[Federal Register Volume 68, Number 122 (Wednesday, June 25, 2003)]
[Notices]
[Pages 37887-37889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16007]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48061; File No. SR-NASD-2003-93]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To Amend 
the Trading Activity Fee To Adjust the Rates for Covered Equity 
Securities

June 19, 2003.
    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 June 11, 2003, the National Association of Securities Dealers, Inc. 
(``NASD'') 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD proposes to amend its Trading Activity Fee (``TAF''). The 
NASD is amending the TAF to adjust the rates for covered equity 
securities. In addition, the NASD is renumbering certain subsections 
included in Section 1. The text of the proposed rule change is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.
Schedule A to NASD By-Laws
* * * * *
Section 1--Member Regulatory Fees
    (a) No Change.
    (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)](A) All exchange registered securities wherever executed 
(other than bonds, debentures, and other evidence of indebtedness);
    [(ii)](B) All other equity securities traded otherwise than on an 
exchange; and
    [(iii)](C) All security futures wherever executed.
    (2) Transactions exempt from the fee. The following shall be exempt 
from the Trading Activity Fee:
    [(i)](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, or a rule 
thereunder;
    [(ii)](B) Transactions by an issuer not involving any public 
offering within the meaning of Section 4(2) of the Securities Act of 
1933;
    [(iii)](C) The purchase or sale of securities pursuant to and in 
consummation of a tender or exchange offer;
    [(iv)](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;
    [(v)](E) Transactions that 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;
    [(vi)](F) Proprietary transactions by a firm that is a member of 
both NASD and a national securities exchange, effected in its capacity 
as an exchange specialist or market maker, that are subject to 
Securities Exchange Act of 1934, Section 11(a) and Rule 11a1-1(T)(a) 
thereunder; however this exemption does not apply to other transactions 
permitted by Section 11(a) such as bona fide arbitrage or hedge 
transactions;
    [(vii)](G) Transactions by a firm that is a floor based broker and 
that is a member of both NASD and a national

[[Page 37888]]

securities exchange provided that the floor based broker qualifies for 
exemption from NASD membership under Exchange Act Rule 15b9-1;
    [(viii)](H) Transactions in conventional options;
    [(ix)](I) Transactions in options and futures involving narrow and 
broad based indexes;
    [(x)](J) Transactions in security futures held in futures accounts; 
and
    [(xi)](K) Transactions in exchange listed options effected by a 
member when NASD is not the designated options examining authority for 
that member. NASD may exempt other securities and transactions as it 
deems appropriate.
    (3) Fee Rates *
    [(i)](A) Each member shall pay to NASD a fee per share for each 
sale of a covered equity security.
    [(ii)](B) Each member shall pay to NASD a fee per contract for each 
sale of an option.
    [(iii)](C) 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] $0.0001 per share for each sale of a covered equity 
security, with a maximum charge of [$5] $10 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] $0.0001 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) No Change.
    (c) through (d) 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, 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 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
    On May 30, 2003, the Commission approved the last component of a 
series of changes to NASD's member regulatory fee structure. Under the 
new fee structure, there are now three types of fees and assessments 
used to fund NASD's member regulatory activities: (1) Trading Activity 
Fee (``TAF''); \3\ (2) Personnel Assessment; and (3) Gross Income 
Assessment.\4\ These fees, assessed upon and paid by member firms, are 
used by NASD to fund NASD's member regulatory activities, including the 
regulation of members through examinations, processing of membership 
applications, financial monitoring, policy making, rulemaking, and 
enforcement activities. The new member regulatory fee structure was 
designed to be revenue neutral to NASD and to better align NASD's 
regulatory fees with its functions, efforts, and costs.
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    \3\ Securities Exchange Act Release No. 47946 (May 30, 2003), 68 
FR 34012 (June 6, 2003) (approval order).
    \4\ Securities Exchange Act Release No. 47106 (December 30, 
2002), 68 FR 819 (January 7, 2003) (approval order).
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    Today, NASD is filing a proposal to adjust the TAF rate, and 
related maximum charge and minimum price exceptions, for equity 
securities only. NASD has been collecting the TAF for transactions 
effected after October 1, 2002 on a pilot basis, and has determined 
that the equity rate needs to be increased to ensure adequate funding 
levels for its member regulatory program. Therefore, NASD is proposing 
that the TAF be increased from 0.00005 per share to 0.0001 per share 
for covered equity securities, effective the first day of the month 
following Commission approval.
    The proposed rate change is driven by lower than expected TAF 
revenues, not increased or unexpected member regulatory costs. NASD 
originally had proposed a rate of 0.0001 per share for equity 
securities (announced on Sept. 27, 2002 and published on NASD's Web 
site at http://www.nasd.com/trading_fee2.asp but after informal 
feedback from the membership about the level of volume meeting the 
definition of ``covered equity security,'' decided to reduce the rate 
to 0.00005.\5\ Six months'' experience with the TAF has demonstrated 
that the initially proposed rate is more accurate to ensure revenue 
neutrality and adequate funding.
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    \5\ See Securities Exchange Act Release Nos. 46818 (Nov. 12, 
2002), 67 FR 69782 (Nov. 19, 2002) (approving SR-NASD-2002-147) and 
47946 (May 30, 2003), 68 FR 34021 (June 6, 2003) (approving SR-NASD-
2002-148).
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    Although the current proposed rate change is driven by the need for 
NASD to remain revenue neutral in its transition from the old member 
regulatory funding structure, consistent with its stated policy, NASD 
periodically will analyze rates, volumes, and regulatory 
responsibilities to ensure adequate funding levels for its member 
regulatory programs.\6\ NASD also will perform an analysis for the 
annual Personnel Assessment and Gross Income Assessment, to ensure 
adequate contributions from each component fee, as well as adequate 
levels of funding overall. In addition, NASD previously stated its 
intent to reduce the percentage that the TAF contributes to the overall 
funding structure in 2004 and again in 2005 (increasing the percentage 
funded by the PA and holding the GIA percentage static). NASD remains 
committed to that program, and should regulatory costs and market 
volumes remain constant, fee levels for 2004 could be expected to drop 
by approximately 20%. Of course, NASD will analyze all relevant factors 
prior to making that filing.
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    \6\ Specifically, NASD stated in the text of the TAF rule 
language that it will ``periodically review these revenues in 
conjunction with these costs to determine the applicable rate.'' 
NASD By-Laws, Schedule A, Section 1(a).
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act, which requires, among other 
things, that 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 NASD operates or 
controls. The TAF is objectively allocated to NASD members. Moreover, 
the NASD believes the level of the fee is reasonable because it relates 
directly to the recovery of the costs of regulating members.

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.

[[Page 37889]]

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 on the current 
proposal.

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 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 number SR-NASD-2003-93 and 
should be submitted by July 16, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16007 Filed 6-24-03; 8:45 am]
BILLING CODE 8010-01-P