[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