In 2010, the Commission approved a proposed rule change that generally makes transactions in Asset-Backed Securities reportable to TRACE.8
Because Asset-Backed Securities will be TRACE-Eligible Securities, transactions in Asset-Backed Securities will generally be subject to the TAF.
Currently, when reporting the size of a corporate bond transaction to TRACE, the number of bonds is reported and the TRACE System, which is programmed to reflect that one bond equals $1,000 par value, calculates the total dollar volume of the transaction (e.g.,10 bonds x $1,000=$10,000).9
Based on this reporting structure, the TAF is assessed on a per-bond basis, but the number of bonds is a proxy for the size of the total dollar volume of a transaction in $1,000 increments. Although some Asset-Backed Securities are structured like conventional corporate bonds, many are structured differently. For example, many Asset-Backed Securities are based on financial assets that amortize, and the principal (or face) value declines over time. Accordingly, transactions in Asset-Backed Securities will not be reported to TRACE on a per-bond basis like conventional corporate bonds, but rather will be reported based on the original principal (or face) value of the underlying security or the Remaining Principal Balance.
Consequently, FINRA is proposing to conform the TAF rate for sales of Asset-Backed Securities consistent with the reporting of such transactions to TRACE. Accordingly, FINRA is proposing to base the TAF for sales of Asset-Backed Securities on the size of the transaction as reported to TRACE (i.e.,par value, or, where par value is not used to determine the size of the transaction, the lesser of original face value or Remaining Principal Balance) at a rate of $0.00000075 times the size of the transaction as reported to TRACE, with a maximum charge of $0.75 per trade.
The effective date of the proposed rule change will be the date the proposed rule change SR-FINRA-2009-065 becomes effective, which is currently anticipated to be May 16, 2011.10
III. Discussion and Commission's Findings
After carefully reviewing the proposed rule change, the Commission finds that the proposal 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 proposal is consistent with Section 15A(b)(5) of the Act,12
which requires that a national securities association have rules that provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using any facility or system that the association operates or controls. The Commission believes that the proposal is reasonably designed to impose equitable fees on members that transact in Asset-Backed Securities, where the principal value of the securities may decline over time.IV. Conclusion
It is therefore ordered,pursuant to Section 19(b)(2) of the Act,13
that the proposed rule change (SR-FINRA-2011-004), be, and hereby is, approved.
Cathy H. Ahn,