[Federal Register Volume 67, Number 47 (Monday, March 11, 2002)]
[Notices]
[Pages 10946-10948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5684]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45500; File No. SR-NASD-00-82]


Self-Regulatory Organizations; Notice of Filing of Amendment Nos. 
1, 2, 3, and 4 to a Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to the Assessment of Fees for Unit 
Investment Trusts Included in Nasdaq's Mutual Fund Quotation Service

March 4, 2002.
    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 
the National Association of Securities Dealers, Inc. (``NASD'' or 
``Association''), through its subsidiary, the Nasdaq Stock Market, Inc. 
(``Nasdaq'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') Amendment Nos. 1, 2, 3, and 4 to the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by Nasdaq. The proposed rule change was published for 
comment in the Federal Register on February 20, 2001.\3\ The Commission 
received one comment letter regarding the proposed rule change.\4\ On 
June 18, 2001, Nasdaq filed Amendment No. 1 to the proposal.\5\ On June 
26, 2001, Nasdaq filed Amendment No. 2 to the proposal.\6\ On July 2, 
2001, Nasdaq filed Amendment No. 3 to the proposal.\7\ On February 11, 
2002, Nasdaq filed Amendment No. 4 to the proposal.\8\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 43915 (February 1, 
2001), 66 FR 10926 (``February 2001 Release'').
    \4\ See letter from Barry E. Simmons, Associate Counsel, 
Investment Company Institute (``ICI''), to Jonathan G. Katz, 
Secretary, Commission, dated March 13, 2001 (``ICI Letter'').
    \5\ See letter from Edward S. Knight, Executive Vice President 
and General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated June 15,2001 (``Amendment No. 1''). Amendment No. 1 revises 
the proposal to: (1) Establish a $150 fee for replacement Unit 
Investment Trusts (``UITs''); and (2) respond to the ICI's comments 
by adopting the ICI's suggested requirements for a replacement UIT.
    \6\ See letter from Edward S. Knight , Vice President and 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division, Commission, dated June 25,2001 (``Amendment No. 
2''). The rule test provided in Amendment No. 1 indicated the way 
that Amendment No. 1 revised the text of current NASD Rule 7090 
rather than the way that Amendment No. 1 revised the text of NASD 
Rule 7090 as amended by the original proposal. Amendment No. 2 
replaces the text of NASD Rule 7090 proposed in Amendment No. 1 with 
text designed to indicate the way that Amendment No. 1 revises 
Nasdaq's original proposal rather than the existing text of NASD 
Rule 7090.
    \7\ See letter from Mary M. Dunbar, Vice President, Office of 
the General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division, Commission, dated June 29, 2001 (``Amendment No. 
3''). Amendment No. 3 replaces the text of NASD Rule 7090 provided 
in Amendment No. 2 with rule text that is designed to indicate more 
clearly the way that Amendment No. 1 revises the text of NASD Rule 
7090 was amended by the original proposal.
    \8\ See letter from Jeffrey S. Davis, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated February 11, 2002 (``Amendment No. 4''). Amendment 
No. 4 provides a more detailed explanation of the need for the 
proposed fees. Specifically, among other things, Amendment No. 4 
states that the application fee supports the personnel who are 
required to review, record, and enter each fund into the Mutual Fund 
Quotation Service (``MFQS''). In addition, Amendment No. 4 states 
that the annual fee for the News Media Lists and the Supplemental 
List support the NASD's continuous monitoring of funds' compliance 
with the standards for inclusion in the MFQS, for upgrading the 
technology used to collect and disseminate the MFQS, and for 
responding to the requests of users and subscribers for service 
enhancements. Amendment No. 4 also provides additional information 
concerning the $150 application fee for replacement UITs.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    In the original proposal, which was published for comment in the 
February 2001 Release, Nasdaq proposed to amend NASD Rule 7090, 
``Mutual Fund Quotation Service,'' to: (1) Revise NASD Rule 7090(a) to 
apply to UITs certain annual and application fees that currently apply 
to mutual funds; and (2) adopt NASD Rule 7090(b), which eliminated a 
one-time application fee if a UIT expires by its own terms during an 
annual billing period and is replaced within three months by a trust 
that is materially similar in share class and trust objective. The 
proposed changes to the original proposal, as published in the February 
2001 Release, are below.
    Proposed additions are italicized and proposed deletions are placed 
in [brackets].
* * * * *

7090. Mutual Fund Quotation Service

    (a) No change.
    (a) If a Unit Investment Trust expires by its own terms during an 
annual billing period and is replaced within three months by a trust 
that is materially similar in [share class and trust] investment 
objective, the replacing trust shall [not] be charged a one-time 
application fee of $150. [In addition, t]The replacing trust shall not 
be

[[Page 10947]]

charged an annual fee if the expiring trust has already paid an annual 
fee for that annual billing period.
    (c) 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, Nasdaq 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. Nasdaq 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
    NASD Rule 7090 sets forth the fees assessed for the inclusion of 
mutual funds in the MFQS. In its original proposal, Nasdaq proposed to: 
(1) Revise NASD Rule 7090(a) to apply to UITs certain annual and 
application fees that currently apply to mutual funds; \9\ and (2) 
adopt NASD Rule 7090(b), which eliminated a one-time application fee 
for a replacing trust if a UIT expires by its own terms during an 
annual billing period and is replaced within three months by a trust 
that is materially similar in share class and trust objective. The 
original proposal was published for comment in the Federal Register on 
February 20, 2001.\10\ The Commission received one comment letter 
regarding the proposal.\11\
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    \9\ Specifically, the original proposal revised NASD Rule 
7090(a) to provide that UITs included in the MFQS shall be assessed 
an annual fee of $400 per trust authorized for the News Media Lists 
and $275 per trust authorized for the Supplemental List. In 
addition, NASD Rule 7090(a) imposes a one-time application 
processing fee of $250 for each new trust authorized.
    \10\ See February 2001 Release, supra not 3.
    \11\ See ICI Letter, supra note 4.
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    The commenter supported Nasdaq's proposal to accommodate the manner 
in which UITs are offered, but recommended a technical change to the 
proposed rule to ensure that the fee assessment procedures for UITs 
operate appropriately. Specifically, the ICI recommended that Nasdaq 
eliminate the requirement in proposed NASD Rule 7090(b) that the 
replacement UIT be similar in ``share class'' to the replacing UIT 
because UITs do not issue shares, nor do they have different classes of 
shares. The ICI recommended that Nasdaq revise proposed NASD Rule 
7090(b) to state that ``[i]f a UIT expires by its own terms during an 
annual billing period and is replaced within three months by a trust 
that has a materially similar investment objective, the replacing trust 
shall not be charged a one-time application fee.'' \12\
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    \12\ See ICI Letter, supra note 4.
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    In Amendment No. 1, Nasdaq revised its proposal to: (1) adopt the 
commenter's suggested requirements for the definition of a ``materially 
similar'' replacement trust; and (2) provide that, instead of 
eliminating the one-time application fee for a replacing trust, the 
replacing UIT would be charged a one-time application fee of $150. 
Thus, NASD Rule 7090(b), as amended, provides that if a UIT expires by 
its own terms during an annual billing period and is replaced within 
three months by a trust that is materially similar in investment 
objective, the replacing trust shall be charged a one-time application 
fee of $150.
    With regard to the $150 one-time application fee, Nasdaq states in 
Amendment No. 1 that after submitting its original proposal, Nasdaq 
received new information indicating that the number of UITs that would 
potentially qualify for the application fee waiver was substantially 
greater than first anticipated. Nasdaq states that, recognizing the 
finite character of UITs, Nasdaq had initially proposed to offer a full 
fee waiver although the full fee itself only partially offsets the 
costs Nasdaq incurs for processing each application. In light of the 
increased numbers of funds potentially eligible for the fee waiver, 
Nasdaq states in Amendment No. 1 that it is compelled to offer only a 
partial fee waiver, reducing the waiver by $100. Thus, Nasdaq proposes 
to impose a one-time application fee of $150 for replacement UITs, 
rather than Nasdaq's standard $250 fee.
    In Amendment No. 4, Nasdaq provides additional reasons for 
assessing the proposed fees on UITs and discusses the need for the $150 
application fee for replacement trusts. With regard to the $150 
application fee, Nasdaq states after filing its original proposal, it 
discovered two pertinent facts: (1) That a significant number of UITs 
would qualify as replacement UITs; and (2) that, despite their 
similarity to the funds they replace, replacement UITs will require 
significant processing before entry into the MFQS. Nasdaq states that 
although it had hoped to waive the application for replacement funds 
entirely, it is economically constrained to offer only a $100 waiver. 
Nasdaq believes that the replacement fee constitutes an equitable 
allocation of fees among users of the service.
    With regard to the need to assess fees for including UITs in the 
MFQS, Nasdaq states that the application fee supports the Fund 
Operations personnel who are required to review, record, and enter each 
fund into the MFQS system for subsequent dissemination to electronic or 
print subscribers. Nasdaq states that the annual fee for the News Media 
Lists and the Supplemental List support the NASD's continuous 
monitoring of funds' compliance with the standards for inclusion in the 
MFQS, and for responding to the requests of users and subscribers for 
service enhancements. Nasdaq notes that the NASD maintains a staff and 
dedicated technology to produce the MFQS, which provides transparency 
to investors and a valuable service to subscribers. Nasdaq believes 
that the application and annual fees have for many years been part of 
an equitable allocation of fees among users of the service because they 
are assessed to subscribers in direct proportion to their usage of the 
service.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of sections 15A(b)(6) \13\ and Section 11A \14\ of the 
Act. Section 15A(b)(6) requires that the rules of a registered national 
securities association be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principals of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. In Section 11A(a)(1)(C), Congress found that is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure: (1) Economically 
efficient execution of securities transactions; (2) fair competition 
among brokers and dealers; (3) the availability to brokers, dealers and 
investors of information with respect to quotations and transactions in

[[Page 10948]]

securities; (4) the practicability of brokers executing investors 
orders in the best market; and (5) an opportunity for investors orders 
to be executed without the participation of a dealer.
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    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ 15 U.S.C. 78k-1.
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    Nasdaq believes that the proposed rule change is consistent with 
the provisions of sections 15A(b)(6) and 11A(a)(1)(C) of the Act 
because the proposal protects investors and the public interest by 
promoting better processing of price information in UITs. Nasdaq 
believes that the proposed listing fees will encourage the listing of 
UITs, thereby providing greater pricing information for a broader base 
of investments for which there is significant investor interest. Nasdaq 
also believes that the proposed listing fees will enable Nasdaq to 
identify, screen and list bona fide UITs with a meaningful investor 
base and trading interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Nasdaq has neither solicited nor received written comments on the 
proposed rule change.

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 Amendment Nos. 1, 2, 3, and 4, including whether 
the amendments are 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 No. SR-NASD-00-82 and should 
be submitted by April 1, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-2(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-5684 Filed 3-8-02; 8:45 am]
BILLING CODE 8010-01-P