[Federal Register Volume 67, Number 15 (Wednesday, January 23, 2002)]
[Rules and Regulations]
[Pages 3057-3058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1620]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-45291; File No. S7-02-02]


Amendments to Rule 31-1, Securities Transactions Exempt From 
Transaction Fees

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Commission today is amending the rule that provides an 
exemption from section 31(c) of the Securities Exchange Act of 1934 
(``Act'') for over-the-counter (``OTC'') transactions in OTC securities 
that are subject to unlisted trading privileges on a national 
securities exchange. One subparagraph of the rule has become obsolete 
and unnecessary due to the enactment of H.R. 1088, the Investor and 
Capital Markets Fee Relief Act (``Fee Relief Act'').

EFFECTIVE DATE: January 16, 2002.

FOR FURTHER INFORMATION CONTACT: Katherine England, Assistant Director, 
202-942-0155, or Joseph Morra, Special Counsel, 202-942-0781, Division 
of Market Regulation, Securities and Exchange Commission, 450 5th 
Street, NW, Washington, DC 20549-1001.

SUPPLEMENTARY INFORMATION:

I. Discussion

    Subparagraph (b) of Rule 31-1 \1\ under the Act is being rescinded. 
At the time this subparagraph was adopted, an exemption from section 
31(c) of the Act was necessary to ensure that OTC transactions in OTC 
securities that were subject to unlisted trading privileges on a 
national securities exchange (``OTC-UTP Transactions'') were not 
subject to dual charges under both sections 31(c) and (d) of the Act. 
With passage of the Fee Relief Act, former sections 31(c) and (d) of 
the Act were combined into a new Section 31(c).\2\ Therefore, there is 
no longer a need for the exemption created by subparagraph (b) of Rule 
31-1. The Commission also is making technical conforming changes to 
Rule 31-1 to renumber the subparagraphs and to reflect the exception in 
the Fee Relief Act for options on securities indexes (other than 
narrow-based security indexes).
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    \1\ 17 CFR 240.31-1(b).
    \2\ New section (c) applies to off-exchange trades of exchange 
registered and last-sale reported securities.
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    Section 553(b) of the Administrative Procedure Act \3\ generally 
requires an agency to publish notice of a proposed rule making in the 
Federal Register. This requirement does not apply, however, if the 
agency ``for good cause finds (and incorporates the finding and a brief 
statement of reasons therefor in the rules issued) that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.'' \4\ The Commission finds good cause to forego 
notice and comment procedures for the rule amendments being adopted 
today.
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    \3\ 5 U.S.C. 553(b).
    \4\ Id.
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    The President signed the Fee Relief Act on January 16, 2002. If the 
Commission does not rescind paragraph (b) of Rule 31-1 effective as of 
January 16, 2002, the intent of Congress in passing the Fee Relief Act 
could be frustrated. In addition, persons subject to section 31 of the 
Act may be confused as to whether OTC-UTP Transactions remain subject 
to fees under section 31.\5\
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    \5\ The Fee Relief Act provides that changes to section 31 of 
the Act (except for the immediate fee reduction in section 2 of the 
Fee Relief Act) are effective October 1, 2001. While we are 
rescinding paragraph (b) of Rule 31-1 effective as of January 16, 
2002, the date the President signed the Fee Relief Act into law, the 
Commission does not believe that it would be consistent with the 
intent of the Fee Relief Act to rely on paragraph (b) of Rule 31-1 
(and thereby seek to avoid paying Section 31 fees on OTC-UTP 
Transactions) for the period from the effective date of the Fee 
Relief Act (October 1, 2001) to the effective date of our rescission 
of paragraph (b) of Rule 31-1. As a result, Section 31 fees will 
continue to apply to OTC-UTP transactions from the effective date of 
the Fee Relief Act.
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    Specifically, as noted above, paragraph (b) of existing Rule 31-1 
exempts OTC-UTP Transactions from the fee provisions of section 31(c) 
of the Act.\6\ The purpose of the rule was to clarify that such 
transactions were not subject to dual charges under both former 
sections 31(c) and (d). OTC-UTP Transactions, however, remained subject 
to the fee provisions of former section 31(d) of the Act. The Fee 
Relief Act combined former sections 31(c) and (d) of the Act into a new 
section 31(c) (which encompasses all transactions formerly covered by 
former sections 31(c) and (d)). If paragraph (b) of existing Rule 31-1 
were to remain in effect, affected persons might conclude that OTC-UTP 
Transactions are now exempt from section 31 fees altogether. Neither 
Congress, in enacting the Fee Relief Act, nor the Commission, in 
promulgating Rule 31-1, intended to exempt such transactions from the 
fee provisions of section 31. Rescinding paragraph (b) of Rule 31-1 
effective immediately would preserve the intent of Congress in enacting 
the Fee Relief Act and avoid any confusion by persons affected by the 
legislation.
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    \6\ See Securities Exchange Act Release No. 38073 (December 23, 
1996), 61 FR 68590, 68591 n.10 (December 30, 1996) (``Without the 
exemption, the application of section 31 fees to all transactions in 
particular OTC securities would have depended entirely on exchange 
decisions to trade OTC/UTP securities, or on issuer decisions to 
retain an exchange listing despite the stock being designated a 
Nasdaq/NMS security.'')
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    The Administrative Procedure Act also generally requires that an 
agency publish an adopted rule in the Federal Register 30 days before 
it becomes effective.\7\ However, an agency may forego the 30-day 
requirement if it finds good cause for doing so.\8\ For the same 
reasons as it is waiving the notice and comment period, the Commission 
finds good cause to waive the 30-day pre-effective requirement.
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    \7\ See 5 U.S.C. 553(d).
    \8\ Id.
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II. Effects on Competition and Regulatory Flexibility Act 
Considerations

    Section 23(a)(2) of the Exchange Act \9\ requires the Commission, 
in adopting rules under the Exchange Act, to consider the competitive 
effects of such rules, if any, and to balance any impact with the 
regulatory benefits gained in terms of furthering the purposes of the 
Exchange Act. As noted above, in amending Rule 31-1 the Commission is 
merely conforming the rule to recently enacted legislation. Moreover, 
adoption of the amendment to Rule 31-1 will not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.
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    \9\ 15 U.S.C. 78w(a)(2).
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    The Regulatory Flexibility Act \10\ is not applicable to the 
revisions to Rule 31-1. The Regulatory Flexibility Act's flexibility 
analysis requirements are limited to rulemaking for which the 
Commission would be required by the Administrative Procedure Act to 
publish general notice of proposed rulemaking.\11\
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    \10\ 5 U.S.C. 601-612.
    \11\ 5 U.S.C. 603(a). As noted above, the Commission is not 
required to solicit public comment due to the nature of the 
Commission's revisions to Rule 31-1.
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    The Paperwork Reduction Act does not apply because the proposed 
amendments do not impose record keeping or information collection 
requirements, or other collections of information that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et. seq.

[[Page 3058]]

III. Statutory Basis

    The amendments to Rule 31-1 under the Exchange Act are being 
adopted pursuant to 15 U.S.C. 78a et seq., particularly sections 23(a) 
and 31 of the Exchange Act.

IV. Text of Final Amendments

List of Subjects in 17 CFR Part 240

    Reporting and record keeping requirements, Securities.

Text of Rule Amendment

    For the reasons set forth above, the Commission amends Part 240 of 
Chapter II, Title 17 of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *

    2. Section 240.31-1 is revised to read as follows:


Sec. 240.31-1.  Securities transactions exempt from transaction fees.

Preliminary Note

    The section 31 fee for options transactions occurring on a national 
securities exchange, or transactions in options subject to prompt last 
sale reporting occurring otherwise than on an exchange (with the 
exception of sales of options on securities indexes other than narrow-
based security indexes) is to be paid by the exchange or the national 
securities association itself, respectively, or by the Options Clearing 
Corporation on behalf of the exchange or association, and such fee is 
to be computed on the basis of the option premium (market price) for 
the sale of the option. In the event of the exercise of an option, 
whether such option is traded on an exchange or otherwise, a section 31 
fee is to be paid by the exchange or the national securities 
association itself, or the Options Clearing Corporation on behalf of 
the exchange or association, and such fee is to be computed on the 
basis of the exercise price of the option. The following shall be 
exempt from section 31 of the Act:
    (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 (15 U.S.C. 77c(a) 
or 77c(b)), or a rule thereunder.
    (b) Transactions by an issuer not involving any public offering 
within the meaning of section 4(2) of the Securities Act of 1933 (15 
U.S.C. 77d(2));
    (c) The purchase or sale of securities pursuant to and in 
consummation of a tender or exchange offer;
    (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; and
    (e) Transactions which are executed outside the United States and 
are not reported, or required to be reported, to a transaction 
reporting association as defined in Sec. 240.11Aa3-1 (Rule 11Aa3-1 
under the Act) and any approved plan filed thereunder.
    By the Commission.


    Dated: January 16, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-1620 Filed 1-22-02; 8:45 am]
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