Federal Register / Vol. 62, No. 234 / Friday, December 5, 1997 / Notices 64419

NASD. Consequently, the Board’s caseload has

declined dramatically from 115 cases received in

1988 to 10 cases received in 1996. As of the time

of the filing of the proposed rule change, the Board

had received two cases in 1997.

10The Commission notes that if another SRO

wanted to eliminate its arbitration program and

send its cases to the NASD, it would be required

to file a rule filing under Section 19(b) of the Act,

and the Commission would independently consider

any such filing.

11The Office of Comptroller of the Currency, the

Federal Reserve Board, and the Federal Deposit

Insurance Corporation.

12The Commission notes that the Board has

stated that at that time it will submit a filing to the

Commission to delete sections 1 through 36 of Rule

G–35, as well as new Section 37, and to rescind

Rule A–16 on arbitration fees and deposits.

13The Commission notes that if the NASD were

to file a proposed rule change to amend fees that

apply to its members, and that also apply to the

bank dealers, it would be able to file that change

under Section 19(b)(3)(A) of the Act, if it otherwise

met the criteria. However, if the NASD were to file

a proposed rule change that only affected fees for

the bank dealers, that change would have to be filed

under Section 19(b)(2) of the Act so that the bank

dealers would have adequate notice and time to

comment on the proposal.

14 15 U.S.C. 78s(b)(2).

15 17 CFR 200.30–3(a)(12).

1 § 15 U.S.C. 78s(b)(1).

believes that procedurally the proposed

rule change should adequately ensure

that all arbitration cases that would be

subject to the MSRB arbitration process

will be provided for under the NASD’s

arbitration program. Those MSRB

members who are also NASD members,

or members of another SRO with an

arbitration forum, will be able to use

that SRO’s arbitration forum.10 Those

MSRB members who are not also

members of another SRO (the bank

dealers) will now be deemed

‘‘members’’ of the NASD for purposes of

arbitrating claims involving the

municipal securities activities of bank

dealers. The proposed rule change

accomplishes this by subjecting every

bank dealer, as of January 1, 1998, to the

NASD’s Code of Arbitration Procedure

for every claim, dispute or controversy

arising out of or in connection with the

municipal securities activities of the

bank dealer acting in its capacity as

such. In addition, the proposed rule

change requires that bank dealers abide

by the NASD’s Code just as if they were

members of the NASD for purposes of

arbitration.

In addition, the Commission believes

that the proposed rule change

adequately provides for the enforcement

of amended Board Rule G–35 because

the enforcement mechanism for bank

dealers would not be altered. The bank

regulatory agencies 11 would continue to

be responsible for the inspection and

enforcement of bank dealers’ municipal

securities activities, including

arbitration. A bank dealer’s failure to

pay an arbitration award rendered

pursuant to the NASD’s Code of

Arbitration Procedure would constitute

a violation of Board Rule G–35, since it

is that rule, as amended, that subjects

bank dealers to the NASD’s Code.

Similarly, a bank dealer’s refusal to

submit to arbitration pursuant to the

NASD’s Code of Arbitration Procedure

would constitute a violation of Board

Rule G–35. The NASD would notify the

Board of any such violations and the

Board, in turn, would contact the

appropriate bank regulatory agency.

Finally, the Board provides adequate

measures for the transition from the

MSRB arbitration forum to the NASD

arbitration forum. Even though the

Board will no longer accept any new

claims filed with its arbitration program

after January 1, 1998, it will continue to

operate its program in order to

administer its current, open cases and

any new claims received prior to

January 1, 1998. The Board will then

discontinue its arbitration program

when all such cases have been closed.12

The Commission notes that the MSRB

stated that the Board will cover any

costs associated with the NASD

arbitrating cases involving the bank

dealers that are not covered by the fees

bank dealers will pay as parties to an

arbitration proceeding, until such time

as the NASD receives approval to

amend its fees to cover such costs. As

members of the NASD for arbitration

purposes, bank dealers will pay the

same arbitration fees as NASD members.

The NASD has also stated that if the

number of cases received from the

MSRB were to increase substantially,

the NASD would want to revisit the fee

issue.13

The Commission finds good cause to

approve Amendment No. 2 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically,

Amendment No. 2 is responsive to the

commenter’s request that the Board

publicly disclose the names of

arbitrators on all customer-related

awards rendered after May 10, 1989 by

amending Rule G–35 to make those

names publicly available. This

amendment should help facilitate the

NASD’s administration of municipal

securities arbitration claims, and will

allow the public to receive more

accurate and complete information on

an arbitrator’s past arbitration activities,

where an arbitrator appointed in a case

has previously served as an arbitrator in

the Board’s program but has never

served as an NASD arbitrator.

Accordingly, the Commission believes

that it is consistent with Section 15B of

the Act to approve Amendment No. 2 to

the proposal on an accelerated basis.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

2 to the rule proposal. 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 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 MSRB. All

submissions should refer to File No.

SR–MSRB–97–4 and should be

submitted by December 29, 1997.

V. Conclusion

It is therefore Ordered, pursuant to

Section 19(b)(2) of the Act,14 that the

proposed rule change (SR–MSRB–97–

04), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–31874 Filed 12–4–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39357; File No. SR–NASD–

97–82]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Computer

Assisted Execution Service and

Intermarket Trading System/Computer

Assisted Execution Service Fees

November 25, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 notice is

hereby given that on November 10,

1997, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or
64420 Federal Register / Vol. 62, No. 234 / Friday, December 5, 1997 / Notices

2 § See Letter from Robert Aber, Vice President

and General Counsel, Office of General Counsel,

The Nasdaq Stock Market, Inc. (‘‘Nasdaq’’), to

Katherine England, Assistant Director, Division of

Market Regulation, SEC, dated November 21, 1997

(‘‘Amendment No. 1’’). The amendment adds

language to the notice explaining that one of the

purposes of the proposed rule is to create a per

transaction fee structure that is fairer to market

makers who, under the Order Display Rules, are

required to display interest that may not be their

own. The amendment also clarifies that the

proposed rule is imposing a new fee on order entry

firms. The filing of an amendment to a proposed

rule change filed under Section 19(b)(3)(A) of the

Act and Rule 19b–4(e) thereunder results in a

resetting of the 60 day period during which the

Commission summarily may abrogate the change in

the self-regulatory organization’s rules. See 15

U.S.C. 78s(b)(3)(C).

3A CQS market maker is a dealer that, with

respect to a reported security, holds itself out as

being willing to buy and sell such security for its

own account on a regular and continuous basis

otherwise than on a national securities exchange in

amounts of less than block size and that is

registered as such.

4This fee has been temporarily reduced to $1.25

per side through December 31, 1997. See Exchange

Act Release No. 39248 (October 16, 1997), 62 FR

55296 (October 23, 1997).

5Through paragraph (B) of the proposed rule

imposes a new fee on order entry firms, Nasdaq

believes that such a fee is necessary to more

equitably distribute transaction costs.

6 15 U.S.C. 78o–3(b)(5).

‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. On November 21, 1997,

the Association submitted to the

Commission an amendment to the

proposed rule changes.2 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Pursuant to Section 19(b)(1) of the

Exchange Act, the NASD, through its

wholly-owned subsidiary, Nasdaq, is

herewith filing a proposed rule change

to amend the Computer Assisted

Execution Service (‘‘CAES) and

Intermarket Trading System/Computer

Assisted Execution Service (‘‘ITS/

CAES’’) fee structure from a per share

fee to per trade fee. Below is the text of

the proposed rule change. Proposed new

language is italicized; proposed

deletions are in brackets.

* * * * *

7010. System Service

(a)–(c) No change.

(d) Computer Assisted Execution

Service.

The charges to be paid by members

receiving the Computer Assisted

Execution Service (CAES) shall consist

of a fixed service charge and a per

[share] trade transaction charge

[applicable to the market-maker side of

a transactional] plus equipment related

charges.

(1) Service Charges

$100 per month for each market

maker terminal receiving CAES.

(2) Transaction Charges

(A) [$.005 per share] As of November

1, 1997, $0.50 per execution shall be

paid by [the member which receives an

order executed through CAES to buy or

sell a Nasdaq Stock Market or listed

security] any CAES market maker that

executes a CAES order or any part of a

CAES order.

(B) As of January 1, 1998, $0.50 per

execution shall be paid by any order

entry firm or CAES market maker that

enters an order into CAES that is

executed in whole or in part.

[(B)] (C) [$.005 per share] As of

November 1, 1997, $1.00 per

commitment shall be paid by [the] any

member which sends or receives a

commitment through the ITS/CAES

linkage to buy or sell a listed security

that is executed in whole or in part.

(e)–(n) No Change.

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

self-regulatory organization included

statements concerning the purpose of an

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 self-regulatory organization 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 purpose of the proposed rule

change is to change the CAES and ITS/

CAES fee structure from a per share fee

to a per trade fee. Presently, there is a

$0.005 per share fee (no maximum)

assessed on Consolidated Quote Service

(‘‘CQS’’) market makers 3 for trades

executed through CAES (no charge on

order entry firms) and a $0.005 per

share fee (no maximum) assessed on

CQS market makers for commitments to

trade sent through the ITS/CAES

linkage. Because CQS market makers are

now obligated under the SEC’s Limit

Order Display Rule to display

individual limit orders up to 9,900

shares and aggregate all ‘‘displayable’’

limit orders at the same price level,

however, Nasdaq believes it is now

appropriate to assess CAES and ITS/

CAES fees on a per trade basis. Since

the order sizes now displayable under

the new rule may not represent a market

maker’s exclusive proprietary interest,

Nasdaq believes that a fee structure

based on a per share calculation is no

longer the fairest or best means to assess

CAES and ITS/CAES fees.

Nasdaq notes that other fees

applicable to Nasdaq market

participants are assessed on a per trade

basis, e.g., the present SelectNet fee is

$2.50 per side of each transaction,4 and

the fee for the Small Order Execution

System (‘‘SOES’’) is 50 cents for each

order entered by an order entry firm or

market maker, and 50 cents for each

execution by a market maker. The

current CAES and ITS/CAES per share

fee structure, however, does not provide

for any upper limit on fees.

Presently, the average CAES fee per

trade using a per share calculation is

$7.97. Nasdaq believes that adoption of

the proposed per trade fee structure for

CAES and ITS/CAES will result in an

overall reduction of fees and establish a

more consistent fee structure for all

Nasdaq execution and order routing

systems.5

2. Statutory Basis

The proposed rule change is

consistent with Section 15A(b)(5) of the

Act 6 in that it provides 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 NASD

operates or controls.

New per trade fees established by

paragraphs (A) and (C) of the rule will

be effective November 1, 1997. The fees

established by paragraph (B) will

become effective on January 1, 1998 to

allow ITS/CAES users adequate time to

prepare for the implementation of these

charges as well as allow Nasdaq to

establish appropriate billing procedures.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Association does not believe that

the proposed rule change will impose

any inappropriate burden on

competition that is not necessary or

appropriate in furtherance of the

purposes of the Act.
Federal Register / Vol. 62, No. 234 / Friday, December 5, 1997 / Notices 64421

7 17 CFR 200.30–3(a)(12) (1989).

1On August 27, 1997, the NASD amended the

exhibit attached to the rule filing. See letter from

Mary N. Revell, Associate General Counsel, NASD

Regulation, Inc., to Katherine A. England, Assistant

Director, Division of Market Regulation, SEC, dated

August 26, 1997.

2 15 U.S.C. 78s(b)(1).

3 17 CFR 240.19b–4.

4Securities Exchange Act Release No. 39025

(September 5, 1997); 62 FR 47858.

5Letter from Joseph P. Savage, Assistant Counsel,

Investment Company Institute, to Jonathan G. Katz,

Secretary, SEC, dated October 2, 1997 (‘‘ICI Letter’’).

6See, Securities Exchange Act Release No. 37182,

May 9, 1996; 61 FR 24644, May 15, 1996,

(Commission’s interpretation concerning the

delivery of information through electronic media in

satisfaction of broker-dealer and transfer agent

requirements to deliver information under the Act

and the rules thereunder).

7See, Securities Act Release No. 7233, Oct. 6,

1995; 60 FR 53458, Oct. 13, 1995, (Commission’s

interpretation concerning the use of electronic

media as a means of delivering information

required to be disseminated pursuant to the

Securities Act of 1933, the Securities Exchange Act

of 1934, and the Investment Company Act of 1940).

8See supra note 5.

9 ICI Letter at pp. 2–3.

10See supra note 4, at p. 47859, n.6.

11 ICI Letter, p. 3.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change has become

effective upon filing pursuant to Section

19(b)(3)(A) of the Act and subparagraph

(e) of Rule 19b–4 thereunder, in that the

proposal establishes or changes a due,

fee, or other charge. At any time within

60 days of the filing of such 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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to File No.

SR–NASD–97–82 and should be

submitted by December 29, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–31843 Filed 12–4–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39356; File No. SR–NASD–

97–57]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

National Association of Securities

Dealers Inc. Relating to the Electronic

Delivery of Information Between

Members and Their Customers

November 25, 1997.

I. Introduction

On July 30, 1997,1 the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) submitted

to the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’),

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3 a

proposed rule change setting forth the

policy of NASD Regulation, Inc.

(‘‘NASD Regulation’’ of ‘‘NASDR’’)

regarding electronic delivery of

information between members and their

customers. A notice of the proposed rule

change appeared in the Federal Register

on September 11, 1997.4 The

Commission received one comment

letter addressing the proposed rule

change.5 This order approves the

proposed rule change.

II. Description of Proposal

The Association filed with the

Commission a Notice of Members

(‘‘NTM’’) which establishes the

NASDR’s policy regarding electronic

delivery of information between

members and their customers. The

NASDR policy will allow members to

use electronic media to electronically

transmit documents that they are

required or permitted to furnish to

customers under Association rules and

to receive electronic communications

from customers. The NTM states that

use of electronic media is permitted

provided members comply with certain

guidelines outlined in Commission

Release Nos. 34–37182 6 and 33–7233.7

In these releases, the Commission

addresses the procedural aspects of how

broker-dealers and others may satisfy

their delivery obligations under federal

securities laws by using electronic

media as an alternative to paper-based

media provided that they comply with

certain prescribed requirements.

The NTM summarizes the

Commission procedures, which address,

among other things, content, notice,

access, evidence to show delivery, and

communication of personal financial

information, and consent. The NTM also

lists current Association rules that

require or permit communications

between members and their customers

for which electronic delivery may be

used in accordance with the standards

contained in the Commission releases.

The policy established in the NTM will

also apply to a new rule or an

amendment to an existing rule that

requires or permits communications

between members and their customers

unless NASDR specifies otherwise at the

time of adoption of the rule or

amendment.

III. Summary of Comments

The Commission received one

comment letter addressing this

proposal.8 While the ICI Letter generally

supports the NASDR’s NTM, it

recommends certain additions to the list

of NASD rules contained in the NTM,9

and responds to a request for comment

issued in the notice.10

The additional rules that ICI believes

should be added to the list of NASD

rules contained in the NTM are: Rule

2210 (d) and (f); IM–2210–3; Rule

2830(d); Rule 2830(k)(7); Rule

2830(l)(1)(C); and Rule 3010(g)(2).11 ICI

believes that Rules 2210(d), 2210(f) and

IM–2210–3, which outline standards for

when members communicate with the

public, should be included to confirm

that their disclosure and other

requirements may be satisfied using

electronic media where the

communication itself is made through