[Federal Register Volume 67, Number 178 (Friday, September 13, 2002)]
[Notices]
[Pages 58092-58093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23311]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46466; File No. SR-NASD-2002-100]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to the Establishment of a Late Fee in 
Connection with Member Payment of CRD Renewal Fees

September 6, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on July 25, 2002, the National Association of 
Securities Dealers, Inc. (``NASD'') 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 NASD. On August 8, 2002, NASD filed an amendment to 
the proposal.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Barbara Z. Sweeney, Senior Vice President 
and Corporate Secretary, Investor Protection, Market Integrity, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated August 8, 2002 
(``Amendment No. 1''). In Amendment No. 1, NASD corrected the basis 
for which summary effectiveness was requested. For purposes of 
calculating the 60-day abrogation period, the Commission considers 
the period to have commenced on August 8, 2002.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend Section 4(b) of Schedule A to the NASD 
By-Laws by establishing a late fee to be assessed against NASD members 
that fail timely to pay their yearly renewal fees to the Central 
Registration Depository (``CRD[reg]'' or ``Web CRDSM ''). 
The proposed late fee would be operative September 1, 2002. Below is 
the text of the proposed rule change. Proposed new language is in 
italics.
* * * * *
Schedule A to the NASD By-Laws
    Assessments and fees pursuant to the provisions of Article VI of 
the By-Laws of NASD shall be determined on the following basis.
* * * * *
Section 4--Fees
    (a) No change.
    (b) NASD shall assess each member a fee of:
    (1) Through (6) No change.
    (7) 10% of a member's final annual renewal assessment or $100, 
whichever is greater, with a maximum charge of $5,000, if the member 
fails timely to pay the amount indicated on its preliminary annual 
renewal statement.
    (c) through (l) 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, NASD included statements 
concerning the purpose of and the 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. 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

1. Purpose
    The purpose of the proposed rule change is to amend Section 4(b) of 
Schedule A to the NASD By-Laws by establishing a fee comprised of 10% 
of a member's final annual renewal assessment or $100, whichever is 
greater, with a maximum charge of $5,000, if the member fails timely to 
pay the amount indicated on its preliminary annual renewal statement. 
As further detailed below, the proposed rule change is effective 
immediately upon filing and becomes operative on September 1, 2002.
    NASD administers an annual renewal program that simplifies the 
process of renewing registrations and licenses for member firms and 
their associated persons by allowing members to pay a single amount to 
NASD in December of each year. This annual renewal fee covers all NASD 
registration and licensing fees and fees imposed by states and other 
self-regulatory organizations (``SROs''). NASD also collects broker-
dealer and investment adviser renewal fees on behalf of SROs and state 
regulators, as applicable, through this program.
    During the first week of November, NASD publishes on-line, on Web 
CRD, a Preliminary Renewal Statement for each member that advises the 
member of the total amount of renewal fees owed for the following year. 
The renewal fees are generally due to NASD by the end of the first week 
in December. Members currently pay the amount indicated on their 
Preliminary Renewal Statement by check or bank wire transfer, and NASD 
pays the fees to the various regulators by year-end. NASD advises its 
members that their failure to return full payment to NASD by the stated 
deadline could cause a member to become ineligible to do business in 
the jurisdictions in which it is registered as of the first business 
day of the new year. The timely payment of renewal fees by NASD members 
and their subsequent disbursement to appropriate regulators ensures 
that NASD members will not be precluded from conducting business in the 
next calendar year as a result of the non-payment of renewal fees.
    Because of the potential risk to members' ability to conduct 
business if they fail timely to make their renewal payments, NASD 
engages in a comprehensive communications and operational effort 
beginning in August of each year that informs members of their 
obligation to complete the renewal process by the stated deadline and 
the risk associated with their failure to do so. These communications 
include an Advance Calendar of Key Dates, a Notice to Members, a CRD 
Bulletin, reminder e-mails, and daily reminder Broadcast Messages 
through CRD.

[[Page 58093]]

    In early January, NASD makes available on-line a Final Renewal 
Statement that reflects the final status of agent and firm 
registrations and/or Notice Filings as of December 31 of the previous 
year. Any adjustments in fees owed as a result of registration 
terminations or approvals subsequent to the Preliminary Renewal 
Statement are made in this final, reconciled statement on Web CRD. NASD 
issues a credit/refund to members that paid an amount greater than the 
final amount based on their Preliminary Renewal Statements. NASD 
assesses additional fees if a member paid less than the final 
reconciled amount.
    Notwithstanding NASD's efforts to obtain timely payments of renewal 
fees, a significant percentage of NASD members miss the payment 
deadline each year, prompting NASD staff to expend additional time and 
resources to collect these fees after the renewal deadline has passed. 
NASD staff expends considerable effort to contact delinquent members to 
prevent them from failing to renew with the jurisdictions with which 
they are registered. This annual effort is in addition to, and detracts 
from, NASD's efforts to serve its members in the normal course of 
business.
    NASD is therefore proposing that a late renewal fee be established 
and assessed against any NASD member that has not paid its renewal fees 
by the published deadline. NASD believes that such a fee would serve a 
two-fold purpose. It would provide members with an additional incentive 
to meet the renewals payment deadline, and it also would cover the 
costs of NASD collection activities (i.e., the time and resources 
expended in contacting and collecting fees from NASD members that miss 
the deadline). The purpose of the proposed fee is not to generate 
significant net revenue, and it should not do so. Ideally, 
establishment of the late fee will encourage members to pay their 
renewal fees by the stated deadline and eliminate a significant number 
of late payments.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of sections 15A(b)(5) and 15A(b)(6) of the Act,\4\ which 
require, among other things, the equitable allocation of reasonable 
dues, fees, and other charges among members and other persons using any 
facility or system that NASD operates or controls, and that NASD's 
rules must be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest. NASD believes 
that the proposed late renewal fee will encourage NASD members to pay 
their yearly renewal fees on a timely basis, since failure to do so 
could cause them to become ineligible to do business in jurisdictions 
where they are registered, effective the first business day of the new 
year. Reducing the number of members that do not timely pay their 
renewal fees will also reduce the time spent by NASD in collection 
efforts, thereby freeing NASD staff to serve NASD members in the normal 
course of business.
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    \4\ 15 U.S.C. 78o-3(b)(5) and 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii)\5\ of the Act and Rule 19b-4(f)(2) thereunder \6\ as 
establishing or changing a due, fee, or other charge paid solely by 
members of the NASD. 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.\7\
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    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \6\ 17 CFR 240.19b-4(f)(2).
    \7\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is 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-2002-100 and 
should be submitted by October 4, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-23311 Filed 9-12-02; 8:45 am]
BILLING CODE 8010-01-P