1940 Federal Register / Vol. 62, No. 9 / Tuesday, January 14, 1997 / Notices

2See, Report Pursuant To Section 21(a) Of The

Securities Exchange Act Of 1934 Regarding the

NASD And the Nasdaq Stock Market, U.S.

Securities and Exchange Commission (August 8,

1996).

3 15 U.S.C. § 78o–3(b)(5).

4 15 U.S.C. § 78s(b)(3)(A).

5 17 CFR 19b–4(e).

6 17 CFR 200.30–3(a)(12).

1The Commission notes that the NASD filed a

technical amendment to the proposal (Amendment

No. 1) on January 3, 1997.

(ii) 0.125% of annual gross revenue

from other over-the-counter securities

transactions,

(iii) 0.125% of the annual gross

revenue from U.S. Government

securities transactions, and

(iv) With respect to members whose

books, records, and financial operations

are examined by the NASD, 0.125% of

annual gross revenue from securities

transactions executed on an exchange.

Each member is to report annual gross

revenue as defined in Section 5 of this

Schedule, for the preceding calendar

year.

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

Article VI of the By-Laws authorizes

the NASD Board of Governors to levy

fees, dues and assessments to be paid by

members to defray reasonable expenses

incurred in the administration of the

work of the NASD. Currently, each

member of the NASD is required to pay

an annual gross income assessment of

the greater of (i) $850.00 or (ii) the total

of 0.125% of the annual gross revenue

from state and municipal securities

transactions, 0.125% of annual gross

revenue from other over-the-counter

securities transactions, 0.125% of the

annual gross revenue from U.S.

Government securities transactions,

and, with respect to members whose

books, records, and financial operations

are examined by the NASD, 0.125% of

annual gross revenue from securities

transactions executed on an exchange.

The minimum gross income

assessment of $850.00 has not been

changed since 1989. Due to inflationary

pressures and increased regulatory

costs, the NASD is proposing to raise

the minimum gross income assessment

from $850.00 to $1,200.00. The 1997

expenses of NASD Regulation are

expected to grow by $43 million or 24%

as the result of various factors,

including, among other things,

initiatives designed to respond to the

findings by the SEC in its recent report

concerning the NASD,2 completion of a

regulatory transition plan for the

examination program, development of

the new Central Registration Depository

system, further implementation of the

Arbitration Policy Task Force

recommendations and continued

development of an Order Audit Trail

System. The proposed increase in the

minimum gross income assessment,

along with anticipated revenue growth

in other areas, is expected to help defray

the significant increase in regulatory

costs anticipated to be incurred by

NASD Regulation.

The NASD believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(5) of the

Act,3 which require that the rules of the

Association provide for the equitable

allocation of reasonable dues, fees, and

other charges in that the proposed rule

reasonably provides for an increase in

the minimum gross income assessment

to help defray the significant increase in

regulatory costs anticipated to be

incurred by NASD Regulation.

(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, as amended.

(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

The foregoing rule change has become

effective upon filing pursuant to Section

19(b)(3)(A) of the Act 4 and

subparagraph (e) of Rule 19b–4 5

thereunder in that it constitutes a due,

fee or other charge imposed by the

Association. However, the NASD has

determined to implement the rule

change on January 1, 1997.

At any time within 60 days of the

filing of a rule change, the Commission

may summarily abrogate the 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

Room. Copies of such filing will also be

available for inspection and copying at

the principle office of the NASD. All

submissions should refer to File No.

SR–NASD–96–56 and should be

submitted by January 27, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–860 Filed 1–13–97; 8:45 am]

BILLING CODE 8010–01–M

[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
Federal Register / Vol. 62, No. 9 / Tuesday, January 14, 1997 / Notices 1941

2See 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.

3See Securities Exchange Act Release No. 38073

(December 23, 1996), 61 FR 68590 (December 30,

1996). 4NASD Rules 4632, 4642, and 6620.

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.

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

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 exchangeregistered securities (so-called ‘‘third

market’’ transactions). Currently, brokerdealers 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 ByLaws 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 nondebt securities subject to prompt lastsale reporting, i.e., the NASD’s ‘‘90

second rule.’’ 4 Thus, the fee applies to

all securities listed on The Nasdaq Stock
1942 Federal Register / Vol. 62, No. 9 / Tuesday, January 14, 1997 / Notices

5NASD Rule 6610.

6NASD Rule 6620(a).

7See 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’’).

8See Securities Exchange Act Release No. 38073

(December 23, 1996), 61 FR 68590 (December 30,

1996), at footnote 27.

9See Clarification Letter, supra note 7.

10 15 U.S.C. 78o–3. 11 17 CFR 200.30–3(a)(12).

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.

Because NASD rules also require such

prompt last sale reporting for

transactions involving all domestic,

Canadian, and ADRs that are nonNasdaq 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 nonNasdaq 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

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

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. Selfclearing firms also will be required to

account and submit payment for such

activity on a monthly basis.9

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.

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

[FR Doc. 97–861 Filed 1–13–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38149; File No. SR–NASD–

97–01]

Self-Regulatory Organizations; Notice

of Proposed Rule Changes by the

National Association of Securities

Dealers, Inc. Relating to SelectNet

Orders

January 10, 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 8, 1997,

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its subsidiary,