Trading Activity Fee Frequently Asked Questions

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General

Q100.1:  What is the Trading Activity Fee?
A100.1: The Trading Activity Fee, or TAF, is one of the member regulatory fees FINRA assesses to recover the costs the supervising and regulating firms.  This includes costs associated with performing examinations, financial monitoring, and FINRA’s policy, rulemaking, interpretive, and enforcement activities.

The TAF is a transaction-based fee that is generally assessed on member firm transactions in covered securities, regardless of where the trade is executed. Review Section 1 of Schedule A to the FINRA By-Laws for the specific types of securities and transactions subject to, or exempt from, the TAF.

Q100.2:  Where can I find the rule about the Trading Activity Fee in FINRA’s Rulebook?
A100.2: The details of the Trading Activity Fee, including the securities it applies to, transactions that are exempt from the fee, and the fee rates, are in Section 1 of Schedule A to FINRA’s By-Laws.

Q100.3:  How is the Trading Activity Fee different from the Regulatory Transaction Fee?
A100.3: The Trading Activity Fee is used by FINRA to fund its regulatory responsibilities.  The Regulatory Transaction Fee is a fee FINRA imposes to recover the quarterly fee it pays to the U.S. Securities and Exchange Commission under Section 31 of the Securities Exchange Act of 1934.

Q100.4:  How often is the Trading Activity Fee assessed?
A100.4: The Trading Activity Fee is assessed on a monthly basis.

Q100.5:  Is the trading data on which the Trading Activity Fee is assessed self-reported or does FINRA calculate the amount?
A100.5: The trading data used to calculate the Trading Activity Fee is self-reported to FINRA each month.

Q100.6: Should the data be submitted to FINRA by the clearing firm for the Trading Activity Fee?
A100.6: Data should be submitted as monthly aggregates at the clearing firm level.

Q100.7: Should the data be submitted on a trade by trade basis for the Trading Activity Fee?
A100.7: Monthly aggregate data should be submitted to FINRA by the 10th business day following the end of the month. This should include aggregate number of shares for stocks, aggregate number of contracts for options and aggregate number of round turn transactions for security future products.

Q100.8: Should the data be calculated from the trade date or the settlement date?
A100.8: The data should be calculated from the trade date.

Q100.9: How do you calculate the rate for the Trading Activity Fee? Does the fee have minimum and maximum rates?
A100.9: The rate for the Trading Activity Fee is based on aggregate volumes. There is a separate rate for share volume for stocks, contract volume for options, round turn transaction volume for futures, and bond volume for debt. See the FINRA By-Laws, Schedule A, Section 1 for the Trading Activity Fee rates and the minimum and maximum fee rates.

Q100.10: Do rounding rules apply for the Trading Activity Fee?
A100.10: Rounding rules do not apply because the Trading Activity Fee is calculated and reported in aggregate.

Q100.11: Reserved.

Q100.12: Does the TAF apply to trades that are cancelled and subsequently corrected?
A100.12: For a trade that is cancelled and later corrected, the TAF would apply to the corrected trade. If a cancelled trade, however, is not later corrected and re-billed, the TAF would not be assessed. Accordingly, corrected trades should be included in the firm’s monthly aggregate transactions required to be reported on the monthly TAF Self-Reporting Form, but cancelled trades that were not corrected should not be reported. Debt and equity trade corrections should be treated the same for the purposes of the TAF.

Q100.13: Is the Trading Activity Fee assessed on transactions for non-member broker-dealers that clear through a FINRA member broker-dealer?
A100.13: If the FINRA member clearing firm acts as executing broker, then the Trading Activity Fee should be assessed on the clearing member as executing broker. If the FINRA member only clears the transaction but does not act as executing party, no fee is assessed on the clearing member.

Q100.14: The FINRA By-Laws state that the Trading Activity Fee is assessed on the sell side of member transactions. How is the fee assessed for member transactions when the member is on the buy side and the counter party is a customer? 
A100.14: Section 1 of Schedule A to FINRA By-Laws provides that members shall be assessed a TAF for the sale of covered securities. The sale of a covered security includes both transactions where the sale is for the account of a customer and transactions where the sale is for the member itself. For transactions where the sale is for the account of a customer, this means that the TAF is assessed on transactions in which a member purchases the security as principal from a customer or where the member acts as agent in the sale of a covered debt security on behalf of a customer.

Q100.15: Is the TAF assessed on a purchase of a covered security from a customer whose account is not held by the member? 
A100.15: The TAF is assessed on sales by the member firm and by customer accounts carried by the member firm. In transactions where a member purchases a covered security from a non-FINRA member broker-dealer or customer whose account is not carried by the member, the TAF will not be assessed.

Q100.16: How is the TAF assessed when a member, including an ATS or ECN, matches customer orders? 
A100.16: When a member, including an ATS or ECN, matches as agent a customer buy order and a customer sell order, a TAF will be assessed on the member executing the cross transaction. 

Q100.17: How is the TAF assessed when a member, including an ATS or ECN, matches a customer order with a Broker-Dealer order? 
A100.17: When a member matches as agent an order from a customer with an order from a Broker-Dealer, the TAF is assessed as follows:

  • Customer Buy Order matched as agent with FINRA Member Broker-Dealer Sell Order
    • TAF is assessed on the selling FINRA Member Broker-Dealer
  • Customer Sell Order matched as agent with FINRA Member Broker-Dealer Buy Order
    • TAF is assessed on member executing the cross
  • Customer Buy Order matched as agent with non-FINRA Member Broker-Dealer Sell Order
    • TAF is assessed on member executing the cross
  • Customer Sell Order matched as agent with non-FINRA Member Broker-Dealer Buy Order
    • TAF is assessed on member executing the cross 

Q100.18: How is the TAF assessed when a member, including an ATS or ECN, matches Broker-Dealer orders? 
A100.18: When a member matches as agent a buy order from a Broker-Dealer with a sell order from a Broker-Dealer, the TAF is assessed as follows:

  • FINRA Member Broker-Dealer Buy Order matched as agent with FINRA Member Broker-Dealer Sell Order
    • TAF is assessed on the selling FINRA Member Broker-Dealer
  • Non-FINRA Member Broker-Dealer Sell Order matched as agent with FINRA Member Broker-Dealer Buy Order
    • TAF is assessed on member executing the cross
  • Non-FINRA Member Broker-Dealer Buy Order matched as agent with FINRA Member Broker-Dealer Sell Order
    • TAF is assessed on the selling FINRA Member Broker-Dealer
  • Non-FINRA Member Broker-Dealer Sell Order matched as agent with non-FINRA Member Broker-Dealer Buy Order
    • TAF is assessed on member executing the cross

Q100.19: How is a “customer” defined for purposes of applying the TAF?
A100.19: A “customer” for purposes of the TAF means a person that is not a broker-dealer.  See FINRA Rule 0160(a)(4).

Q100.20: Are convertible bonds included in the scope of the TAF?
A100.20: Convertible debt is included in the scope of the TAF, and the fee rate shall be determined by the facility to which the trade report is submitted (i.e., if reported to an equity reporting system, the fee should be assessed per the equity securities rate; if reported to TRACE, it should be assessed per the bond fee rate).

Q100.21: Are equity-linked notes (ELNs) included in the scope of the TAF?
A100.21:  ELNs are included in the scope of the TAF, and the fee rate shall be determined by the facility to which the trade report is submitted (i.e., if reported to an equity reporting system, the fee should be assessed per the equity securities rate; if reported to TRACE, it should be assessed per the bond fee rate).  For ELNs that are reported to TRACE, the TAF is assessed by dividing the reported volume for the transaction by the reported price to calculate the number of bonds, which is then multiplied by the per bond fee rate.

Q100.22: Are Exchange Traded Funds (“ETF”) and other structured products included in the scope of the TAF?
A100.22: ETFs and other structured products are subject to the TAF. However, any transfer of underlying securities to create or redeem an ETF is not subject to the TAF. For purposes of the TAF, the classification of an ETF as an equity or fixed income security shall be determined by the national securities exchange or FINRA reporting facility to which transactions in such ETF are reported.  For example, if a trade of an ETF is reported to a FINRA equity transaction reporting system, the fee should be assessed per the equity security rate, and if the trade is reported to TRACE, it should be assessed per the bond fee rate.

 

Equity and Options

Unless otherwise specified, the questions and answers in this section apply to both equities and options.

Q200.1:  Does the Trading Activity Fee apply to transactions effected on a national securities exchange by a dually registered specialist or floor based market maker in a covered equity security?
A200.1: Proprietary transactions by a jointly registered FINRA member, in its capacity as an exchange specialist or market maker, that are subject to Section 11(a) of the Securities Exchange Act and SEC Rule 11a1-1(T)(a) thereunder, are excluded from the scope of the Trading Activity Fee. However, any other transactions permitted by Section 11(a), such as bona fide arbitrage or hedge transactions involving a long or short position in a covered equity security, will be subject to the Trading Activity Fee.

Q200.2: Are all proprietary transactions in exchange-listed securities for which a member is registered as a market maker exempt from the Trading Activity Fee? 
A200.2: Only those proprietary transactions in covered securities executed on a national securities exchange in a member's capacity as an exchange specialist or market maker are excluded from the TAF. As such, only proprietary transactions executed by a member in its capacity as an exchange specialist or market maker on the exchange in which the member is a registered exchange specialist or market maker are exempt.  Any transactions executed in a member's capacity as a market maker otherwise than on a national securities exchange or executed on an exchange that the member is not a registered exchange specialist or market maker are subject to the TAF. Further, any other proprietary transactions, such as bona fide arbitrage or hedging transactions, are also subject to the TAF.

Q200.3: If I am a registered market maker on a national securities exchange and receive an agency order from a FINRA member broker-dealer that I then send to a national securities exchange for execution, is that transaction exempt from the TAF?
A200.3: When a member acts as agent on behalf of another FINRA member in the sale of a covered security, the TAF is assessed to the member who is the ultimate seller of the security, not the member acting as agent. Therefore, in an agency transaction executed on behalf of another FINRA member broker-dealer on a national securities exchange by a registered market maker, the TAF would be assessed on the FINRA member who is the ultimate seller of the security, not the FINRA member market maker acting as agent in the transaction.

Q200.4: If I am a registered market maker on a national securities exchange and receive an order from a customer that I send to a national securities exchange for execution, is that transaction exempt from the TAF?
A200.4: Transactions executed on behalf of a registered market maker’s own customer, including agency and riskless principal transactions, will be assessed the TAF.

Q200.5: Are transactions executed by floor based brokers who are dually registered with FINRA and a national securities exchange exempt from the Trading Activity Fee?
A200.5: If the floor based broker qualifies for exemption from FINRA registration under SEC Rule 15b9-1, then any transactions effected by that broker will be exempt from the Trading Activity Fee.

Q200.6: If a non-FINRA member floor broker executes a trade on a FINRA member’s behalf on the floor of a national securities exchange, will the TAF be assessed on the floor broker?
A200.6: Non-FINRA member floor brokers acting as agent on a FINRA member’s behalf will not be assessed the Trading Activity Fee. However, the FINRA member, the seller of the security, will be assessed the Trading Activity Fee on the transaction.


Q200.7: How is the TAF assessed on equity trades executed in an agency capacity?
A200.7: The application of the TAF to equity transactions executed in an agency capacity depends on whether your firm received the order from another FINRA member, a non-FINRA member broker-dealer, or a non-broker-dealer customer. Specifically:

  • Members executing sell orders for equity securities in an agency capacity on behalf of another FINRA member will not be assessed a TAF. Rather, the TAF is assessed on the FINRA member who is the ultimate seller of the security, not the firm acting as agent.
  • Members executing sell orders for equity securities in an agency capacity on behalf of a non-FINRA member broker-dealer will be assessed a TAF regardless of whether the trade is executed on a national securities exchange or over-the-counter.
  • Members executing sell orders for equity securities in an agency capacity on behalf of a non-broker-dealer customer will be assessed the TAF.

Q200.8: How is the TAF assessed on equity trades executed in a riskless principal capacity? 
A200.8: The TAF is assessed on equity trades executed in a riskless principal capacity in the same manner as equity trades executed in an agency capacity.  Only equity trades that meet the definition of riskless principal under FINRA transaction reporting rules qualify for riskless principal treatment with respect to the TAF.  The application of the TAF to equity riskless principal transactions, as with equity agency transactions, depends on whether your firm received the order from another FINRA member, a non-FINRA member broker-dealer, or a non-broker-dealer customer. Specifically:

  • Members executing sell orders for equity securities in a riskless principal capacity on behalf of another FINRA member will not be assessed a TAF. Rather, the TAF is assessed on the FINRA member who is the ultimate seller of the security, not the firm acting as riskless principal.
  • Members executing sell orders for equity securities in a riskless principal capacity on behalf of a non-FINRA member broker-dealer will be assessed a TAF regardless of whether the trade is executed on a national securities exchange or over-the-counter.
  • Members executing sell orders for equity securities in a riskless principal capacity on behalf of a non-broker-dealer customer will be assessed the TAF.

Q200.9: My firm engages in sponsored access and direct market access relationships.  How is the TAF assessed on transactions effected via such relationships?
A200.9: For purposes of the TAF, the sponsoring member is viewed as acting as agent on behalf of the sponsored participants. As such, if the sponsored client is a FINRA member broker-dealer, the TAF would be assessed to the sponsored member as the ultimate seller of the security. If, however, the sponsored client is a customer or non-FINRA member broker-dealer, the TAF would be assessed on the sponsoring member.

Q200.10: My firm clears for non-member broker/dealers that engage primarily in options transactions as exchange specialists. As part of our clearing services, we provide an electronic order delivery system that allows our correspondents to electronically access other market centers. Our correspondents direct orders through the system to the market center of their choosing and control all aspects of how the order will be executed. However, when trades are executed through this electronic order delivery system, the counter party only sees the identity of the FINRA clearing firm (not the non-member correspondent). Does FINRA view the clearing firm as the executing broker for purposes of the TAF for executions occurring via these electronic order delivery systems?
A200.10: A FINRA member will be subject to the TAF for any trade in which the member is viewed as a party to the trade in either a transaction report to a FINRA reporting facility or in a transaction executed on a national securities exchange. Consequently, in the above scenario, since the FINRA member appears as a party to the trade, the member is subject to the TAF.

Q200.11: My firm acts as a clearing firm for institutions and non-FINRA member broker-dealers. Some of my clients (institutions and non-FINRA member broker-dealers) participate in dark pools operated by other FINRA member firms. Is my firm subject to the TAF for transactions executed by clearing clients in dark pools operated by another FINRA member?
A200.11: If the clearing firm appears as a party to the trade in any transaction reports required under FINRA transaction reporting rules, the clearing firm would be subject to the TAF.

Q200.12: Reserved.

Q200.13: Are American Depository Receipts (ADRs) included in the scope of the Trading Activity Fee?
A200.13: Secondary market transactions in ADRs are subject to the Trading Activity Fee. However, conversions of ADRs to foreign ordinary shares are not subject to the Trading Activity Fee.

Q200.14: Reserved.

Q200.15: Will the Trading Activity Fee be assessed on clearing related transactions such as Prime Broker, Step Outs, CNS “flips”, CMTA trades, “GUS give-ups”, etc.?
A200.15: The scope of the Trading Activity Fee was designed to include only the initial execution of a transaction. Therefore, the TAF will not be assessed on any back office or clearing related transactions that serve only to facilitate the clearance and settlement of a previously executed transaction.

Q200.16: As a clearing firm, I receive transactions from my correspondents bundled together for clearing purposes, often referred to as “compressed” trades. I do not receive the individual components of these compressed clearing entries. Is it permissible to apply the TAF to the single compressed entry rather than the individual transactions that make up the compressed clearing entry?
A200.16: The TAF is applied to the initial execution of a transaction and not to any related clearing entries. The TAF must therefore be calculated based on the individual components of compressed clearing transactions. It is not permissible to apply the maximum transaction limit based on a compressed clearing entry. Clearing firms must have a mechanism in place that will allow them to identify the individual components of compressed clearing entries so that the TAF may be properly calculated based on the individual executions.

Q200.17:  How is the Trading Activity Fee calculated when a FINRA member uses an average price model to effect transactions on an agency basis for its customers?
A200.17: A member may choose to calculate the Trading Activity Fee on either the individual street side executions or on the account level average price confirmation if that member can link the street side executions to the account level average price confirmation(s). However, the methodology chosen by the member to calculate the TAF assessment must be consistently applied to all average price transactions and must be documented by the member.

Example 1. A customer places an order to sell one million shares of a covered security and the member executes ten 100,000 share trades that are then allocated to the customer on an average price basis. If the member can link the ten street side trades to the one million share average price confirmation to the customer, the member may calculate the fee based on either the ten street side trades (ten sales at $5) or on the account level average price confirmation to the customer (one sale at $5).

Example 2. An investment advisor places an order to sell one million shares of a covered security. The member then executes ten 100,000 share trades to fill the investment advisor’s order. The investment advisor subsequently allocates the one million shares to four separate customers. If the member can link the ten street side trades to the four account level average price confirmations, the member may calculate the fee based on either the ten street side trades (ten sales at $5) or on the account level average price confirmations (four sales at $5). The member may not calculate the fee based on the million share order from the investment advisor (one sale at $5) because it is comprised of multiple customer accounts.

Q200.18: If my trader receives a buy order for 400,000 shares that will later be allocated among multiple accounts and sells the entire 400,000 shares as principal, which is reported as such to the tape, is the TAF assessed based on the 400,000 sale from the firm’s trading account or on the individual allocations that make up the 400,000 share order?
A200.18: A member may choose to calculate the TAF based on either the one 400,000 share sale from the firm’s proprietary account or at the individual customer account level. However, the methodology chosen by the member to calculate the assessment must be consistently applied to all such transactions.

Q200.19: As a clearing firm, I receive transactions from my correspondents bundled together for clearing purposes (for purposes of this question, “clearing purposes” is intended to refer to the actual clearing of transactions between broker-dealers, and is not intended to include instances where a single customer may receive an average price execution as described in FAQ E18), often referred to as “compressed” trades. I do not receive the individual components of these compressed clearing entries. Is it permissible to apply the TAF to the single compressed entry rather than the individual transactions that make up the compressed clearing entry?
A200.19: The TAF is applied to the initial execution of a transaction and not to any related clearing entries. The TAF must therefore be calculated based on the individual components of compressed clearing transactions. It is not permissible to apply the maximum transaction limit based on a compressed clearing entry. Clearing firms must have a mechanism in place that will allow them to identify the individual components of compressed clearing entries so that the TAF may be properly calculated based on the individual executions.

Q200.20: Is the TAF charged on exchange-listed options transactions?
A200.20: Firms are assessed the TAF on exchange-listed options transactions, regardless of which exchange they are executed on.

Q200.21: Is the sale of conventional options excluded from the scope of the Trading Activity Fee?
A200.21: Yes, the initial sale of a conventional option contract is excluded from the Trading Activity Fee. However, any resulting exercise will be subject to the Trading Activity Fee if the exercise results in the physical delivery of the underlying securities.

Q200.22: Will the Trading Activity Fee be assessed on the exercise of an option?
A200.22: The exercise of an option is subject to the TAF if the exercises results in the physical delivery of the underlying security or securities. The Trading Activity Fee is assessed on the firm making delivery of the underlying security or securities. However, options that are cash-settled, which do not result in the delivery of the underlying security or securities, do not result in a Trading Activity Fee assessment.

Q200.23: If a member effects a sale of an exchange listed option contract and the subsequent exercise of the option contract results in physical delivery of securities, does the member pay the TAF on both the sale of the option and the delivery of the securities upon exercise?
A200.23: The TAF is assessed both on the sale of an options contract and on the exercise when it results in the physical delivery of securities underlying the option. The initial sale of the contract is assessed a TAF based on the options fee structure and any resulting exercise is assessed a TAF based on the equity fee structure.

Q200.24: Are options involving narrow and broad based indexes exempt from the Trading Activity Fee?
A200.24: Yes, the initial sale of an options contract involving a narrow or broad based index is excluded from the Trading Activity Fee. However, any resulting exercise will be subject to the Trading Activity Fee if the exercise results in the physical delivery of the underlying securities.

 

Debt

Q300.1: Reserved.

Q300.2: Will the TAF appear as a component of the TRACE invoice that currently includes Browser Access Fees, Cancelled Trade Fees, Correction Fees, Reversal Fees, and Tier 1-3 Trade Reports Fees?
A300.2: The TAF does not appear as a component of the TRACE invoice. The TAF is a separate fee used by FINRA solely to fund FINRA’s member regulatory activities and is separate and apart from TRACE-related fees that are used to fund, among other things, operation of the TRACE system.

Q300.3: Does the TAF apply to transactions in government securities?
A300.3: Debt securities that are issued or guaranteed by an Agency (as defined in Rule 6710(k)) or by a Government-Sponsored Enterprise (as defined in Rule 6710(n)) (collectively, Agency Debt Securities) are TRACE-Eligible and effective July 10, 2017, U.S. Treasury Securities are also TRACE-Eligible Securities. The TAF generally applies to transactions in securities that, under the TRACE Rules, are defined as "TRACE-Eligible Securities" (as defined in Rule 6710(a)) and that fall within the definition of a "Reportable TRACE Transaction" (as defined in Rule 6710(c)) and all municipal securities subject to MSRB reporting requirements under MSRB Rule G-14. Transactions in U.S. Treasury Securities, however, are exempt from the TAF.

Q300.4: Does the TAF apply to all TRACE-reportable transactions and municipal transactions reported to the MSRB?
A300.4: The TAF only applies to TRACE-reportable and municipal transactions effected in the secondary market. It does not apply to primary market transactions. For purposes of TRACE reporting that means all List or Fixed Offering Price Transactions as defined in Rule 6710 (q) and Takedown Transactions as defined in Rule 6710(r) would not be subject to TAF. In addition, transactions that are primary market transactions, but do not meet either definition (e.g. “at the market offerings”), would not be subject to TAF.  Similarly, for purposes of municipal transaction reporting, List Offering Price/Takedown Transactions as defined in MSRB Rule G-14(d)(vii) would not be subject to TAF.  In addition, municipal transactions that are primary market transactions, but do not meet the definition of List Offering Price/Takedown Transaction (e.g., market price transactions in “offered municipal securities” as defined in MSRB Rule G-32(d)(vi)), would not be subject to TAF. Finally, the TAF does not apply to TRACE-reportable transactions in U.S. Treasury Securities.

Q300.5: In general, FINRA assesses the TAF on transactions in TRACE-eligible securities (other than U.S. Treasury Securities) and municipal securities. The TAF for some transactions is calculated on a "per bond" basis, while the TAF for other transactions (such as those in Asset-Backed Securities or ABS) are calculated differently. How should firms calculate the TAF on these transactions? 
A300.5: Generally, the TAF is assessed on a per-bond basis, where one bond equals $1,000 par value.  One exception to this rule is when the principal amount of one bond in is something other than $1,000 (such as so-called "baby bonds"), the maximum fee should be calculated using the actual number of bonds.

For transactions in ABS, the TAF calculation is based on the "reported value of the sale" of the transaction. When a member reports a transaction in an ABS where the par value (or original principal value or original face value) does not decrease (or in some circumstances, increase) over time due to the amortization of assets underlying the security, the total par value is reported to TRACE (and not the number of bonds, even if ascertainable) as required under FINRA Rule 6730(d)(2), and the TAF is assessed based upon the total par value reported. However, the requirements to report the size (volume) of an ABS differ if the security amortizes over time. In the sale of an ABS where the original face value (or original principal value) is anticipated to decrease (or increase) over time due to the amortization of assets underlying the security, such as in the sale of a mortgage-backed security, size (volume) is not specifically reported, but is calculated, and the TAF is assessed, by multiplying (a) the reported original face value times (b) the applicable Factor. The Factor is either reported by the member, or, in most cases, is incorporated in the TRACE system by FINRA and not reported by the member as provided in Rule 6730(d)(2). 

Q300.6: Does the current guidance for riskless principal equity transactions apply to TRACE and municipal transactions reported to the MSRB?
A300.6: Although equity trade reporting rules, as described in Notice to Members 00-79, specifically provide for the reporting of transactions effected in a riskless principal capacity, MSRB and TRACE trade reporting rules do not contain similar provisions. Accordingly, the guidance provided for riskless principal equity transactions does not apply to TRACE and municipal transactions.

Q300.7:  How is the TAF assessed on debt transactions executed in a principal capacity?
A300.7: When a member, after having received an order from a customer to sell a covered debt security, buys the security as principal from its customer and then sells the security as principal to another customer or to another broker-dealer, the TAF will be assessed on both the member’s purchase of the debt security from the customer as a principal and the member’s sale of the debt security as a principal.
If, however, the original sell order was received from another broker-dealer rather than a customer, the firm acting as the intermediary will only be assessed the TAF once, when the intermediary sells the security as a principal to a customer or another dealer.  The TAF for the offsetting purchase will be assessed on the broker-dealer that placed the order to sell with the intermediary. 

Q300.8: How is the TAF assessed on debt transactions executed in an agency capacity?
A300.8: TRACE and MSRB transaction reporting rules require that a member submit two transaction reports when it acts as agent on behalf of a customer.1 For example, Broker #1 receives an order from a customer to buy 100 bonds. Acting as the customer’s agent, Broker #1 buys the bonds from Broker #2. The required transaction reports would be as follows:


Report #1: Broker #2 SELL 100 bonds to Broker #1
Report #2: Broker #1 (as agent) BUY 100 bonds from Broker #2
Report #3: Broker #1 (as agent) SELL 100 bonds to customer

For purposes of applying the TAF to covered debt transactions, FINRA defines an agency trade as a trade in which a broker-dealer, authorized to act as an intermediary for the account of its customer, buys (sells) a covered debt security from (to) a third party (e.g., another customer or broker-dealer).  Such a trade is not executed in, or does not pass through, the broker-dealer’s proprietary account, and is appropriately identified on firm transaction records as an agency transaction.  In the above example, this means that only Broker #2 would be assessed a TAF since Broker #1 has not effected a sale either as principal or on behalf of a customer.


If, however, Broker #1 receives an order from a customer to sell 100 bonds and acts as agent in that transaction, the transaction reports would be as follows:


Report #1: Broker #1 (as agent) BUY 100 bonds from customer
Report #2: Broker #1 (as agent) SELL 100 bonds to customer (or Broker #2)


For TAF purposes, FINRA views these trade reports as one transaction, and Broker #1 would be assessed one fee for the transaction.

Q300.9: How is the TAF applied to covered debt securities transactions with investment advisors that ultimately allocate the order among multiple customers?
A300.9: The application of the TAF depends on whether the transactions are required to be reported to TRACE or the MSRB. For independent investment advisors that initially execute a block transaction that is later allocated among multiple customers, this means that only the initial execution that is reported to TRACE or the MSRB is subject to the TAF. Subsequent account allocations that do not represent reportable TRACE or MSRB transactions are not subject to the TAF. For dually registered BD/RIAs or BDs with affiliated investment advisors, both the block transaction and the transactions representing allocations to customer accounts are reportable events and may be TAF-assessable.

Q300.10: How does the TAF apply to different types of short-term money market instruments?
A300.10: A member must determine whether a transaction in a short-term money market instrument is required to be reported under either TRACE or MSRB Rules. As a general matter, corporate debt that, at issuance, has a maturity of one year or less is not TRACE eligible and, therefore, is not subject to the TAF.  However, there is no corresponding exemption for short-term municipal securities. Based on the member’s determination, the TAF will apply if the transaction is required to be trade reported to either TRACE or the MSRB.

Futures

Q400.1: The Trading Activity Fee includes in its definition of a covered security “all security futures wherever executed.” A FINRA member firm can be both a Futures Commission Merchant (FCM) and a FINRA registered broker/dealer and therefore, can hold both futures accounts, which are regulated by the National Futures Association (NFA), and securities accounts, which are regulated by FINRA. Does the Trading Activity Fee apply to transactions in the futures accounts held by a FINRA member and regulated by the NFA?
A400.1: The Trading Activity Fee will only be assessed on transactions held in securities accounts regulated by FINRA.

Q400.2: How does FINRA interpret the term “round turn” as it relates to assessing the Trading Activity Fee on security futures products?
A400.2: For purposes of applying the Trading Activity Fee to security futures products, a round turn transaction is defined as a purchase and subsequent liquidating sale, or a sale followed by a subsequent covering purchase, of a contract for future delivery by a single market participant.

Q400.3:  Schedule A to FINRA’s By-Laws, Section 1(b)(3)(C) states “each member shall pay to FINRA a fee for each round turn transaction (treated as including one purchase and one sale of a contract of sale for future delivery) of a security future.” Does this mean that the fee will be assessed on a per contract basis?
A400.3: The fee will be assessed on a per contract basis. Example: A member opens a position (long or short) of 100 contracts. No fee is assessed when the position is opened because the fee assessment is based on a round turn transaction. The member later loses half of its original 100 contract position. When the member closes out the 50 contracts, it will be assessed the applicable per contract rate x 50 contracts.

Q400.4: Will the Trading Activity Fee be assessed on the settlement of security futures products?
A400.4: The settlement of a futures product is subject to the TAF if settlement results in the physical delivery of the underlying security or securities. The Trading Activity Fee will be assessed on the firm delivering the underlying security or securities. However, security futures that are cash-settled and do not result in the sale of the underlying security or securities, do not result in a Trading Activity Fee assessment. While a round turn transaction in a futures product is assessed a TAF based on the futures fee structure, any settlement of a futures product is assessed a TAF based on the equity fee structure.

Q400.5:  Are futures involving narrow and broad based indexes exempt from the Trading Activity Fee?
A400.5: Yes, the initial sale of a futures product involving a narrow or broad based index is excluded from the Trading Activity Fee. However, any resulting exercise will be subject to the Trading Activity Fee if the exercise results in the physical delivery of the underlying securities.


1 See TRACE User Guide specifying how agency transactions are to be reported to TRACE and MSRB’s RTRS Specifications specifying how agency transactions are to be reported to RTRS.