[Federal Register: June 25, 2003 (Volume 68, Number 122)]
[Notices]
[Page 37887-37889]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25jn03-99]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48061; File No. SR-NASD-2003-93]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. To Amend
the Trading Activity Fee To Adjust the Rates for Covered Equity
Securities
June 19, 2003.
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 June 11, 2003, 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 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 proposes to amend its Trading Activity Fee (``TAF''). The
NASD is amending the TAF to adjust the rates for covered equity
securities. In addition, the NASD is renumbering certain subsections
included in Section 1. The text of the proposed rule change is below.
Proposed new language is in italics; proposed deletions are in
brackets.
Schedule A to NASD By-Laws
* * * * *
Section 1--Member Regulatory Fees
(a) No Change.
(b) Each member shall be assessed a Trading Activity Fee for the
sale of covered securities.
(1) Covered Securities. For purposes of the rule, covered
securities shall mean:
[(i)](A) All exchange registered securities wherever executed
(other than bonds, debentures, and other evidence of indebtedness);
[(ii)](B) All other equity securities traded otherwise than on an
exchange; and
[(iii)](C) All security futures wherever executed.
(2) Transactions exempt from the fee. The following shall be exempt
from the Trading Activity Fee:
[(i)](A) Transactions in securities offered pursuant to an
effective registration statement under the Securities Act of 1933
(except transactions in put or call options issued by the Options
Clearing Corporation) or offered in accordance with an exemption from
registration afforded by Section 3(a) or 3(b) thereof, or a rule
thereunder;
[(ii)](B) Transactions by an issuer not involving any public
offering within the meaning of Section 4(2) of the Securities Act of
1933;
[(iii)](C) The purchase or sale of securities pursuant to and in
consummation of a tender or exchange offer;
[(iv)](D) The purchase or sale of securities upon the exercise of a
warrant or right (except a put or call), or upon the conversion of a
convertible security;
[(v)](E) Transactions that are executed outside the United States
and are not reported, or required to be reported, to a transaction
reporting association as defined in Rule 11Aa3-1 and any approved plan
filed thereunder;
[(vi)](F) Proprietary transactions by a firm that is a member of
both NASD and a national securities exchange, effected in its capacity
as an exchange specialist or market maker, that are subject to
Securities Exchange Act of 1934, Section 11(a) and Rule 11a1-1(T)(a)
thereunder; however this exemption does not apply to other transactions
permitted by Section 11(a) such as bona fide arbitrage or hedge
transactions;
[(vii)](G) Transactions by a firm that is a floor based broker and
that is a member of both NASD and a national
[[Page 37888]]
securities exchange provided that the floor based broker qualifies for
exemption from NASD membership under Exchange Act Rule 15b9-1;
[(viii)](H) Transactions in conventional options;
[(ix)](I) Transactions in options and futures involving narrow and
broad based indexes;
[(x)](J) Transactions in security futures held in futures accounts;
and
[(xi)](K) Transactions in exchange listed options effected by a
member when NASD is not the designated options examining authority for
that member. NASD may exempt other securities and transactions as it
deems appropriate.
(3) Fee Rates *
[(i)](A) Each member shall pay to NASD a fee per share for each
sale of a covered equity security.
[(ii)](B) Each member shall pay to NASD a fee per contract for each
sale of an option.
[(iii)](C) Each member shall pay to NASD a fee for each round turn
transaction (treated as including one purchase and one sale of a
contract of sale for future delivery) of a security future.
* Trading Activity Fee rates are as follows: Each member shall pay
to NASD [$0.00005] $0.0001 per share for each sale of a covered equity
security, with a maximum charge of [$5] $10 per trade; $0.002 per
contract for each sale of an option; and $0.04 per contract for each
round turn transaction of a security future. In addition, if the
execution price for a covered security is less than the Trading
Activity Fee rate ([$0.00005] $0.0001 for covered equity securities,
$0.002 for covered option contracts, or $0.04 for a security future) on
a per share, per contract, or round turn transaction basis then no fee
will be assessed.
(4) No Change.
(c) through (d) 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 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
On May 30, 2003, the Commission approved the last component of a
series of changes to NASD's member regulatory fee structure. Under the
new fee structure, there are now three types of fees and assessments
used to fund NASD's member regulatory activities: (1) Trading Activity
Fee (``TAF''); \3\ (2) Personnel Assessment; and (3) Gross Income
Assessment.\4\ These fees, assessed upon and paid by member firms, are
used by NASD to fund NASD's member regulatory activities, including the
regulation of members through examinations, processing of membership
applications, financial monitoring, policy making, rulemaking, and
enforcement activities. The new member regulatory fee structure was
designed to be revenue neutral to NASD and to better align NASD's
regulatory fees with its functions, efforts, and costs.
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\3\ Securities Exchange Act Release No. 47946 (May 30, 2003), 68
FR 34012 (June 6, 2003) (approval order).
\4\ Securities Exchange Act Release No. 47106 (December 30,
2002), 68 FR 819 (January 7, 2003) (approval order).
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Today, NASD is filing a proposal to adjust the TAF rate, and
related maximum charge and minimum price exceptions, for equity
securities only. NASD has been collecting the TAF for transactions
effected after October 1, 2002 on a pilot basis, and has determined
that the equity rate needs to be increased to ensure adequate funding
levels for its member regulatory program. Therefore, NASD is proposing
that the TAF be increased from 0.00005 per share to 0.0001 per share
for covered equity securities, effective the first day of the month
following Commission approval.
The proposed rate change is driven by lower than expected TAF
revenues, not increased or unexpected member regulatory costs. NASD
originally had proposed a rate of 0.0001 per share for equity
securities (announced on Sept. 27, 2002 and published on NASD's Web
site at http://www.nasd.com/trading_fee2.asp but after informal
feedback from the membership about the level of volume meeting the
definition of ``covered equity security,'' decided to reduce the rate
to 0.00005.\5\ Six months'' experience with the TAF has demonstrated
that the initially proposed rate is more accurate to ensure revenue
neutrality and adequate funding.
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\5\ See Securities Exchange Act Release Nos. 46818 (Nov. 12,
2002), 67 FR 69782 (Nov. 19, 2002) (approving SR-NASD-2002-147) and
47946 (May 30, 2003), 68 FR 34021 (June 6, 2003) (approving SR-NASD-
2002-148).
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Although the current proposed rate change is driven by the need for
NASD to remain revenue neutral in its transition from the old member
regulatory funding structure, consistent with its stated policy, NASD
periodically will analyze rates, volumes, and regulatory
responsibilities to ensure adequate funding levels for its member
regulatory programs.\6\ NASD also will perform an analysis for the
annual Personnel Assessment and Gross Income Assessment, to ensure
adequate contributions from each component fee, as well as adequate
levels of funding overall. In addition, NASD previously stated its
intent to reduce the percentage that the TAF contributes to the overall
funding structure in 2004 and again in 2005 (increasing the percentage
funded by the PA and holding the GIA percentage static). NASD remains
committed to that program, and should regulatory costs and market
volumes remain constant, fee levels for 2004 could be expected to drop
by approximately 20%. Of course, NASD will analyze all relevant factors
prior to making that filing.
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\6\ Specifically, NASD stated in the text of the TAF rule
language that it will ``periodically review these revenues in
conjunction with these costs to determine the applicable rate.''
NASD By-Laws, Schedule A, Section 1(a).
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2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act, which requires, among other
things, that NASD's rules provide for the equitable allocation of
reasonable dues, fees, and other charges among members and issuers and
other persons using any facility or system that NASD operates or
controls. The TAF is objectively allocated to NASD members. Moreover,
the NASD believes the level of the fee is reasonable because it relates
directly to the recovery of the costs of regulating members.
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.
[[Page 37889]]
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 on the current
proposal.
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 NASD consents, the Commission will:
A. By order approve such 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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 principal office of the
NASD. All submissions should refer to file number SR-NASD-2003-93 and
should be submitted by July 16, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16007 Filed 6-24-03; 8:45 am]
BILLING CODE 8010-01-P