[Federal Register Volume 62, Number 9 (Tuesday, January 14, 1997)]
[Notices]
[Pages 1940-1942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-861]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38133; File No. SR-NASD-96-57]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to SEC Transaction Fees
January 7, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on January
2, 1997, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I, II,and III below, which Items have been prepared by the
NASD.\1\ The NASD has designated this proposal as one constituting a
change to a due, fee, or
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other charge under Section 19(b)(3)(A)(ii) of the Act, which renders
the rule effective upon receipt of this filing. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ The Commission notes that the NASD filed a technical
amendment to the proposal (Amendment No. 1) on January 3, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change amends Schedule A, Section 8 of the By-
Laws of the NASD to authorize the NASD to recoup from its members SEC
transaction fees assessed against the NASD pursuant to the Omnibus
Consolidated Appropriations Act for Fiscal Year 1997 and Section 31 of
the Act, as amended by the National Securities Markets Improvement Act
of 1996. Below is the text of the proposed rule change. Proposed new
language is italicized and proposed deletions are bracketed.
Schedule A
Secton 8 [Fee on Cleared Transactions] Transaction Fees
(a) NASD fee on cleared transactions. Each member shall be assessed
a transaction charge of $.0625 per 1,000 shares, with a minimum charge
per side of $.025 and a maximum charge per side of $.46875 for each
over-the-counter transaction with another member of the Association
reportable through ACT in which the member acts either as an agent or a
principal for the purchase and/or sale of equity securities.
(b) SEC transaction fee. Each member shall be assessed a
transaction fee of 1/300 of one percent of the aggregate dollar value
of sales of covered securities transacted by or through such member.
For purposes of this section, covered securities shall mean:
(i) all securities traded otherwise than on a national securities
exchange (other than bonds, debentures, other evidences of
indebtedness, and any sale or any class of sales of securities which
the Securities and Exchange Commission may exempt from the fee imposed
by Section 31 of the Securities Exchange Act of 1934, and securities
described in subparagraph (ii)) that are subject to prompt last sale
reporting and
(ii) effective October 1, 1997, securities registered on a national
securities exchange pursuant to Section 12(b) of the Securities
Exchange Act of 1934 (other than bonds, debentures, other evidences of
indebtedness, and any sale or any class of sales of securities which
the Securities and Exchange commission may exempt from the fee imposed
by Section 31 of the Securities Exchange Act of 1934) traded otherwise
than on such exchange.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NASD has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Congress recently enacted the National Securities Markets
Improvement Act of 1996 (``Improvement Act'') and the Omnibus
Consolidated Appropriations Act for Fiscal Year 1997 (``Appropriations
Act''), which together require the NASD to pay SEC transaction fees for
two classes of securities generally.
Effective January 1, 1997, pursuant to the Appropriations Act, the
NASD is required to pay to the Commission a fee equal to \1/300\ of one
percent of the aggregate amount of sales transacted by or through any
NASD member otherwise than on a national securities exchange of
securities (other than bonds, debentures, and other evidences of
indebtedness) subject to prompt last sale reporting. This applies to
securities listed on The Nasdaq Stock Market, as well as many non-
Nasdaq securities traded over the counter that also are subject to NASD
rules requiring the reporting of transactions within 90 seconds of
execution.\2\ On September 1, 1997, the fees are required pursuant to
Section 31 of the Exchange Act, as amended by the Improvement Act, and
Exchange Act Rule 31-1 thereunder.\3\
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\2\ See NASD Rules 4632, 4642, and 6620. Further, as discussed
herein, the fee will apply to certain transactions which currently
are not required to be reported within 90 seconds of execution. See
note 8 and accompanying text, infra.
\3\ See Securities Exchange Act Release No. 38073 (December 23,
1996), 61 FR 68590 (December 30, 1996).
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Effective October 1, 1997, Section 31 of the Exchange Act, as
amended by the Improvement Act, will require the NASD to pay to the
Commission the existing transaction fee that applies to off-exchange
trades of exchange-registered securities (so-called ``third market''
transactions). Currently, broker-dealers pay this fee, which is equal
to \1/300\ of one percent of the aggregate value of off-exchange
transactions in exchange-registered securities, directly to the
Commission.
The SEC fees will remain at \1/300\ of one percent through fiscal
year 2006 pursuant to the Improvement Act. In fiscal year 2007, the
fees decline to \1/800\ of one percent.
The proposed amendment to Schedule A, Section 8 of the NASD By-Laws
authorizes the NASD to recoup from its members the transaction fees
that NASD will be required to pay to the Commission pursuant to the new
legislation. As such, the proposed amendment will parallel existing
practices with respect to the transaction fees that Section 31
currently imposes on national securities exchanges. It is contemplated
that NASD members will be free to pass the proposed fee through to
those customers whose transactions were subject to the fee, as is
generally done with respect to the existing Section 31 fee on national
securities exchanges.
The fees will be collected by the NASD through clearing firms that
are NASD members, based on trade report information submitted into the
Automated Confirmation Transaction system (``ACT'') by these firms and
their correspondent firms. Because the fee is assessed on each
transaction, all transactions that are submitted into ACT for reporting
purposes will be subject to an SEC fee, regardless of whether the
transaction is a ``cleared'' transaction. Thus, the fee will be imposed
based on reported trades rather than cleared trades. The fee is based
on the reported price, exclusive of any markup or markdown.
Payment of the accumulated transaction fees to the NASD is the
responsibility of NASD member clearing firms. The NASD will calculate
the fees based on each transaction attributed on a monthly basis. Each
clearing firm's transactions will be consolidated with all reported
trades of its correspondents, and the NASD will debit each clearing
firm's account at the National Securities Clearing Corporation or the
Stock Clearing Corporation of Philadelphia each month. An NASD-
generated invoice will be forwarded to each clearing member as
confirmation of the deduction. Self-clearing firms will be billed
directly and will be expected to remit payment directly to the NASD.
As noted, the fee applies to all non-debt securities subject to
prompt last-sale reporting, i.e., the NASD's ``90 second rule.'' \4\
Thus, the fee applies to all securities listed on The Nasdaq Stock
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Market, with the exception of listed convertible debt. Therefore, the
types of Nasdaq securities subject to the fees include: common,
preferred, ADRs, foreign, Canadian foreign, warrants, rights, and
units.
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\4\ NASD Rules 4632, 4642, and 6620.
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Because NASD rules also require such prompt last sale reporting for
transactions involving all domestic, Canadian, and ADRs that are non-
Nasdaq OTC Equity Securities,\5\ the transaction fee applies to these
securities as well. This includes many securities quoted in the OTC
Bulletin Board or in the National Quotation Bureau's ``Pink Sheets.''
Conversely, foreign securities (other than Canadian securities and
ADRs) that are non-Nasdaq OTC Equity Securities are not subject to the
SEC fee, because NASD rules currently permit members to report
transactions in these securities on the day after trade date (T+1).\6\
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\5\ NASD Rule 6610.
\6\ NASD Rule 6620(a).
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The fee also applies to transactions in covered securities executed
outside normal hours. These transactions are reported into ACT pursuant
to NASD Rules 4632(a)(4), 4642(a)(4), 6420(a), and 6620(a)(3).\7\
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\7\ See letter from Anne H. Wright, Associate General Counsel,
NASD, to James T. McHale, Esq., Office of Market Supervision,
Division of Market Regulation, Commission, dated January 6, 1997
(``Clarification Letter'').
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The NASD also will be collecting the SEC fee for odd-lot
transactions and transactions effected pursuant to the exercise of an
option on a covered security. The NASD notes that although these types
of transactions generally are not reported into ACT, they are
nonetheless subject to the SEC fee.\8\ With respect to transactions
that result from the exercise of a listed option cleared through
Options Clearing Corp (``OCC'') where the underlying security is
subject to the fee (e.g., because it is a Nasdaq security or is
otherwise subject to prompt last sale reporting), the fee will be
collected by OCC on behalf of the NASD. With respect to odd-lot
transactions and transactions pursuant to the exercise of a
conventional or ``OTC'' option where the underlying security is subject
to the fee, there currently is no automated means to calculate and
assess the fee. Therefore, for these types of transactions only, the
NASD will require NASD clearing firms to account and submit payment for
such activity by them and their respective correspondents on a monthly
basis. Self-clearing firms also will be required to
account and submit payment for such activity on a monthly basis.\9\
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\8\ See Securities Exchange Act Release No. 38073 (December 23,
1996), 61 FR 68590 (December 30, 1996), at footnote 27.
\9\ See Clarification Letter, supra note 7.
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Each NASD member firm will be responsible for determining whether
the securities they trade are subject to prompt last sale reporting
requirements, and thus subject to the transaction fee. Nonetheless, the
NASD recognizes that member firms may experience difficulty in
modifying their systems by January 1, 1997 to distinguish between
Canadian and other foreign non-Nasdaq OTC equity securities. To assist
members in determining which foreign non-Nasdaq OTC Equity Securities
are subject to the transaction fee, the NASD will initially make
available a list of non-Nasdaq Canadian securities on which it intends
to assess the transaction fee.
The transaction fee applies to all transactions in covered
securities by or through any member otherwise than on a national
securities exchange, regardless of the capacity in which the member is
trading. For transactions between two NASD members, the NASD generally
will assess the fee on the member on the sell side. For transactions
between an NASD member and a customer, the NASD will assess the fee on
the NASD member.
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(5) of the Act,\10\ which requires,
inter alia, that the NASD's rules provide for the equitable allocation
of reasonable fees among members. The proposed fees are consistent with
the appropriations Act and the Improvement Act, and are similar to the
transaction fees that have applied to exchange transactions for many
years.
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\10\ 15 U.S.C. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Other
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change establishes or changes a due,
fee, or other charge imposed by the Exchange, it has become effective
pursuant to Section 19(b)(3)(A) of the ACt and Rule 19b-4 thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission may summarily abrogate such rule change if it appears to
the Commission that such action is necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the NASD. All
submissions should refer to the File No. SR-NASD-96-57 and should be
submitted by January 27, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-861 Filed 1-13-97; 8:45 am]
BILLING CODE 8010-01-M