[Federal Register Volume 63, Number 208 (Wednesday, October 28, 1998)]
[Notices]
[Pages 57718-57721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28849]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 40592; File No. SR-NASD-98-77]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by National Association of
Securities Dealers, Inc. Relating to Central Registration Depository
Fees
October 22, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ and Rule 19b-4 thereunder, \2\ notice is hereby given
that on October 16, 1998, the National Association of Securities
Dealer, Inc. (``NASD'' or ``Association'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the NASD. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD is proposing to amend Schedule A of the NASD By-Laws
revise the fees imposed for filings made with the Central Registration
Depository (``CRD''). The text of the proposed rule change is as
follows (addition are italicized; deletions are [bracketed]):
Schedule A to the NASD By-Laws
Assessments and fees pursuant to the provisions of Article VI of
the By-Laws of the [Corporation] NASD[,] shall be determined on the
following basis:
* * * * *
Section 2--Fees
(a) No change.
(b) [Each member shall be assessed a fee of $85.00 for each
application filed with the Association for registration of a registered
representative or registered principal. Additionally, each member shall
be assessed a surcharge of $95.00 for registrations involving a special
registration review filed with the Association.]
The NASD shall assess each member a fee of:
(1) $85.00 for each initial Form U-4 filed by the member with the
NASD for the registration of a representative or principal, except that
[The] the following discounts shall apply to the filing of
[applications] Forms U-4 to [re-register or] transfer the registration
of [registered persons] representatives or [registered] principals in
connection with acquisition of all or a part of a member's business by
another member:
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Discount
Number of registered personnel transferred Percent
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1,000-1,999................................................. 10
2,000-2,999................................................. 20
3,000-3,999................................................. 30
4,000-4,999................................................. 40
5,000 and over.............................................. 50
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(2) $40.00 for each initial Form U-5 filed by the member with the
NASD for the termination of a registered representative or registered
principal, plus a late filing fee of $80.00 if the member fails to file
the initial form U-5 within 30 days after the date of termination:
(3) $20.00 for each amended Form U-4 or Form U-5 filed by the
member with the NASD:
(4) $95.00 for the additional processing of each initial or amended
Form U-4 or Form U-5 that includes the initial reporting, amendment, or
certification of one or more disclosure events or proceedings:
(5) $10.00 for each fingerprint card submitted by the member to the
NASD, plus any other charge that may be imposed by the United States
Department of Justice for processing such fingerprint card: and
(6) $15.00 annually for each of the member's registered
representatives and principals to renew the registration for the
following year.
(c)-(g) No change.
(h)(i) Each member shall be assessed a fee of $40.00 for each
notice of termination of a registered representative or registered
principal filed with the Corporation as required by Section 3 of
Article IV of the By-Laws.
(ii) A late filing fee of $65.00 shall be assessed a member who
fails to file with the Corporation written notice of termination of a
registered representative or registered principal within thirty (30)
calendar days of such termination.
(II) In the event a member believes it should not be required to
pay the late filing fee, it shall be entitled to a hearing in
accordance with the procedures set forth in the Rule 9640 Series.
(i)-(k) No change.
Section 3--Elimination of Duplicate Assessments and Fees
Two or more members under substantially the same ownership or
control shall be required to pay only one personnel assessment and one
[[Page 57719]]
registration renewal fee annually for those individuals employed by
more than one of the members and only one fee annually for each branch
office registered at the same location by more than one of the members.
There shall be only one registration fee applicable to each applicant
registered simultaneously with two or more members under substantially
the same ownership or control. [If a substantial number of the
registrants of a member are to be dually registered with another member
under substantially the same ownership and control and this additional
registration cannot be effected simultaneously, there shall be a $5.00
fee applicable to each applicant at the time of the second registration
provided that arrangements are made with the Association for special
processing of such applicants, and appropriate certification is made by
each affiliated member. The registration fee referred to in Section 2
of this Article will apply if the foregoing provisions are not
applicable.]
Section 9--[Subscription Charges for Firm Access Query System
(FAQS)] Reserved
[(a) Each firm electing to subscribe to the Firm Access Query
System (FAQS) will be assessed a user fee consisting of three
components (1) a monthly data base access charge, (2) an hourly usage
fee, and (3) a charge per 1,000 characters (``kilocharacter'') of
information sent or received. The fee schedule to be paid by each firm
is as follows:
(1) Monthly Data Base Access Charge--$70.00
(2) Hourly Usage Charge--$70.00 per hour; and
(3) Kilocharacter Transmission Charge--$0.70.
Each firm which subscribes to the service will provide its own terminal
and modem.]
* * * * *
[Section 14--Service Charge for Fingerprints Submitted]
[In addition to such charge as may be imposed by the United States
Department of Justice, there shall be a service charge of $2.50 for
each fingerprint cart submitted to the Association's Membership
Department.]
[Section 15--Fees for Central Registration Depository]
[(a) Each member shall be assessed a Software Subscription Fee of
$300 for each copy of CRD software purchased. Each member shall be
assessed a fee of $10.00 for each set of Branch Filing Software.]
[(b) Each member shall be assessed an annual Software Subscription
Maintenance Fee of $300 for each copy of the CRD software purchased by
the member.] \3\
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\3\ A table describing changes to the NASD Registration Fee
Structure is included in the NASD Regulation, Inc. Website,
www.nasdr.com/3430d.htm.
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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 and
discussed any comments it received on 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 Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change amends Schedule A of the NASD By-Laws to
revise various fees charged for operating the CRD and to include all
CRD fees in Section 2 of Schedule A.\4\ NASD Regulation's CRD system
has been the single registration system for broker-dealers for over 15
years. The CRD system enables ``one stop'' filing of broker-dealer and
broker registration forms, eliminating the need for separate filings
with the 50 states, the Commission, the New York Stock Exchange Inc.,
and other regulators. The CRD system also provides a centralized funds
collection and distribution system (handing over $420 million per year)
and a uniform reporting structure (with staff processing and reviewing
approximately one million filings per year). When the CRD system was
implemented in the early 1980s, it was estimated that the benefits to
NASD members from the system (e.g., reduced administrative costs,
faster processing of filing, etc.) would be more than $50 million per
year ($94 million in 1997 dollars).
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\4\ Currently, CRD-related fees are found in Sections 2,9, 14
and 15 of Schedule A.
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The NASD believes that the modernized CRD system, scheduled for
release in the third quarter of 1999, will provide additional benefits
by:
Reducing overall processing time for initial registrations
and transfers by at least three to six days per filing, thereby
reducing the number of days that brokers are restricted from conducting
business, \5\
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\5\ Under Article V, Section 1 of the NASD By-Laws, an
individual may not engage in the investment banking or securities
business until the NASD has approved an appropriate registration for
the individual.
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Reducing member registration system development and
maintenance costs; and
Reducing registration processing costs (e.g., replacing
paper filings with electronic form filing through NASD Regulations,
Inc.'s Web site) and providing current registration processing status
and other information through the Web site.
The cost of developing, maintaining, and operating the CRD system
is largely paid for by members through a series of fees charged by the
NASD for CRD filings and other CRD-related activity. Non-NASD members
are not charged for the use of the system.\6\ The NASD last increased
CRD fees on August 1, 1995.\7\ CRD costs have increased since that time
for a number of reasons, including: (1) development and maintenance of
an Internet-based modernized CRD system; (2) implementation of the
enhanced Public Disclosure Program, including Public Disclosure on the
Internet; and (3) increased filing volume due to changes in disclosure
reporting requirements.
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\6\ The CRD fees amended by this filing apply only to fees
charged to member firms and not to any other parties. Non-NASD
member participants in the CRD are not affected by these changes.
See E-mails from John Ramsay, Office of General Counsel, NASD
Regulation, to Anitra Cassas, Division of Market Regulation,
Commission, dated October 16, 1998.
\7\ Exchange Act Release No. 36025 (July 26, 1995), 60 FR 39200
(August 1, 1995) (File No. SR-NASD-95-32).
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The NASD believes that CRD fees should be set at a level that fully
covers the costs of the CRD/Public Disclosure system and department.
Currently, such fees do not cover the full costs of these systems and
activities. The revised fee structure is based on the principal cost
drivers for CRD, which include: (1) the number of registered
individuals; (2) the number of filings; and (3) the number of
disclosure events and proceedings \8\ reported with each filing and the
costs associated with reviewing these items. To recover such costs most
effectively,
[[Page 57720]]
the fee structure will be changed as described in the following
paragraphs.
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\8\ The term ``disclosure events and proceedings'' means events
and proceedings that must be reported on Form U-4 or Form U-5. This
includes, for example, certain criminal charges or convictions,
regulatory actions, formal investigations, investment-related civil
judgments or injunctions, arbitration proceedings and awards,
customer-initiated sales practice complaints, settlements, and
bankruptcies.
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First, the NASD will charge a $20.00 fee for each amended Form U-4
or U-5 filed with the CRD.\9\ Currently, the NASD charges $85.00 for
the filing of an initial Form U-4 and $40.00 for an initial Form U-5 by
an NASD member,\10\ but does not charge any fee for the filing of
amendments to Form U-4 or U-5. Thus, under the new fee structure, an
NASD member that filed an amended Form U-4 e.g., to change the
representative's home address or request registration in an additional
jurisdiction, would be charged $20.00. Similarly, if the member filed
an amended Form U-5, e.g., to terminate such representative's
registration in a particular jurisdiction, the member also would be
charged $20.00. The new fees for filing amended Forms will help the
NASD recover the costs of processing such Forms, which account for a
large portion of overall filing volume for the CRD system.
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\9\ An initial Form U-4 is the first Form U-4 filed by each
member for a representative who is becoming registered for the first
time or who is transferring his registration from another member.
Similarly, the initial Form U-5 refers to the first Form U-5 filed
by each member upon the termination of a registration.
\10\ The fees for initial filings remain the same.
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Second, the NASD will charge $95.00 as an additional processing fee
for each initial or amended Form U-4 or Form U-5 that includes the
initial reporting, amendment, or certification of one or more
disclosure events or proceedings. Currently, the NASD charges a $95.00
Special Registration Review (``SRR'') fee only if an event or
proceeding is reported on an initial Form U-4. Thus, under the current
fee structure, if an NASD member hires a representative who has a
misdemeanor conviction that is reportable on Form U-4, the member is
charged $85.00 for the initial Form U-4 plus a $95.00 SRR fee, for a
total of $180.00; if the member subsequently files an amended Form U-4
to report a customer complaint, no additional fee is charged and the
total charge for the two filings is $180.00. Using the same example
under the new fee structure, the member would still pay $85.00 for the
initial Form U-4, plus an additional $95.00 processing fee because the
initial Form includes a disclosure event, for a total of $180.00.
However, when the member reports the subsequent customer complaint, the
member will be charged $20.00 for the amended Form U-4, plus $95.00 as
an additional processing fee for the initial reporting of a new
disclosure event, for a total of $115.00 for the amended Form U-4. The
combined charges for the two filings would be $295.00.
Third, the fee for a late filing of a Form U-5 (i.e., more than 30
days after the individual's termination) will be increased form $65.00
to $80.00. The NASD believes that raising the fee will help to
discourage late filings by its members.
Fourth, the NASD will increase the fee for processing a fingerprint
card from $2.50 to $10.00.\11\ The NASD will continue to add any fee
charged by the Federal bureau of Investigation for processing a
fingerprint card.
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\11\ See Rule 17f-2 under the Act. 17 CFR 240.17f-2.
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Fifth, the NASD will implement a new annual renewal processing fee
of $15.00 per registered representative or principal. In the past, the
NASD has sent invoices to its members in October or November for
registration renewal for the following year. An invoice includes fees
for NASD personnel assessments under Section 1 of Schedule A of the
NASD by-Laws, NASD branch office fees, maintenance fees for other
exchanges, and state agent and broker-dealer renewal fees.\12\ The
annual renewal processing fee would be in addition to the NASD
personnel assessment. To ensure that duplicate renewal fees are not
paid, the NASD proposes to amend Section 3 of Schedule A to provide
that if an individual is employed by two or more NASD members under
substantially the same ownership or control, then only one renewal fee
will be charged.
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\12\ See, e.g., NASD Notice To Members 97-70.
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Sixth, in section 3 of Schedule A, the NASD will eliminate the
reduced fee for registrations with more than one member that are made
simultaneously. Section 3 currently provides that simultaneous
registrations with broker-dealers under common control are charged a
single NASD registration fee, with a provision for a $5.00 fee in
certain cases where in fact the registrations are not filed
simultaneously. While the single registration fee for simultaneous
registrations will be retained, the $5.00 reduced fee for registrations
with more than one member that are not made simultaneously will be
eliminated. This reduced fee is being eliminated because the CRD/Public
Disclosure department does not realize any cost savings form anon-
simultaneous filing in the modernized CRD system environment.
Seventh, upon the deployment of the modernized CRD system, the NASD
will eliminate the Firm Access Query System (``FAQS'') charges set
forth in Section 9 of Schedule A. FAQS is an electronic system that
enables subscribing NASD members to review the registration and
examination data maintained on the CRD relating to individuals
registered or seeking to be registered with the member. Through FAQS,
subscribers also may elect to schedule exams, review accounting
transactions and balances, and file select Form U-4 amendments and
Forms U-5 electronically. Under the modernized CRD system, the
information and services provided today by FAQS will be available to
firms through the Internet without a usage charge. The date of the
elimination of FAQS charges will be announced 45 days in advance in a
Notice to Members.
Finally, the CRD software license and maintenance fees currently
set forth in Section 15 will be eliminated due to the change from a
distributed software approach to the Internet-based approach of the
modernized CRD system. As noted above, the costs of the modernized CRD
system will be recovered through the filing fees. There are no separate
license usage or maintenance fees for the modernized CRD system.
The NASD will begin to charge most of the revised fees described in
this filing, except those related to FAQS, on January 1, 1999. The
current FAQS fees will continue to be assessed until the deployment of
the modernized CRD system, currently scheduled for he third quarter of
1999. The first annual renewal processing fee under the new fee
structure will be collected with registration renewals in the fourth
quarter of 1998. The NASD believes that the revenue from the new fees
will cover the likely costs of the CRD/Public Disclosure system and
department at projected levels of registration activity.
2. Statutory Basis
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(5) of the Act,\13\ which requires,
among other things, that the Association's rules must provide for the
equitable allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility or system
which the Association operates or controls. The NASD believes that the
revised fee structure equitably distributes CRD costs among its members
by adjusting the fees to reflect the costs associated with different
types of filings. The NASD believe that it is reasonable for the
overall level of fees to be set at a level that fully covers the costs
of the CRD/Public Disclosure
[[Page 57721]]
system and department at projected levels of registration activity.
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\13\ 15 U.S.C. 78o-3(b)(5).
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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 result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The NASD has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The foregoing rule change, which establishes or changes a due, fee,
or other charge, has become effective pursuant to Section 19(b)(3)(A)
of the Act \14\ and subparagraph (e)(2) of Rule 19b-4 thereunder.\15\
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\14\ 15 U.S.A. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(e)(2).
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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; including whether the proposed rule
change is consistent with the Act. 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 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 at the Commission's Public Reference Room.
Copies of such filing also will be available for inspection and copying
at the principal office of the NASD. All submissions should refer to
File No. SR-NASD-98-77 and should be submitted by November 18, 1998.
For the Commission, by the Division of Market Regulations,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(as)(12).
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[FR Doc. 98-28849 Filed 10-27-98; 8:45 am]
BILLING CODE 8010-11-M