Proceedings to Approve/Disapprove the CAT Fee Filings for Industry Members

Summary

Excerpt

July 28, 2017

Via Electronic Mail ([email protected])

Mr. Brent J. Fields

Secretary

U.S. Securities & Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-1090

Re: File No. SR-FINRA-2017-011; Self-Regulatory Organizations; Bats BYX Exchange, Inc; Bats BZX Exchange, Inc.; Bats EDGA Exchange, Inc.; Bats EDGX Exchange, Inc.; BOX Options Exchange LLC; C2 Options Exchange, Incorporated; Chicago Board Options Exchange, Incorporated; Chicago Stock Exchange, Inc.; Financial Industry Regulatory Authority, Inc.; Investors’ Exchange LLC; Miami International Securities Exchange, LLC; MIAX PEARL LLC; NASDAQ BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; NASDAQ PHLX LLC; The NASDAQ Stock Market LLC; New York Stock Exchange LLC; NYSE Arca, Inc. and NYSE MKT LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Establish Fees for Industry Members To Fund the Consolidated Audit Trail

Dear Mr. Fields:

The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to provide additional comments on the above-referenced proposals filed by the SelfRegulatory Organization (“SROs”) that are the Plan Participants to the CAT NMS Plan. We thank the Securities and Exchange Commission (“Commission”) for suspending effectiveness of the proposals and instituting proceedings to determine whether to approve or disapprove the proposals. We maintain the arguments that we made in our previous comment letter on the proposals, and we request that the Commission consider them as incorporated into this letter.2 In addition, we add the following comments.

SIFMA Policy Discussion and Concerns on Regulatory Funding

These proposals should be considered in the context of two key statutory directives: (1) the requirements under the Securities and Exchange Act of 1934 (“Exchange Act”) that SROs regulate their members; 3 and (2) the Exchange Act requirements that any fees SROs charge members must be reasonable and equitably allocated. 4

There is a historical precedent of broker-dealers paying fees to SROs to help fund regulation of the markets. The Commission has expressly taken the position that SROs may recover regulatory costs through the collection of fees from member firms. 5 FINRA’s Bylaws provide specifically for member funding, 6 which makes sense because FINRA remains a member organization whose function is to provide regulatory services. In their current role as commercial entities, exchanges operate under the statutory requirement that they must satisfy their SRO obligations, and they have continued the practice of charging fees to their members to help offset their regulatory expenses.

Despite the historical practice, there is nothing in the Exchange Act that specifically mandates broker-dealer funding of SROs. And even under current rules and practices, the SROs do not have an unlimited right of recovery of regulatory costs. As we have stated previously, the SROs already receive a significant amount of regulatory fees from members, while providing no information on how that money is spent or how the amount received relates to the amount spent.7 Accordingly, we reiterate our argument that the Commission should not approve any fee for the CAT until the SROs demonstrate that it is necessary in addition to existing fees that are already levied upon their members.

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1 The Securities Industry and Financial Markets Association (SIFMA) brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA’s mission is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 See Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA to Brent J. Fields, Secretary, Securities and Exchange Commission dated June 6, 2017 (“SIFMA CAT Fee Filing Comment Letter”).

3 See 15 U.S.C. 78f(b)(1); see also 15 U.S.C. 78o-3(b)(2).

4 See 15 U.S.C. 78f(b)(4); see also 15 U.S.C. 78o-3(b)(5).

5 See e.g., Securities Exchange Act Release No. 50700 (November 22, 2004), 69 FR 71256, 71257 (December 8, 2004)(“SEC Concept Release Concerning Self-Regulation”).

6 See FINRA By-Laws, Schedule A, Section 1(a).

7 See SIFMA CAT Fee Filing Comment Letter at 2.