[Federal Register Volume 59, Number 131 (Monday, July 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16630]


[[Page Unknown]]

[Federal Register: July 11, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34297; File No. SR-NASD-94-39]

 

Self-Regulatory Organizations; Filing of Proposed Rule Change by 
the National Association of Securities Dealers, Inc. Relating to 
Security Application Fee for The PORTAL Market

July 1, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on 
June 22, 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 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 amend The PORTAL Market Rules, Schedule I 
to the NASD By-Laws (``PORTAL Rules''), to add a security application 
fee with respect to securities submitted for designation in The PORTAL 
Market. Below is the text of the proposed rule change. Proposed new 
language is in italics.
The PORTAL Market
Schedule I to the NASD By-Laws
* * * * *
PART VI
PORTAL MARKET TRANSACTIONS
* * * * *
Sec. 4  PORTAL Fees
    PORTAL participants shall pay to the Association a fee for PORTAL 
transactions or such other fees as determined by the Association, which 
are set forth in Part IX of the PORTAL Rules. The Board of Governors 
shall have the power to impose, alter, or amend such fees from time to 
time pursuant to Article VI, Section 1 of the By-Laws.
* * * * *

PART IX

PORTAL FEES

Sec. 1  Entry Fee

    When a PORTAL participant submits an application for designation of 
any class of securities as a PORTAL security, it shall pay to the 
Corporation a filing fee of $2,000 per class of security covered by the 
security application submitted plus $200 per assigned security symbol 
that is in addition to the first symbol assigned.

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

(a) Purpose
    The PORTAL Market is the market operated by The Nasdaq Stock 
Market, Inc., for the quotation of securities that are restricted 
securities, as defined in Rule 144(a)(3) under the Securities Act of 
1933 (``Securities Act''), or are securities that are treated as if 
restricted.\1\ In order to qualify for inclusion in The PORTAL Market, 
a security that is restricted or treated as if restricted must be 
eligible to be sold pursuant to Rule 144A under the Securities Act, \2\ 
be in negotiable form, and be assigned a CUSIP or other security 
identification number that is different from any identification number 
assigned to any unrestricted securities of the same class.
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    \1\Part II, PORTAL Rules, provides that to qualify for initial 
designation and continued designation in the PORTAL Market, a 
security shall be either a restricted security, as defined in Rule 
144(a)(3) under the Securities Act, or a security that upon issuance 
and continually thereafter only can be sold pursuant to Regulation S 
under the Securities Act, Rule 114A, or Rule 144 under the 
Securities Act, or in a transaction exempt from the registration 
requirements of the Securities Act pursuant to Section 4 of the 
Securities Act and not involving any public offering.
    \2\This provision requires that the security meet the 
requirements of Rule 144A(d)(3) and (4) under the Securities Act, 
which are, respectively, the ``fungibility'' and ``information 
delivery requirement'' conditions of Rule 114A.
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    The PORTAL Market has processed over one thousand applications for 
designation as a PORTAL security. Designation of a security as a PORTAL 
security permits the security to be assigned a CUSIP number by Standard 
& Poor's Corporation and be cleared and settled through the Depository 
Trust Company. Section 2 of the PORTAL Rules permits any PORTAL 
participant to submit an application for security designation, rather 
than the issuer of the security. ``PORTAL participants'' include PORTAL 
dealers, PORTAL brokers, and PORTAL investors. The first two categories 
of PORTAL participants are required to be brokers and dealers 
registered with the Commission under Section 15 of the Exchange Act and 
members of the NASD. The third category of PORTAL participants are 
institutional investors that are not members of the NASD that meet the 
definition of ``qualified institutional buyer'' under Rule 144A.
    The NASD has operated The PORTAL Market since it initiated 
operations in June 1990 without the imposition of any fees on users. 
The NASD is proposing to adopt a filing fee of $2,000 per security 
application submitted plus $200 for each security identification symbol 
assigned after the first symbol. Many private offerings of securities 
are of securities that are sold in multiple tranches, each of which is 
treated as a separate security, even though part of a single private 
offering, and assigned a separate identification symbol by The PORTAL 
Market.
    The NASD believes that the imposition of a PORTAL filing fee will 
assist The Nasdaq Stock Market, Inc. to cover continuing costs 
associated with the operation of the PORTAL Market, including 
significant costs associated with the processing of security 
applications. The processing of security applications for The PORTAL 
Market requires an immediate review of all applications, as private 
placements are usually on a very short time schedule. Such review must 
ensure that the security meets all of the requirements in Part II of 
the PORTAL Rules, as set forth above.
    Applications are generally submitted the day prior to commencing 
the private placement or the day prior to conducting a ``road show,'' 
if such a road show is used, and approval is necessary within one or 
two days at the most.\3\ In addition, because of a continuing lack of 
knowledge regarding the procedures for obtaining approval for PORTAL 
designation, Depository Trust Company book-entry approval, and the 
issuance of a CUSIP number from Standard & Poor's, The Nasdaq Stock 
Market, Inc. staff must work closely with the applicant to complete the 
process. Further, private offerings that rely on Rule 144A for 
redistribution of the securities to qualified institutional buyers are 
many times unique in their structure, as well as frequently involving 
issues related to SEC Regulation S and compliance with the CUSIP 
identification number requirement when an offshore offering occurs 
simultaneously with a U.S. private placement. Finally, there are many 
issues with multiple tranches, each of which must be assigned a 
separate security symbol. Given the efforts required by The Nasdaq 
Stock Market, Inc. staff, the NASD belies that the fees as proposed are 
appropriate.
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    \3\In the case of private offerings, such a ``road show'' is 
quite abbreviated as the number of potential investors is generally 
no more than 75.
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(b) Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(5) of the Exchange Act,\4\ which 
requires that the rules of the Association provide 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 
Association operates or controls in that the proposed rule change 
equitably applies a filing fee to all applications submitted by PORTAL 
dealers, PORTAL brokers, and PORTAL qualified investors for the 
designation of securities in The PORTAL Market.
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    \4\15 U.S.C. 78o-3 (1988).
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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 Exchange 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

    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 self-regulatory organization 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. 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 principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by August 1, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 94-16630 Filed 7-8-94; 8:45 am]
BILLING CODE 8010-01-M