The loss by Finra, which oversees nearly 4,400 brokerages and 630,000 brokers, was its first since an estimated $700 million shortfall during the 2008 financial market meltdown, which reflected a huge decline in its investment portfolio.
Ketchum said the agency had changed its investment portfolio dramatically in 2009 to avoid large losses, shifting to what it said was a conservative investing strategy. Finra finished 2011 with a 2% return on a portfolio that was about $1.5 billion at year-end. A large chunk of the portfolio was invested in cash and bonds, with just 14% in equities.
Finra last year recorded net revenue of $880.1 million, a 3.6% increase over revenue of $849.9 million in 2010. However, its operating expenses rose 5.7% to $994.9 million versus $940.9 million in 2010.
In the agency's financial report, Ketchum says Finra has made severe cost cuts to pare its 2012 budget by $36 million from last year. The belt-tightening efforts are expected to generate an estimated $60 million in savings by the end of 2013. In addition, Ketchum outlined plans to trim costs by making strategic investments in Finra's businesses, such as bringing in-house some data center operations and cross-market surveillance capabilities.
To bolster its coffers, Finra has sought approval to raise fees for its brokerage firm members in light of its "robust regulatory responsibilities, but static funding levels."
The SEC has approved Finra's request for a 25% increase in equities trading fees. The increase, which became effective July 1, is earmarked to provide proper funding of Finra's regulatory oversight, despite a continued decline in trading volume at brokerages. The SEC also approved higher fees for new membership applications, review of corporate finance filings and other activities.