[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Notices]
[Pages 30622-30624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14121]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35795; File No. SR-NASD-95-23]


Self-Regulatory Organizations; Notice of Filing and Partial 
Immediate Effectiveness of Proposed Rule Change by National Association 
of Securities Dealers, Inc., Relating to Gross Assessments and 
Continuing Education Fees

June 1, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on May 
23, 1995, 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 the part of this proposal for 
continuing education fees as on establishing or changing a fee under 
Sec. 19(b)(3)(A)(ii) of the Act, which renders the rule effective upon 
the Commission's receipt of this filing. The NASD is, however, 
requesting that the fee be implemented on July 1, 1995.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\ The proposal was originally filed with the Commission on May 
15, 1995. The NASD subsequently submitted Amendment No. 1 to the 
filing which amends the proposed rule to publish under Section 
19(b)(2) of the Act that portion of the proposed rule change that 
amends Section 1 to Schedule A to the NASD By-Laws and to publish 
under Section 19(b)(3)(A)(ii) of the Act that portion of the 
proposed rule change that amends Section 2 to Schedule A of the NASD 
By-Laws. Letter from Suzanne E. Rothwell, Associate General Counsel, 
NASD, to Mark P. Barracca, Branch Chief, Over-the-Counter 
Regulation, Division of Market Regulation, SEC, dated May 22, 1995.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing a rule change to amend Sections 1 and 2 to 
Schedule A of the By-Laws to clarify gross income filing requirements 
and to assess a fee for continuing education requirements. Proposed new 
language is italicized; proposed deletions are in brackets.
Schedule A
    Assessments and fees pursuant to the provisions of Article VI of 
the By-Laws of the Corporation, shall be determined on the following 
basis.
Assessments
Sec. 1.

    Each member shall pay an annual assessment composed of:
    (a) An amount equal to the greater of $850.00 or the total of:
    (i) 0.125% of the annual gross revenue [income] from state and 
municipal securities transactions,
    (ii) 0.125% of annual gross revenue [income] from other over-the-
counter securities transactions,
    (iii) 0.125% of the annual gross revenue [income] 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 
[income] from securities transactions executed on an exchange.
    Each member is to report annual gross revenue [income] as defined 
in Section 5 of this Schedule, for [either] the preceding calendar 
year. [or the member's fiscal year ending in the preceding calendar 
year. The 12-month reporting period must be in accordance with the 
member's previously written election. New members will be given an 
opportunity to make this election after they become members. Members 
wishing to change their reporting year must advise the Association, in 
writing, of the change in dates and provide a reason for the change 
(i.e., merger or other organizational change and/or change in tax or 
fiscal year). If the change is from a fiscal year to the calendar year 
or to a new fiscal year ending at a later date, the member is to 
provide two reports of gross income covering the 12 consecutive months 
of both the new and old years. In such case, the assessment in the year 
of change will be the greater amount determined from the two reports. 
If the change is from a calendar year or a fiscal year to a new fiscal 
year ending at an earlier date, the member is to report gross income 
for the 12 consecutive months to the end of its new fiscal year.]
* * * * *
Fees
Sec. 2.
* * * * *
    (k) There shall be a session fee of $75.00 assessed as to each 
individual who is required to complete the Regulatory Element of the 
Continuing Education Requirements pursuant to the provisions of Part 
XII of Schedule ``C'' of the By-Laws.
* * * * *

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

    Recently, the NASD amended Section 5 of Schedule A to the By-Laws 
to [[Page 30623]] define gross revenue for assessment purposes as 
income reported on the FOCUS report, with certain limited exclusions 
and deductions.\2\ The FOCUS report reports income on a calendar year 
basis. However, Section 1 (a) of Schedule A was not amended when this 
change was enacted and still gives members the election to report on 
either a calendar year or fiscal year basis. The NASD is proposing to 
amend Section 1(a) of Schedule A to require all member firms to report 
annual gross revenue on a calendar year basis and to delete portions of 
the section that are no longer applicable. The NASD believes that the 
proposed amendment will simplify the data collection and reporting 
process for the NASD, provide a consistent basis for assessments among 
member firms and rectify the current inconsistency between Sections 1 
and 5 of Schedule A.

    \2\ See Securities Exchange At Release No. 35074 (December 9, 
1994); 59 FR 64827 (December 15, 1994).
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    Recently, the NASD also amended Schedule C to the By-Laws by adding 
new Part XII prescribing requirements for the continuing education of 
certain registered persons subsequent to their qualification and 
registration with the NASD.\3\ The new rule established a formal two-
part Securities Industry Continuing Education Program for securities 
industry professionals that would require uniform periodic training in 
regulatory matters (the ``Regulatory Element'') and ongoing programs by 
firms to keep employees informed of the products, services and 
investment strategies of their firms (the ``Firm Elements''). Uniform 
rules in this area have also been adopted by other self-regulatory 
organizations, including the New York Stock Exchange, the American 
Stock Exchange, the Philadelphia Stock Exchange, the Chicago Board 
Options Exchange and the Municipal Securities Rulemaking Board 
(``SROs''). The participating SROs have established a permanent 
Securities Industry/Regulatory Council on Continuing Education 
(``Council'') to make recommendations to SROs concerning the content of 
the Regulatory Element and requirements for satisfying the Firm 
Element.

    \3\ See Securities Exchange Act Release No. 35341 (February 8, 
1995); 60 FR 8426 (February 14, 1995).
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    An important feature of the continuing education program is that it 
would be operated on a cost recovery basis and generate modest reserves 
for unanticipated future expenditures. The participating SROs will 
begin administration of the Regulatory Element on July 1, 1995. This 
will include tracking and follow-up by the NASD's Central Registration 
Depository of persons subject to the program's requirements and 
administering the computer-based training program through the NASD 
PROCTOR system at PROCTOR centers or at newly-created mobile centers or 
special sessions for on-site delivery of the program. The Firm Element 
will be administered in two stages, with members required to complete 
written training plans by July 1, 1995 and implement such plans no 
later than January 1, 1996. The administration of this element will 
involve on-site review by the SROs of compliance of the plans with the 
Firm Element will be borne largely by the members, the NASD will 
function as Program Administrator for the Regulatory Element and will 
incur significant initial start-up and ongoing operational costs.
    In order to cover the costs associated with the administration of 
the program, the NASD is proposing to amend Section 2 to Schedule A by 
adding a new provision to assess a $75.00 session fee against each 
individual required to complete the Regulatory Element of the 
continuing education program. The fee would apply to recoup the 
expenses of the Council and to cover the development, start-up and on-
going operational costs of administering the Regulatory Element.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(5) of the Act \4\ which require that 
the rules of the Association provide for the equitable allocation of 
reasonable dues, fees, and other changes in that the proposed rule 
provides a consistent basis for assessments among member firms and 
rectifies the current inconsistency between Sections 1 and 5 of 
Schedule A, and fairly assesses a charge to cover the start-up and 
ongoing costs incurred by the Association in the administration of the 
Regulatory Element of the continuing education requirements.

    \4\ 15 U.S.C. 78o3.
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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

    Within 35 days of the date of publication of this notice of the 
proposed rule change to Section 1 to Schedule A to the NASD By-Laws 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.
    The proposed rule change to Section 2 to Schedule A to the NASD By-
Laws has become effective pursuant to Section 19(b)(3)(A) of the Act 
and subparagraph (e) of Rule 19b-4 thereunder because the NASD has 
designated the part of the proposal for continuing education fees as 
one establishing or changing a fee under Sec. 19(b)(3)(A)(ii), which 
renders the rule effective upon the Commission's receipt of this 
filing. At any time within 60 days of the filing of such 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 NW., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statement 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 No. SR-NASD-95-23 and should 
be submitted by June 30, 1995.

    [[Page 30624]] 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. 95-14121 Filed 6-8-95; 8:45 am]
BILLING CODE 8010-01-M