26432 Federal Register / Vol. 72, No. 89 / Wednesday, May 9, 2007 / Notices 

11 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78ee. 

4NASD’s rule also previously referred to this fee 

as an ‘‘SEC Transaction Fee.’’ The SEC stated in its 

release adopting new Rule 31 and Rule 31T that ‘‘it 

is misleading to suggest that a customer or [selfregulatory organization] member incurs an 

obligation to the Commission under Section 31.’’

See Securities Exchange Act Release No. 49928 

(June 28, 2004), 69 FR 41060, 41072 (July 7, 2004). 

In response to this statement, NASD amended its 

rule to refer to this fee as a ‘‘Regulatory Transaction 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2007–32 and should 

be submitted on or before May 30, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8812 Filed 5–8–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55697; File No. SR–NASD–

2007–027] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing of 

Proposed Rule Change to NASD ByLaws Relating to SEC Section 31—

Related Fees 

May 2, 2007. 

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 April 17, 

2007, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by 

NASD. The Commission is publishing 

this notice to solicit comments on the 

proposal from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD is proposing to allow member 

firms to voluntarily submit, within six 

months of the effective date of this rule 

proposal, funds previously accumulated 

by member firms to satisfy their, and 

subsequently NASD’s, obligation to 

remit SEC Section 31-related fees, to 

NASD. Below is the text of the proposed 

rule change. Proposed new language is 

in italics. 

* * * * * 

SCHEDULE A TO NASD BY-LAWS 

Assessments and fees pursuant to the 

provisions of Article VI of the By-Laws 

of NASD shall be determined on the 

following basis. 

* * * * * 

Section 3—Regulatory Transaction Fee 

Each member shall be assessed a 

regulatory transaction fee. The amount 

shall be determined periodically in 

accordance with Section 31 of the Act. 

Transactions assessable under this 

Section 3 that must be reported to 

NASD shall be reported in an automated 

manner. 

IM-Section 3—Temporary Program to 

Address Accumulated Funds 

Pursuant to Section 3 of Schedule A, 

NASD makes an assessment on member 

firms that NASD uses to pay fees owing 

to the SEC in accordance with Section 

31 of the Act (‘‘the Section 3 

assessment’’). The Section 31 fees 

payable by NASD to the SEC is 

determined based on the aggregate 

dollar amount of ‘‘covered sales,’’ as 

defined by SEC Rule 31, effected 

otherwise than on an exchange by or 

through any member of the NASD. 

Members, in many cases, have passed 

along the Section 3 assessment on a 

trade-by-trade basis to their customers 

or correspondent firms. For certain 

reasons, including the difference 

between the calculation of the Section 3 

assessment on an aggregate basis and its 

collection by member firms from 

customers or correspondent firms on a 

disaggregated trade-by-trade basis, there 

has been an historical accumulation of 

funds collected by members that are in 

excess of their Section 3 assessment. 

Consequently, these funds were not 

remitted to NASD. 

NASD has determined that it is 

appropriate for these accumulated 

funds, if remitted to the NASD, to be 

used to pay NASD’s current Section 31 

fees, which conforms the use of those 

funds with the stated purpose for which 

they were collected. Consequently, 

members may voluntarily remit all or 

part of historically accumulated funds 

that were collected and are in surplus to 

the Section 3 assessment of such firms 

in accordance with the terms of this 

Interpretive Material. 

This temporary program will 

automatically sunset six months after 

the effective date, and thereafter may 

not be utilized by members after a date 

certain. Members are reminded that the 

SEC stated in its release adopting new 

Rule 31 and Rule 31T that ‘‘it is 

misleading to suggest that a customer or 

[self-regulatory] member incurs an 

obligation to the Commission under 

Section 31.’’ Further, NASD has issued 

guidance to members in the form of two 

Notices to Members to ensure there is no 

confusion in the marketplace between 

NASD’s ‘‘Regulatory Transaction Fee’’

and the ‘‘SEC’s Section 31 Fee.’’

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

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. 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Pursuant to Section 31 of the Act 3

and SEC Rule 31, NASD and the 

national securities exchanges 

(collectively ‘‘SROs’’) are required to 

pay a transaction fee to the SEC that is 

designed to recover the costs related to 

the government’s supervision and 

regulation of the securities markets and 

securities professionals. To offset this 

obligation, NASD assesses its clearing 

and self-clearing members a regulatory 

fee in accordance with Section 3 of 

Schedule A of the NASD By-Laws, 

which mirrors the SEC Section 31 fee in 

scope and amount. Clearing members 

may in turn seek to charge a fee to their 

customers or correspondent firms. Any 

allocation of the fee between the 

clearing member and its correspondent 

firm or customer is the responsibility of 

the clearing member. 

Reconciling the amounts billed by 

NASD and the amounts collected from 

the customers historically had been 

difficult for member firms, causing 

surpluses to accumulate at some brokerdealer firms (referred to as 

‘‘accumulated funds’’). These 

accumulated funds were not remitted to 

NASD, despite the fact that these 

charges may have been previously 

identified as ‘‘Section 31 Fees’’ or ‘‘SEC 

Fees’’ by certain firms.4


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 89 / Wednesday, May 9, 2007 / Notices 26433 

Fee.’’ See Securities Exchange Act Release No. 

50274 (August 26, 2004), 69 FR 53757 (September 

2, 2004) (SR–NASD–2004–129). Further, NASD 

issued guidance to ensure there is no confusion in 

the marketplace regarding NASD’s ‘‘Regulatory 

Transaction Fee’’ and the ‘‘SEC’s Section 31 Fee. 

See Notice to Members 05–11 (February 2005) and 

Notice to Members 04–63 (August 2004). 

5NASD had asked all surveyed firms whether 

they could ‘‘ identify and relate the funds to 

specific customers on a transaction by transaction 

basis.’’ The surveyed firms universally stated that 

tracking fractions of a penny to individual 

customers would be impossible and any overcollections could not be passed back at the 

customer level. 6 15 U.S.C. 78o–3(b)(6). 7 17 CFR 200.30–3(a)(12). 

In November 2004, NASD received a 

letter from the SEC’s Division of Market 

Regulation requesting, among other 

things, that NASD conduct an analysis 

to ascertain the amount of accumulated 

funds and present a plan for brokerdealers to dispose of or otherwise 

resolve title to such accumulated funds. 

Accordingly, in an effort to ascertain the 

amount of accumulated funds, NASD 

surveyed 240 member clearing and selfclearing firms to review their practices 

regarding the collection of such fees 

from customers. After compiling and 

analyzing the data provided by member 

firms, NASD staff found that over half 

of the firms surveyed did not have an 

accumulated funds balance. NASD 

worked with the other SROs to 

recommend a potential solution to allow 

NASD member firms to resolve title to 

the accumulated funds. It was 

determined, based upon information 

provided in connection with NASD’s 

survey, that it would be virtually 

impossible to return customer-related 

accumulated funds to the customers that 

had paid these funds to the firms.5

The current proposed rule change is 

aimed at enabling those fees that may 

have been collected for purposes of 

paying an ‘‘SEC Fee’’ or ‘‘Section 31 

Fee’’ to be used to pay such fees. NASD 

is proposing new interpretive material 

(‘‘IM’’) that will allow firms, on a onetime-only basis, voluntarily to remit 

historically accumulated funds to 

NASD. These funds then would be used 

to pay the SRO’s current Section 31 fees 

in conformity with prior representations 

made by member firms. Finally, to the 

extent the payment of these historically 

accumulated funds is in excess of the 

fees due the SEC from NASD under 

Section 31 of the Act, such surplus shall 

be used by NASD to offset other NASD 

regulatory costs. 

As stated above in Item 2, the 

effective date of the proposed rule 

change would be six months following 

Commission approval, if the 

Commission grants approval. In 

addition, the IM would automatically 

sunset six months after the effective 

date. 

2. Statutory Basis 

NASD believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,6 which 

requires, among other things, that NASD 

rules must be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and, in general, to 

protect investors and the public interest. 

NASD believes that the proposed rule 

change will provide a transparent way 

of addressing the issue of accumulated 

funds. As this proposed rule change 

would automatically sunset, it will be of 

a limited duration. Moreover, based on 

the reminder set forth in the IM and the 

issuance of prior Notices to Members on 

this matter, the accumulation of funds 

that are collected and disclosed as 

‘‘Section 31 Fees’’ or ‘‘SEC Fees’’ should 

not reoccur. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASD does not believe that the 

proposed rule change would 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 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

A. By order approve the proposed rule 

change, or 

B. Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASD–2007–027 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities andExchange Commission, 

100 F Street, NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASD–2007–027. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 

Room. Copies of such filing also will be 

available for inspection and copying at 

the principal offices of NASD. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASD–2007–027 and 

should be submitted on or before May 

30, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.7

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8813 Filed 5–8–07; 8:45 am] 

BILLING CODE 8010–01–P 


sroberts on PROD1PC70 with NOTICES