[Federal Register Volume 67, Number 78 (Tuesday, April 23, 2002)]
[Notices]
[Pages 19790-19791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9857]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45760; File No. SR-NASD-00-82]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment Nos. 1, 2, 3, and 4 Thereto 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

April 16, 2002.
    On December 26, 2000, 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 (``Commission''), pursuant to section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend NASD Rule 7090, ``Mutual 
Fund Quotation Service'' (``MFQS'') to assess fees for Unit Investment 
Trusts (``UITs'') included in Nasdaq's MFQS.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    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\ Nasdaq filed Amendment 
Nos. 1, 2, 3, and 4 to the proposal on June 18, 2001,\5\ June 26, 
2001,\6\ July 2, 2001,\7\ and February 11, 2002,\8\ respectively. 
Amendment Nos. 1, 2, 3, and 4 to the proposed rule change were 
published for comment in the Federal Register on March 11, 2002.\9\ The 
Commission received no comments regarding the amended proposal. This 
order approves the proposed rule change, as amended.
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    \3\ See Securities Exchange Act Release No. 43915 (February 1, 
2001), 66 FR 10926.
    \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''). 
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 proposed rule text 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 as 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.
    \9\ See Securities Exchange Act Release No. 45500 (March 11, 
2002), 67 FR 10946.
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I. Description of the Proposal

    Nasdaq's MFQS collects and disseminates data pertaining to the 
value of open-end and closed-end mutual funds and UITs. Specifically, 
the MFQS permits funds included in the MFQS (or pricing agents 
designated by the funds) to transmit directly to Nasdaq pricing 
information, including information about a fund's net asset value, 
offer price, and closing market price. The MFQS currently disseminates 
valuation data for over 11,000 funds.
    NASD Rule 7090 currently sets forth the fees assessed for the 
inclusion of mutual funds in the MFQS. Specifically, NASD Rule 7090(a) 
provides for the assessment of an annual fee of $400 per fund 
authorized for the News Media Lists, $275 per fund authorized for the 
Supplemental List, and a one-time application processing fee of $250 
for each new fund authorized for either list.
    Nasdaq proposes to amend NASD Rule 7090(a) to provide that UITs 
included in the MFQS will be assessed an annual fee of $400 per trust 
authorized for the News Media Lists, $275 per trust authorized for the 
Supplemental List, and a one-time application processing fee of $250 
for each new trust authorized. In addition, new NASD Rule 7090(b) 
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. NASD Rule 7090(b) also 
provides that the replacing trust shall not be charged an annual fee if 
the expiring trust has already paid an annual fee for that annual 
billing period.\10\
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    \10\ As originally proposed, NASD Rule 7090(b) eliminated the 
one-time application fee for a replacing trust if a UIT expired 
during an annual billing period and was replaced within three months 
by a trust that was materially similar in share class and trust 
objective. As discussed more fully below, Nasdaq revised its 
definition of a replacing trust in response to comments from the 
ICI. See Amendment No. 1, supra note 5. In addition, Nasdaq 
concluded that it could not offer a full waiver of the $250 
application processing fee for a replacing trust, as it had 
originally proposed, because the number of UITs that potentially 
would qualify for the application fee waiver was substantially 
greater than Nasdaq had first anticipated. Accordingly, Nasdaq 
revised its proposal to impose a $150 application processing fee for 
replacements trusts. The $150 fee is a partial waiver of the 
standard $250 application processing fee. See Amendment No. 1, supra 
note 5.
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    Nasdaq states that the application fee supports the Fund Operations 
personnel who are required to review, record, and enter each fund into 
the MFQS for subsequent dissemination to electronic or print 
subscribers. Nasdaq notes 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 requests of users and subscribers for service 
enhancements.\11\ In addition, Nasdaq states that the NASD maintains a 
staff and dedicated technology to produce the service.\12\
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    \11\ See Amendment No. 4, supra note 8.
    \12\ See Amendment No. 4, supra note 8.
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II. Summary of Comments

    The Commission received one comment letter regarding the 
proposal.\13\ The commenter generally supported Nasdaq's proposal but 
recommended a technical change to the proposed rule to ensure that the 
fee assessment procedures for UITs operate correctly. Specifically, the 
commenter 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,

[[Page 19791]]

nor do they have different classes of shares. The commenter also 
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.''\14\
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    \13\ See ICI Letter, supra note 4.
    \14\ See ICI Letter, supra note 4.
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    In response to the commenter's concerns, Nasdaq revised its 
proposal to adopt the commenter's suggested requirements for the 
definition of a ``materially similar'' replacement trust.\15\
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    \15\ See Amendment No. 1, supra note 5.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\16\ In particular, the Commission finds that the proposed 
rule change is consistent with the provisions of section 15A(b)(5)\17\ 
of the Act, which requires that the rules of a national securities 
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. The Commission notes that the proposed annual fees for UITs, 
equal to $400 per trust authorized for the News Media Lists and $275 
per trust authorized for the Supplemental List, are identical to the 
annual fees currently assessed for mutual funds included in the 
MFQS.\18\ Nasdaq states that the annual fees 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 requests of users and 
subscribers for service enhancements.\19\
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    \16\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \17\ 15 U.S.C. 78o-3(b)(5).
    \18\ The Commission approved these annual fees for mutual funds 
included in the MFQS in 2000. See Securities Exchange Act Release 
No. 42537 (March 16, 2000), 65 FR 15678 (March 23, 2000) (order 
approving File No. SR-NASD-99-77).
    \19\ See Amendment No. 4, supra note 8.
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    In addition, as described more fully above, 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 will be charged a one-time application fee of $150 
rather than the standard $250 application processing fee.\20\ Although 
Nasdaq had hoped to waive the application processing fee for 
replacement UITs, Nasdaq concluded that it could offer only a $100 fee 
waiver because a significant number of UITs will qualify as replacement 
UITs and because replacement UITs will require significant processing 
before entry in the MFQS.\21\ Nasdaq notes that the application fee 
supports the Fund Operations personnel who are required to review, 
record, and enter each fund into the MFQS for subsequent dissemination 
to electronic or print subscribers.\22\
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    \20\ See Amendment No. 1, supra note 5.
    \21\ See Amendment No. 4, supra note 8.
    \22\ See Amendment No. 4, supra note 8.
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    The Commission believes that the proposed fees will support the 
operations of the MFQS and the inclusion of UITs in the MFQS. In 
addition, the Commission believes that the proposed fees provide for 
the equitable allocation of fees among persons using the MFQS because 
the fees will be assessed to UITs in proportion to their usage of the 
MFQS. Accordingly, the Commission finds that the proposal provides for 
the equitable allocation of reasonable dues, fees, and other charges 
among persons using a system that the NASD operates and controls, 
consistent with Section 15A(b)(5).
    Finally, as discussed more fully above, the Commission notes that 
Nasdaq revised its proposal to adopt the commenter's suggested 
requirements for the definition of a ``materially similar'' replacement 
trust.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NASD-00-82), as amended, is 
approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-9857 Filed 4-22-02; 8:45 am]
BILLING CODE 8010-01-P