Regulatory fees to rise again?

Greetings from the Broker Dealer Exchange! The recent announcement by FINRA of another operating loss close to 100 million has many in the industry, particularly the small firms, wondering if their fees will rise again. Last year the board announced a variety of fee increases and for the most part tried to spare the majority of its members. They put in place over 25 million in cost cuts for 2012 and for that they should be applauded. The problem is that even with those cuts the company showed only a 10 million profit and that was only because they had investment gains that negated the large operating loss. According to their report there are still more cost cuts coming in but many still believe its too little too late.

In many ways, FINRA is experiencing what small firms have had to experience for many years now. Congress and the SEC have put so many new regulations on the books that it’s nearly impossible to account for all of them in an audit. While many have scoffed at how many employees (approximately 3400) compared to the decrease in firms, it really shouldn’t be viewed in that manner. In 1990 when a stock or bond trade was done an order taker would take the order, read it back to the broker and time stamp it. A year later a FINRA examiner would ask to see a box of tickets for a particular month or time frame and do a sampling and look for errors or discrepancies. Today that same stock trade is all electronically entered, archived has to be reported in several ways within a 90 second window. Bond trading has gotten even worse with the all the requirements under TRACE and more. With Dodd Frank and the JOBS act upon us its nearly impossible to properly regulate all these new rules. Something has got to give. This is exactly what many small firms have gone through for years as new rule after new rule was thrust upon them. I often used to hear regulators say “What’s the big deal”? When I would complain about another new requirement. I would try to explain that it is the cost and the man power needed to implement this so called harmless new requirement. I think today we are seeing that these little deals eventually add up.

We believe that rather then raise the member’s rates again; a moratorium on major new regulation should be put in place until the cost cutting planned is in place and allows for them to get on solid footing. Saving 60 million over two years is worthless if you are going to introduce 100 million in new rule making requirements. What do you think? As always we love hearing your feedback.