[Federal Register Volume 68, Number 149 (Monday, August 4, 2003)]
[Notices]
[Pages 45870-45871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48234; File No. SR-NASD-2003-93]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc., To Increase the Trading Activity Fee

July 28, 2003.

I. Introduction

    On June 11, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 increase its Trading Activity 
Fee (``TAF'') by adjusting the rates for covered equity securities. The 
proposed rule change was published for notice and comment in the 
Federal Register on June 25, 2003.\3\ The Commission received one 
comment letter on the proposal.\4\ On July 23, 2003, the NASD

[[Page 45871]]

filed its response to comments.\5\ This order approves the proposed 
rule change.
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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. 48061 (June 19, 
2003), 68 FR 37887.
    \4\ See July 17, 2003 letter from Jeffrey T. Brown, Senior Vice 
President and General Counsel, The Cincinnati Stock Exchange 
(``CSE'') to Jonathan G. Katz, Secretary, SEC (``CSE Letter'').
    \5\ See July 23, 2003 letter from Barbara Z. Sweeney, Senior 
Vice President and Corporate Secretary, NASD, to Katherine A. 
England, Assistant Director, Division of Market Regulation, SEC 
(``NASD Response Letter'').
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II. Summary of Comments

    The Commission received one comment letter on the NASD's proposal 
to increase the TAF.\6\
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    \6\ See footnote 4, supra.
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[sbull] The CSE Letter

    The CSE disapproved of the proposed rule change, stating the 
proposal would ``double the ill-defined TAF with no justification'' and 
with ``little check or recourse on the part of the non-NASD markets.'' 
\7\ The CSE suggested that the Commission require the NASD to provide 
supporting documentation to explain the need for increasing the TAF 
before allowing the NASD to double the fee.\8\ Additionally, the CSE 
stated that the NASD must delineate its responsibilities covered by the 
TAF, explain how those responsibilities are unique to the NASD, and 
provide a cost analysis that establishes a nexus between those 
responsibilities and the fees.\9\
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    \7\ CSE Letter at 1.
    \8\ Id. at 2.
    \9\ Id.
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    The CSE also stated that the TAF, along with the NASD's Gross 
Income Assessment, allows ``for the subsidization of NASD regulatory 
activities through the forced taxing of transactions occurring on other 
markets.'' \10\ According to the CSE, the NASD is using the TAF and 
Gross Income Assessment, under the guise of revenue neutrality, to 
subsidize its regulatory activities with monies generated on other 
markets.\11\
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    \10\ Id. at 3.
    \11\ Id.
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    The CSE asked for an accounting, and an explanation of why the NASD 
believes it is proper to limit this fee adjustment to the TAF, when the 
TAF is only one component of a fee structure that also includes the 
Gross Income Assessment (``GIA'') and the Personnel Assessment 
(``PA'').\12\
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    \12\ Id. at 4.
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[sbull] The NASD's Response to Comments

    The NASD filed the instant proposed rule change because revenue 
generated by the TAF at the original rate was lower than expected.\13\ 
The NASD noted that it originally proposed a TAF rate of .0001 per 
share, but reduced the rate to 0.00005 ``after informal feedback from 
the membership about the level of volume meeting the definition of 
`covered equity security.' '' \14\ The NASD filed the instant proposed 
rule change to remedy a shortfall in revenue.\15\
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    \13\ NASD Response Letter at 1.
    \14\ Id. at 1-2.
    \15\ Id. at 2.
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    With regard to the CSE's comments that (i) the NASD has not 
adequately defined its responsibilities, nor has it established a 
sufficient nexus between its responsibilities and fees; and (ii) where 
intermarket fees are being assessed, a higher standard of scrutiny 
should be applied, the NASD noted that the Commission addressed both of 
these issues in its order approving the TAF.\16\
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    \16\ Id.
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    Finally, the NASD explained that the TAF does not underwrite ``the 
regulation of Nasdaq and the Alternative Display Facility'' and that 
the TAF, GIA, and PA fund the NASD's member regulatory programs.\17\
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    \17\ Id. at 3.
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III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, the 
comment letter, and the NASD's response to the comments, and 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 \18\ and, in particular, the requirements of 
section 15A(b)(5) of the Act.\19\ Section 15A(b)(5) requires, among 
other things, 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 finds that the proposed increase in the rate for the TAF as 
described in the instant proposed rule change is consistent with 
section 15A(b)(5) of the Act, in that the proposal is reasonably 
designed to recover NASD costs related to regulation and oversight of 
its members.
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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \19\ 15 U.S.C.78o-3(b)(5).
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    The Commission believes the CSE Letter raises no novel issues that 
were not addressed in the Commission's original TAF approval order.\20\ 
The Commission also believes that the NASD adequately responded to the 
issues the CSE raised in its letter.
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    \20\ See Securities Exchange Act Release No. 47946 (May 30, 
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148)(approval 
order).
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    The Commission expects that the NASD will continue to monitor the 
revenue generated by the TAF, as well as the revenue generated by the 
Gross Income Assessment and the Personnel Assessment, and will take 
whatever steps are necessary to ensure that the fees remain consistent 
with the mandate established in section 15A(b)(5) of the Act,\21\ so 
that the fees remain equitable, as well as consistent with the NASD's 
expressed goal.
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    \21\ 15 U.S.C. 78o-3(b)(5).
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IV. Conclusion

    It is therefore Ordered, pursuant to section 19(b)(2) of the 
Act\22\, that the proposed rule change (SR-NASD-2003-93) be, and it 
hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-19660 Filed 8-1-03; 8:45 am]
BILLING CODE 8010-01-P