FR 2024-31612

The document in question is a notice regarding a proposed rule change by the Financial Industry Regulatory Authority, Inc. (FINRA). It outlines an update to the fees imposed under FINRA Rule 6897 as it pertains to the National Market System Plan's Consolidated Audit Trail (CAT) for the year 2025. The fee, termed "CAT Fee 2025-1," is set at $0.000022 per executed equivalent share, aiming to cover approximately half of the projected costs for 2025. The rule change has been filed to be effective immediately, with the Securities Exchange Commission (SEC) seeking public comments on whether the change aligns with the Securities Exchange Act of 1934.

General Summary of the Document

This notice communicates FINRA's intention to revise the fee structure for industry members under Rule 6897. The revised fee is specific to transactions that are part of the Consolidated Audit Trail, a system designed to track securities transactions across markets in the United States. The updated fee is slated to replace the higher fee from the previous year and aims to recover the anticipated costs associated with maintaining and operating CAT in 2025.

Significant Issues or Concerns

Several issues arise from this proposal that merit consideration:

• The lack of context about how the proposed fee compares to other similar fees or a lack of benchmarks raises questions about its fairness or competitiveness.
• There isn't a clear breakdown of the "reasonably budgeted CAT costs for 2025." Without this information, it is challenging to evaluate whether the fees are justified.
• The document is laden with complex regulatory language. This may pose difficulties for stakeholders who are not familiar with financial or legal jargon, thus impacting their ability to provide informed feedback.
• The expected impact of collecting half of the costs through the new fee lacks clarity. It would be beneficial to have more detail on how effective the fee will be in meeting its goals and whether those goals are necessary.

Impact on the Public

For the general public, the implementation of new fees is primarily an insider issue within the financial trading and regulation community. However, these regulatory costs often have ripple effects, possibly influencing fees and costs for everyday investors. Transparency in such changes helps maintain trust in the financial system and ensures that the costs are managed efficiently without unnecessary burden on investors.

Impact on Specific Stakeholders

Industry members, including national securities exchange members and associated financial institutions, will see a directly negative financial impact due to this change. Though the proposed fee is lower than the previous year, any fee introduces additional costs that these stakeholders must manage. The reduction in the fee could be seen positively, but stakeholders might remain wary if these adjustments are not clearly justified by a transparent budget.

On the other hand, entities responsible for compliance and maintaining the integrity of the audit trail would view this update as necessary for continued operation and enhancement of the CAT system. Ensuring it is funded properly is crucial for accurate, nationwide securities transaction monitoring, a benefit that ultimately upholds the integrity of financial markets.

In conclusion, while this proposal seems like a standard regulatory adjustment, its details and implications require thorough examination. Stakeholders, particularly those directly impacted, will need to voice concerns or support through the comment process offered by the SEC to ensure all interests are adequately represented and considered.

In reviewing the document surrounding the amendment to FINRA Rule 6897, there are several financial elements worth discussing. The proposal seeks to establish a new fee, known as CAT Fee 2025-1, to fund the Consolidated Audit Trail (CAT), a key infrastructure within the National Market System. This fee is set at $0.000022 per executed equivalent share, which represents a slight reduction from the previous CAT Fee 2024-1, which was $0.000035 per executed equivalent share.

While the figures are precise, the document does not provide a broader context or comparison that might help in understanding whether this adjustment is competitive or fair. The lack of comparison with other fees or a benchmark makes it challenging to assess the merit and necessity of this change. Readers might benefit from a comparison to similar financial adjustments in the industry or other historical data that could illuminate whether these fees align reasonably with historical or industry standards.

The document also leaves questions regarding the clarity and justification of the "reasonably budgeted CAT costs for 2025.” While it mentions that the aim is to recover approximately half of those costs through the fee, there is a lack of detailed breakdown or transparency regarding how these costs are calculated. Without this information, stakeholders might find it difficult to understand how the fee ties into actual expenditures or whether it's proportional to the costs anticipated.

Furthermore, the duration of CAT Fee 2025-1 is briefly mentioned as spanning six months, planned to recover half of the projected costs. However, there lacks an analysis of what financial impact this adjustment will have on industry members or how it's expected to contribute to the financial health of the CAT infrastructure. The temporary nature of this fee may raise questions about long-term funding strategies and whether further adjustments might be necessary.

Issues might also arise from the absence of a clear mechanism ensuring transparency and preventing conflicts of interest in how these fees are managed. The document does not clarify how these financial adjustments are monitored or what protections are in place for ensuring accountability, essential considerations when significant financial resources are involved.

Lastly, while there is a brief note that CAT Fee 2025-1 replaces CAT Fee 2024-1, there is no in-depth retrospective analysis that evaluates the previous fee's effectiveness. Such an analysis could provide insights into why adjustments are deemed necessary beyond mere cost recovery goals. Furthermore, without understanding the outcomes of the previous fee, stakeholders might question the rationale underpinning this proposed change.

In conclusion, while the document outlines specific numerical changes within the funding fees, a deeper insight and transparency into budget allocations, impacts, and mechanisms for accountability could improve understanding and confidence among interested parties.