[Federal Register Volume 59, Number 49 (Monday, March 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5808]


[[Page Unknown]]

[Federal Register: March 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33731; File No. SR-NASD-94-11]

 

Self-Regulatory Organizations; Filing and Immediate Effectiveness 
of Proposed Rule Change by National Association of Securities Dealers, 
Inc. Relating to Assessments and Fees on Members

March 8, 1995.
    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 February 
25, 1994, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the NASD. The NASD has designated this proposal as one establishing 
or changing a fee under section 19(b)(3)(A)(ii) of the Act, which 
renders the rule effective upon the Commission's 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 NASD is proposing to add new section 45 to the Code of 
Arbitration Procedure to require that any member named as a party to an 
arbitration proceeding shall be assessed a $200 non-refundable 
surcharge when the Arbitration Department perfects service of the claim 
naming the member on any party to the proceeding. Below is the text of 
the proposed rule change. Proposed new language is italicized.
Part III. Uniform Code of Arbitration
    * * *

Member Surcharge

    Sec. 45. (a) Each member who is named as a party to an arbitration 
proceeding, whether in a Claim, Counterclaim, Crossclaim or Third-Party 
claim, shall be assessed a $200 non-refundable surcharge when the 
Arbitration Department perfects service of the claim naming the member 
on any party to the proceeding. For each associated person who is 
named, the surcharge shall be assessed against the member or members 
which employed the associated person at the time of the events which 
gave rise to the dispute, claim or controversy. No member shall be 
assessed more than a single surcharge in any arbitration proceeding. 
The surcharge shall not be subject to reimbursement under Subsection 
43(c) of the Code.
    (B) For the purposes of this Section, service is perfected when the 
Director of Arbitration properly serves the Respondents to such 
proceeding under Subsection 25(a) of the Code.

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

    The NASD is proposing to add new section 45 to the Code of 
Arbitration Procedure to provide that any member named as a party to an 
arbitration proceeding shall be assessed a $200 non-refundable 
surcharge when the Arbitration Department perfects service of the claim 
naming the member on any party to the proceeding. In addition, any firm 
whose associated persons are named in an arbitration proceeding will be 
assessed the surcharge.
    Historically, the revenue-to-expense ratio of the NASD's 
arbitration service has resulted in a deficit, which has been 
subsidized by other revenues of the Association. Although the deficit 
has declined in 1992, the NASD has determined in a recent review of the 
arbitration process that the deficit will begin to rise in the 
immediate future as a result of significantly increased resourcing 
needs. The NASD anticipates such needs to be ongoing. The increased 
resourcing needs result from a number of factors, including case 
growth, more selective arbitrator recruitment, increased arbitrator 
training, increased arbitrator compensation, and the anticipated 
overhaul of the arbitration administrative systems. The NASD determined 
that the time frame within which to initiate cost recovery for 
impending resourcing needs should be the immediate future, and that 
cost recovery should be directed at those member firms using the NASD's 
arbitration service.
    Proposed new subsection (a) would require each member who is named 
as a party to an arbitration proceeding, whether in a claim, 
counterclaim, crossclaim or third-party claim, to be assessed a $200 
non-refundable surcharge when the Arbitration Department perfects 
service of the claim naming the member on any party to the proceeding. 
This fee would be in addition to fees assessed pursuant to section 
43\1\ and 44\2\ of the Code. The fee applies both to members who file 
as Claimants and to members who are served by the Arbitration 
Department as Respondents. Therefore, in claims brought by members, the 
$200 fee would be assessed in addition to the $500 claim filing fee 
described in the current fee schedule. For an associated person who is 
named as a party to an arbitration proceeding, the fee would be 
assessed against the member firm or firms which employed the associated 
person at the time of the events which gave rise to the claim. However, 
no member will be assessed more than a single charge in any arbitration 
proceeding. Finally, subsection (a) clarifies that the surcharge is not 
subject to reimbursement under subsection 43(c) of the Code.
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    \1\NASD Manual, Code of Arbitration Procedure, Article III, Sec. 
43 (CCH) 3743.
    \2\NASD Manual, Code of Arbitration Procedure, Article III, Sec. 
44 (CCH) 3746.
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    The NASD estimates that it will collect the $200 surcharge on 75 
percent of the approximately 5700 arbitration cases expected to be 
filed in 1994, which will result in over $800,000 of additional revenue 
for the Arbitration Department in 1994. Thus, the surcharge will 
effectively offset expenses to be incurred on arbitrator education 
through 1994. The NASD expects the arbitrator education program to 
reach over 3,000 new arbitrators and almost 500 chairpersons during the 
period that began in the fourth quarter of 1993 and will end at the end 
of 1994. This will add over $750,000 to the Arbitration Department 
expenses, which will include costs for staff and travel time, 
conference rooms, written materials, videotape production and mailing 
costs.
    The NASD believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5)\3\ of the Act, which require that 
the rules of the Association provide for the equitable allocation of 
reasonable dues, fees and other charges among members in that the 
proposed rule equitably assesses a surcharge on each member that is 
named or whose associated person is named and for which service is 
perfected in an arbitration proceeding and applies such revenue to 
additional costs resulting from increased arbitration resourcing needs.
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    \3\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 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)(ii) of the Act and subparagraph (e) of rule 19b-
4 thereunder in that it constitutes a due, fee or other charge.
    At any time within 60 days of the filing of a rule change pursuant 
to section 19(b)(3)(A) of the Act, 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, NW., Washington, DC 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 principal office of the 
NASD. All submissions should refer to SR-NASD-94-11 and should be 
submitted by April 4, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5808 Filed 3-11-94; 8:45 am]
BILLING CODE 8010-01-M