[Federal Register Volume 67, Number 223 (Tuesday, November 19, 2002)]
[Notices]
[Pages 69782-69785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29314]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46818; File No. SR-NASD-2002-147]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 by the 
National Association of Securities Dealers, Inc. Sunsetting Revisions 
to NASD By-Laws Regarding the Regulatory Fee and SEC Section 31 
Transaction Fee Made in SR-NASD-2002-98

November 12, 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 
on October 18, 2002, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the NASD. On November 5, 2002, the NASD amended the proposal.\3\ The 
NASD again amended the proposed rule change on November 8, 2002.\4\ The 
Association filed the proposal pursuant to section 19(b)(3)(A) of the 
Act,\5\ and Rule 19b-4(f)(3) thereunder \6\ as being concerned solely 
with the administration of the self-regulatory organization, which 
renders the proposal effective upon filing with the Commission.\7\ 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 November 4, 2002 letter from Barbara Z. Sweeney, Senior 
Vice President (``SVP'') and Corporate Secretary, NASD, to Katherine 
A. England, Assistant Director, Division of Market Regulation 
(``Division''), Commission, and attachments (``Amendment No. 1''). 
Amendment No. 1 completely replaced and superseded the original 
proposed rule change.
    \4\ See November 7, 2002 letter from Barbara Z. Sweeney, SVP and 
Corporate Secretary, NASD, to Katherine A. England, Assistant 
Director, Division, Commission, and attachments (``Amendment No. 
2''). Amendment No. 2 completely replaced and superseded Amendment 
No. 1 and the original filing.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(3).
    \7\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to have commenced on November 8, 
2002, the date the NASD filed Amendment No. 2.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD proposes to: (1) Amend Schedule A of the NASD By-Laws to

[[Page 69783]]

sunset the Trading Activity Fee (``TAF'') established in SR-NASD-2002-
98,\8\ terminating on December 31, 2002; and (2) correct language in 
section 2 that was mistakenly referenced in SR-NASD-2002-98. The NASD 
is sunsetting the changes made in SR-NASD-2002-98 in response to member 
comments asserting that a full notice and comment period would be 
beneficial to NASD members. In addition, the NASD would like an 
opportunity to review the published TAF rates. The NASD also filed SR-
NASD-2002-148, a proposed rule change that is substantially similar to 
SR-NASD-2002-98 under section 19(b)(1) of the Act.
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    \8\ Securities Exchange Act Release No. 46416 (August 23, 2002), 
67 FR 55901 (August 30, 2002).
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    In the instant filing, the NASD is including the TAF rates 
(retroactively effective to October 1, 2002, but giving members until 
January 15, 2003 to remit such fees), correcting the heading of section 
2, deleting footnotes containing TAF rates (because the rate 
information is now included in the body of the filing), inserting a 
reference to a recent Notice to Members that discusses the TAF in 
appropriate footnotes, and making minor technical, non-substantive 
changes to the filing.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.

Schedule A to the NASD By-Laws

* * * * *
Section 2--Member [Regulation] Regulatory Fees
    (a) Recovery of cost of services. NASD shall, in accordance with 
this section, collect [M]member [Regulation] regulatory fees that are 
designed to recover the costs to NASD of the supervision and regulation 
of members, including performing examinations, processing of membership 
applications, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. NASD shall periodically 
review these revenues in conjunction with these costs to determine the 
applicable rate. NASD shall publish notices of the fees and adjustments 
to the assessment rates applicable under this section.
    (b) Each member shall be assessed a Trading Activity Fee for the 
sale of covered securities.
    (1) Covered Securities. For purposes of the rule, covered 
securities shall mean:
    (i) All exchange registered securities wherever executed (other 
than bonds, debentures, and other evidence of indebtedness);
    (ii) All other equity securities traded otherwise than on an 
exchange; and
    (iii) All security futures wherever executed.
    (2) Transactions exempt from the fee. The following shall be exempt 
from the Trading Activity Fee:
    (i) 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, or a rule 
thereunder;
    (ii) Transactions by an issuer not involving any public offering 
within the meaning of Section 4(2) of the Securities Act of 1933;
    (iii) The purchase or sale of securities pursuant to and in 
consummation of a tender or exchange offer;
    (iv) 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
    (v) Transactions that [which]are executed outside the United States 
and are not reported, or required to be reported, to a transaction 
reporting association as defined in Rule 11Aa3-1 and any approved plan 
filed thereunder. NASD may exempt other securities and transactions as 
it deems appropriate. (3) Fee Rates*
    (i) Each member shall pay to NASD a fee per share for each sale of 
a covered equity security.
    (ii) Each member shall pay to NASD a fee per contract for each sale 
of an option.
    (iii) Each member shall pay to NASD a fee for each round turn 
transaction (treated as including one purchase and one sale of a 
contract of sale for future delivery) of a security future.
    *Trading Activity Fee rates are as follows: Each member shall pay 
to NASD $0.00005 per share for each sale of a covered equity security, 
with a maximum charge of $5 per trade; $0.002 per contract for each 
sale of an option; and $0.04 per contract for each round turn 
transaction of a security future. In addition, if the execution price 
for a covered security is less than the Trading Activity Fee rate 
($0.00005 for covered equity securities, $0.002 for covered option 
contracts, or $0.04 for a security future) on a per share, per 
contract, or round turn transaction basis then no fee will be assessed.
    (4) Reporting of Transactions. Members shall report to NASD the 
aggregate share, contract, and/or round turn volume of sales of covered 
securities in a manner as prescribed by NASD from time to time.
* * * * *
Section [2] 4--Fees
* * * * *
    (b) [The] NASD shall assess each member a fee of:
* * * * *
    [(3) $20.00 for each amended Form U-4 or Form U-5 filed by the 
member with the NASD;]
    [(4)](3) $95.00 for the additional processing of each initial or 
amended Form U-4 or Form U-5 that includes the initial reporting, 
amendment, or certification of one or more disclosure events or 
proceedings;
    [(5)](4) $10.00 for each fingerprint card submitted by the member 
to [the] NASD, plus any other charge that may be imposed by the United 
States Department of Justice for processing such fingerprint card; and
    [(6)](5) $30.00 annually for each of the member's registered 
representatives and principals for system processing.
* * * * *

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 Association 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
    On July 24, 2002, the NASD filed SR-NASD-2002-98 and SR-NASD-2002-
99, which proposed a new member regulatory pricing structure.\9\ With 
the instant filing (SR-NASD-2002-147), the NASD is establishing a 
sunset provision for the TAF established by SR-NASD-2002-98. The TAF 
will cease to exist after December 31, 2002, and the

[[Page 69784]]

member regulatory pricing structure will revert to section 8 of 
Schedule A of the By-Laws as amended, absent further action. The NASD 
is sunsetting the changes made to the TAF in SR-NASD-2002-98 in 
response to member comments asserting that a full notice and comment 
period would be beneficial to NASD members. In addition, the NASD would 
like an opportunity to review its published rates. Further, the NASD is 
amending Schedule A, section 2 of the By-Laws, to correct language that 
was mistakenly referenced in SR-NASD-2002-98.\10\ In the instant 
filing, the NASD is including the TAF rates (retroactively effective to 
October 1, 2002, but allowing members until January 15, 2003 to remit 
such fees), correcting the heading of section 2, deleting footnotes in 
the filing regarding the TAF rates and inserting the rate language into 
the body of the proposed rule language, inserting a reference to Notice 
to Members 02-75 (issued October 30, 2002, and discussing the TAF), and 
making minor technical, non-substantive changes to the filing.
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    \9\ Securities Exchange Act Release Nos. 46416 (Aug. 23, 2002), 
67 FR 55901 (Aug. 30, 2002) (SR-NASD-2002-98) and 46417 (Aug. 23, 
2002), 67 FR 55893 (Aug. 30, 2002)(SR-NASD-2002-99). The NASD also 
published three Notices to Members describing the proposed changes 
and addressing interpretive questions posed by NASD members. See 
Notice to Members 02-41 (July 2002), Notice to Members 02-63 
(September 2002), and Notice to Members 02-75 (October 30, 2002).
    \10\ In its efforts to amend rule language to reflect its 
corporate restructuring, the NASD inadvertently added incorrect rule 
text. The correct rule language cited herein was approved by the 
Commission in SR-NASD-99-43.
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    On September 27, 2002, the NASD announced the initial TAF rates. 
The TAF rates were as follows:
    [sbull] $0.0001 per share for each sale of a covered equity 
security
    [sbull] $0.002 per contract for each sale of an option
    [sbull] $0.08 per contract for each round turn transaction of a 
security future
    On October 3, 2002, in response to members' comments, the NASD 
modified the TAF rates to incorporate a per trade maximum, 
retroactively effective to October 1, 2002. The revised TAF rates were 
modified as follows:
    [sbull] For each sale of a covered equity security, each member 
shall pay to the NASD $0.0001 per share, with a maximum charge of $10 
per trade.
    [sbull] For each sale of an option, each member shall pay to the 
NASD $0.002 per contract.
    [sbull] For each round turn transaction of a security future, each 
member shall pay to the NASD $0.08 per contract.
    [sbull] Additionally, if the execution price for a covered equity 
security is less than the TAF rate ($0.0001) on a per share basis, then 
no fee will be assessed.
    On October 18, 2002, the NASD filed two subsequent proposed rule 
changes that are directly related to SR-NASD-2002-98. The first is the 
instant filing (SR-NASD-2002-147), which establishes a sunset provision 
that terminates on December 31, 2002 the changes made to Schedule A to 
the NASD By-Laws in SR-NASD-2002-98, and makes corrections to language 
that was mistakenly referenced in SR-NASD-2002-98. The second proposed 
rule change is SR-NASD-2002-148, which contains substantially the same 
proposed rule language that was contained in SR-NASD-2002-98, but is 
submitted pursuant to section 19(b)(1) of the Act \11\ to allow for an 
additional notice and comment period. The NASD filed SR-NASD-2002-148 
in response to comments made by NASD members that the TAF should not be 
effective upon filing, but instead should be given a full notice and 
comment period. In addition, this subsequent comment period allows the 
NASD to examine further the impact of the published TAF rates currently 
in effect. The NASD will adjust the TAF rates accordingly if the rates 
are inconsistent with the NASD's overall intent that the amendments to 
its pricing structure be revenue neutral. The NASD intends that SR-
NASD-2002-148 be read in conjunction with SR-NASD-2002-99. The two 
separate yet related proposed rule changes are the result of a review 
of the overall NASD pricing structure, and will be used to fund the 
NASD's member regulatory activities.
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    \11\ 15 U.S.C. 78s(b)(1).
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    On January 1, 2003, if the Commission has not approved SR-NASD-
2002-148, the TAF as established in SR-NASD-2002-98 will terminate and 
will revert to section 8 of Schedule A of the By-Laws as amended, until 
such time that an approved alternative funding source is in place.
    On October 30, 2002, based on further analysis of trading volumes 
and feedback from member firms, the NASD again adjusted the rate 
structure. The TAF was revised (retroactively effective to October 1, 
2002, but allowing members until January 15, 2003 to remit such fees), 
as follows:
    [sbull] The initial rate of $0.0001 for covered equity securities 
was reduced to $0.00005.
    [sbull] The maximum charge on covered equity securities was reduced 
to $5.00.
    [sbull] The initial rate of $0.08 for security futures was reduced 
to $0.04.
    [sbull] The minimum exclusion was extended to cover options and 
futures, clarifying that if the execution price for a covered security 
is less than the TAF rate on a per share, per contract, or round turn 
transaction basis, then no fee will be assessed.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the Act, including section 15A(b)(5) of the Act,\12\ which requires, 
among other things, that the NASD's rules provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using any facility or system that the 
NASD operates or controls.
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    \12\ 15 U.S.C. 78o-3(b)(5).
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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

    The proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \13\ and subparagraph (f)(3) of Rule 19b-4 
thereunder,\14\ because it is concerned solely with the administration 
of the Association. At any time within 60 days of the filing of the 
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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(3).
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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 proposal 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

[[Page 69785]]

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 Association. All 
submissions should refer to file number SR-NASD-2002-147 and should be 
submitted by December 10, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-29314 Filed 11-18-02; 8:45 am]
BILLING CODE 8010-01-P