FINRA members. As described in Item
II.A. above, FINRA considered various
thresholds for applying the modified
GIA pricing structure to strike the
appropriate balance between providing
limited relief to smaller firms negatively
impacted by the current GIA
calculation, while maintaining a pricing
structure that adequately supports its
regulatory programs and minimizes
revenue volatility.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 11 and paragraph (f)(2) of Rule
19b–4 thereunder.12 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2014–046 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549.
All submissions should refer to File
Number SR–FINRA–2014–046. This file
number should be included on the
subject line if email 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, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2014–046 and should be submitted on
or before December 15, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–27708 Filed 11–21–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73622; File No. SR–FINRA–
2014–047]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Adopt
FINRA Rule 2241 (Research Analysts
and Research Reports) in the
Consolidated FINRA Rulebook
November 18, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
14, 2014, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to adopt NASD
Rule 2711 (Research Analysts and
Research Reports) as a FINRA rule, with
several modifications. The proposed
rule change also would amend NASD
Rule 1050 (Registration of Research
Analysts) and Incorporated NYSE Rule
344 to create an exception from the
research analyst qualification
requirement. The proposed rule change
would renumber NASD Rule 2711 as
FINRA Rule 2241 in the consolidated
FINRA rulebook.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
10 See
13 17
11 15
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
supra note 9.
U.S.C. 78s(b)(3)(A).
12 17 CFR 240.19b–4(f)(2).
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69939
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Agencies
[Federal Register Volume 79, Number 226 (Monday, November 24, 2014)]
[Notices]
[Pages 69937-69939]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27708]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73632; File No. SR-FINRA-2014-046]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Modify the Gross Income Assessment Pricing
Structure
November 18, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 7, 2014, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as ``establishing or changing a
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon receipt of this filing by the Commission. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to modify the Gross Income Assessment pricing
structure in Section 1(c) of Schedule A to the FINRA By-Laws.
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for,the Proposed Rule Change
1. Purpose
The proposed rule change is intended to provide limited relief from
the Gross Income Assessment (``GIA'') for some smaller FINRA members
due to the unanticipated effect of a 2009 change to the method of
calculating the assessment. The GIA is one of a few primary revenue
sources that funds FINRA's regulatory operations \5\ and is based on a
firm's annual gross revenue.\6\ In 2008, FINRA established a seven-tier
rate structure to assess the GIA, with a minimum assessment of $1,200.
The tiered rates, which have remained unchanged, are as follows:
---------------------------------------------------------------------------
\5\ FINRA's primary member regulatory pricing structure also
includes the Trading Activity Fee, the Personnel Assessment (``PA'')
and the Branch Office Assessment, as well as the processing of new
and continuing membership applications.
\6\ Schedule A to the FINRA By-Laws defines gross revenue for
assessment purposes as total income as reported on FOCUS form Part
II or IIA, excluding commodities income.
---------------------------------------------------------------------------
(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.
As a result of this structure, GIA revenues are derived
overwhelmingly from medium-sized and larger firms. Due to rebates,
firms with revenues of $1 million or less effectively have paid no GIA
since 2008.
In November 2009, the Commission approved changes to the GIA and PA
intended to help FINRA achieve a more consistent and predictable
funding stream to carry out its regulatory mandate.\7\ The economic and
industry downturns in 2008 and 2009 had exposed FINRA's vulnerability
to year-to-year volatility in members' gross revenues. GIA revenues in
2009 dropped precipitously due to write-offs
[[Page 69938]]
taken in late 2008, particularly by the largest securities firms.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 61042 (November 20,
2009), 74 FR 62616 (November 30, 2009) (Order Approving File No. SR-
FINRA-2009-057).
---------------------------------------------------------------------------
To ameliorate this vulnerability and smooth out the volatility
inherent in the GIA, FINRA amended Schedule A to base the GIA on the
greater of (1) the tier rate applied to a member's annual gross revenue
from the preceding calendar year (``current year GIA'') or (2) a three-
year average of GIA to be calculated by adding the current year GIA to
the GIA assessed on the member in the previous two calendar years and
dividing by three (``averaged GIA'') (together ``the reformulated
calculation''). Thus, the change was intended to maintain the GIA rate
structure, while building a buffer against industry downturns.
While the reformulated calculation has been effective in
stabilizing FINRA's GIA revenues, an unanticipated impact of the new
structure has been that firms can be locked in to a higher GIA as the
result of a spike in gross revenue during a single year. The following
example of a hypothetical Tier 2 firm illustrates the effect:
----------------------------------------------------------------------------------------------------------------
GIA based
Prior year assessable GIA based on reformulated Variance in
Year gross FOCUS revenue prior year calculation GIA fee
revenue only (current rule)
----------------------------------------------------------------------------------------------------------------
2008.................................. $4 million.............. $4,860 n/a n/a
2009.................................. $4 million.............. 4,860 n/a n/a
2010.................................. $4 million.............. 4,860 $4,860 $0
2011.................................. $10 million............. 12,150 12,150 0
2012.................................. $6 million.............. 7,290 8,100 810
2013.................................. $4 million.............. 4,860 8,370 3,510
2014.................................. $3 million.............. 3,645 6,705 3,060
----------------------------------------------------------------------------------------------------------------
Thus, in years 2012 through 2014, the firm would be assessed an
amount based on the average GIA that is significantly greater than the
current GIA calculation, despite declining or flattening revenues
during those years. This is due to the knock-on effect that the higher
GIA fee in 2011 has created on the rolling three-year average
calculations.
The original purpose of the previous rule change was to minimize
the impact on FINRA revenues of down years suffered by mid-sized and
large firms. FINRA had not contemplated the effect that intermittent
significant increases in gross revenue could have on the GIA in
subsequent years for smaller firms, where the relative impact can be
greater. Accordingly, the proposed rule change would eliminate the
averaged GIA component of the assessment calculation where a firm's
prior year gross revenue does not exceed $25 million; i.e., those firms
that fall within the lowest two tiers. In those circumstances, the firm
would be assessed the current year GIA.
Based on 2013 FOCUS revenues, FINRA estimates that 87% (1,365) of
the firms with revenues of $25 million or less would benefit from the
pricing change. FINRA further estimates that the change would result in
savings to those firms of approximately $3.5 million, or approximately
2.0% of total GIA revenue. FINRA found that the proposed assessment
approach would have had similar impacts as applied to firm revenues in
2011 and 2012; in other words, the back tested impact is generally
consistent for the past three years' worth of FOCUS data for active
firms. FINRA notes that no firms would be worse off due to the pricing
change. Since the current reformulated calculation assesses the greater
of current year GIA or averaged GIA, the firms that would benefit from
the change are those firms that have been subject to the higher
averaged GIA. The remaining firms have paid only the current year GIA,
which would continue under the proposed rule change, even if their
revenues decrease.
FINRA recognizes this effect of averaging potentially affects all
firms, so FINRA also considered the impact of eliminating the averaging
component from the remaining tiers. Based on an analysis, FINRA found
that a significantly lower number of firms with revenues in these
higher revenue tiers were impacted by the averaging calculation.
However, extending this pricing change to these firms would have a
material financial impact on the funding of FINRA's regulatory program.
Therefore, FINRA is proposing to apply the modified pricing
structure to firms that do not exceed the $25 million tier. The
relative negative impact of the current calculation falls
disproportionately on those firms with gross revenues of $25 million or
less, while the revenue impact on FINRA would be less at that
threshold. At the same time, with a $25 million threshold, the
reformulated calculation that includes the averaged GIA would continue
to apply to the largest concentration of firms with potentially
significant year-to-year volatility in gross revenues.
FINRA has filed the proposed rule change for immediate
effectiveness. FINRA is proposing that the implementation date of the
proposed rule change will be January 1, 2015.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\8\ which requires, among
other things, that FINRA rules provide for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls. The Commission previously found both the current year GIA and
the reformulated calculation to be an equitable allocation of
reasonable fees.\9\ FINRA believes the proposed modification to the GIA
pricing structure remains reasonable, since it continues to apply
either the current year GIA or the averaged GIA to all members and does
not increase the assessment rates. FINRA also believes the proposed
rule change retains an equitable allocation of fees, as it would
continue to apply the reformulated calculation on members that
accounted for approximately 98% of the revenue from GIA in 2013, while
potentially lessening, under very particular circumstances, the
assessment on members that accounted for only about 2% of revenue from
the GIA. Furthermore, the proposed rule change is both reasonable and
equitable with respect to the firms in the $25 million tier, as no firm
within that tier would be worse off. Instead, the proposed rule change
would align those firms that have had to pay the higher averaged GIA
[[Page 69939]]
with those firms that have only paid the current year GIA.
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\8\ 15 U.S.C. 78o-3(b)(5).
\9\ See Securities Exchange Release No. 57474 (March 11, 2008),
73 FR 14517 (March 18, 2008) (Order Approving File No. SR-FINRA-
2008-001) and Securities Exchange Act Release No. 61042 (November
20, 2009), 74 FR 62616 (November 30, 2009) (Order Approving File No.
SR-FINRA-2009-057).
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The GIA is predicated on the fact that larger firms individually
require greater regulatory resources. The proposed rule change largely
keeps in place a GIA pricing structure that, as the Commission noted in
approving the reformulated calculation in SR-FINRA-2009-057, ``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.'' \10\
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\10\ See supra note 9.
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change would
reduce the costs of approximately one-third of FINRA members. As
described in Item II.A. above, FINRA considered various thresholds for
applying the modified GIA pricing structure to strike the appropriate
balance between providing limited relief to smaller firms negatively
impacted by the current GIA calculation, while maintaining a pricing
structure that adequately supports its regulatory programs and
minimizes revenue volatility.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \11\ and paragraph (f)(2) of Rule 19b-4
thereunder.\12\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2014-046 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File Number SR-FINRA-2014-046. This
file number should be included on the subject line if email 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, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of FINRA. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2014-046 and should be
submitted on or before December 15, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27708 Filed 11-21-14; 8:45 am]
BILLING CODE 8011-01-P