[Federal Register Volume 69, Number 159 (Friday, October 8, 2004)]
[Notices]
[Pages 60445-60448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2533]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50485; File No. SR-NASD-2003-201]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval of Proposed Rule Change, and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 1 to the Proposed Rule Change, To Amend Schedule A of the NASD By-
Laws To Adjust the Trading Activity Fee Rate, and To Add TRACE-Eligible 
and Municipal Securities as Covered Securities

October 1, 2004.

I. Introduction

    On December 30, 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 amend Schedule A of the NASD 
By-Laws to adjust the Trading Activity Fee (``TAF'') rate for covered 
equity securities, and to assess the TAF on corporate debt securities 
that, under the Trade Reporting and Compliance Engine (``TRACE'') 
rules, are defined as ``TRACE-eligible securities'' and municipal 
securities subject to the Municipal Securities Rulemaking Board 
(``MSRB'') reporting requirements. The proposed rule change was 
published for notice and comment in the Federal Register on January 28, 
2004.\3\ The Commission received 15 comment letters on the proposal.\4\ 
On May 20, 2004, NASD filed a response to comments, and simultaneously 
amended the proposal.\5\ The NASD provided additional information in a 
letter dated September 30, 2004 to clarify its response to comments on 
certain issues.\6\ This order approves the proposed rule change, and 
provides notice of filing and grants accelerated approval of Amendment 
No. 1.
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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. 49114 (January 22, 
2004), 69 FR 4194.
    \4\ See letters from Paige W. Pierce, Chief Operating Officer, 
RW Smith & Associates, Inc. (``Smith'') dated February 11, 2004; 
Richard F. Chapdelaine, Chairman of the Board, Chapdelaine Corporate 
Securities, & Co. (``CCS'') dated February 12, 2004; Michael 
Rafferty, Rafferty Capital Markets, LLC (``Rafferty'') dated 
February 17, 2004; Robert Beck, Principal, Municipal Securities, 
Edward D. Jones & Co., LP (``Edward Jones'') dated February 17, 
2004; Thomas S. Vales, Chief Executive Officer, TheMuniCenter 
(``TMC'') dated February 18, 2004; Samuel C. Doyle, Executive Vice 
President, Kirkpatrick, Pettis, Smith, Polian, Inc. 
(``Kirkpatrick'') dated February 17, 2004; Craig M. Overlander, 
Senior Managing Director, Bear, Stearns & Co. (``Bear Stearns'') 
dated February 17, 2004; Richard F. Chapdelaine, Chairman, and 
August J. Hoerrner, President, Chapdelaine & Co. (``Chapdelaine'') 
dated February 16, 2004; Mary McDermott-Holland, Chairman of the 
Board, and John C. Giesea, President and CEO, Security Traders 
Association (``STA''), dated February 19, 2004; Pamela M. Miller, 
Senior Vice President, Associated Bond Brokers, Inc. (``ABBI'') 
dated February 17, 2004; Robert Wolf, Managing Director, Global Head 
of Fixed Income, and Ray Ormerod, Executive Director, UBS Securities 
LLC (``UBS'') dated February 18, 2004; O. Gene Hurst, Esq., Counsel 
for Wolfe & Hurst Bond Brokers, Inc. (``Hurst'') dated February 20, 
2004; Lynnette K. Hotchkiss, Senior Vice President and Associate 
General Counsel, and Michele C. David, Vice President and Assistant 
General Counsel, The Bond Market Association (``BMA'') dated 
February 17, 2004; Kimberly Unger, Executive director, The Security 
Traders Association of New York, Inc. (``STANY'') dated February 18, 
2004; all of which were addressed to Jonathan G. Katz, Secretary, 
Commission. On June 16, 2004, George Miller and Lynnette Hotchkiss 
of The Bond Market Association submitted a memorandum to Annette 
Nazareth, Director, Division of Market Regulation, SEC. The 
Commission considers this memorandum to be a comment letter.
    The Smith letter appears to be a template created by The Board 
Market Association. To the extent that the letter raised issues in 
an affirmative manner, the Commission considered the issues.
    \5\ See May 19, 2004 letter from Barbara Z. Sweeney, Senior Vice 
President and Corporate Secretary, NASD, to Katherine A. England, 
Assistant Director, Division of Market Regulation, SEC, and 
attachments (``Amendment No. 1'' or ``NASD Response Letter''). In 
Amendment No. 1, NASD responded to the comments, and modified the 
proposal to clarify that the TAF will be assessed only on ``TRACE-
eligible securities'' where the transaction also is a ``reportable 
TRACE transaction,'' as those terms are defined in NASD Rule 6210. 
Additionally, because debt securities that are issued pursuant to 
Section 4(2) of the Securities Act of 1933 and re-sold pursuant to 
Rule 144A in secondary market transactions are ``reportable TRACE 
transactions,'' NASD clarified that these debt transactions are 
subject to the TAF.
    \6\ See letter from Kathleen O'Mara, Associate General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated September 30, 2004 (``NASD 
Response Letter 2'').
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II. Summary of Comments

    The Commission received 15 comment letters on the proposed rule 
change.\7\ Two commenters support the reduction in TAF rates; the other 
commenters oppose the proposed rule change for varying reasons.\8\ The 
following is a summary of the major concerns that the commenters 
raised.
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    \7\ See footnote, 4, supra.
    \8\ One commenter expresed support for the proposed reduction in 
TAF rates, stating that the reduction ``makes progress toward 
rebalancing the burden of the TAF currently placed on lower priced 
securities.'' STANY at 2. Another commenter expressed support for 
the NASD's proposal to revise the TAF rates, but expressed no 
opinion about the portion of the proposal that would assess the TAF 
on TRACE-eligible securities and municipal securities. STA at 2.
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     Imposition of the TAF is Inappropriate Because NASD Has 
not Provided Evidence to Justify the TAF, and NASD Already Imposes Fees 
Pursuant to its TRACE Fee Structure on the Same Transactions
    Several commenters believe the imposition of the TAF is unfair 
because NASD already imposes and collects fees under its TRACE fee 
structure on the same transactions.\9\ These commenters believe the 
NASD should not be allowed to impose additional fees on these 
transactions, and express disapproval that NASD has not provided 
justification for charging a second fee.\10\ They want NASD to provide 
justification for the TAF, and they specifically question what services 
the original fees have been used to support, the costs associated with 
those programs, the amount of overall revenue the NASD expects to 
collect from the TAF, and the additional costs to be supported by the 
TAF.\11\ Similarly, several commenters believe NASD has not provided 
evidence to justify the imposition of a new fee.\12\
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    \9\ See, e.g., CCS at 2; Rafferty at 2; Bear Stearns at 1; UBS 
at 1; BMA at 4. Additionally, some commenters expressed disapproval 
of the proposal because they believe there is ``no necessity for any 
additional fees to be imposed upon the municipal securities 
industry'' and because fees assessed by self-regulatory 
organizations (``SROs'') should be coordinated across all such 
organizations with overlapping jurisdictions. See e.g., Hurst at 1, 
BMA at 5, Bear Stearns at 1.
    \10\ See CCS at 2.
    \11\ See e.g., Rafferty at 2.
    \12\ See CCS at 2 (``* * * the industry has not received any 
evidence from the NASD that this fee is warranted.''); Bear Stearns 
at 1 (``NASD's proposing release does not provide enough information 
regarding its regulatory costs and overall fees to evaluate the 
proposal to ensure that it complies with the legal requirements for 
imposing fees and other charges.'') Chapdelaine at 2 (``* * * where 
is the NASD's justification for charging members dealing in 
municipal securities a TAF at the same rate it proposes to charge 
dealers in other fixed income markets?''); UBS at 1 (the NASD does 
not provide adequate information ``to support a determination that 
the Debt TAF would result in an `equitable allocation of reasonable 
dues' and otherwise satisfy the requirements of the Securities 
Exchange Act of 1934 * * *''); BMA at 2, 3 (``* * * the NASD has not 
provided the industry information that would establish a reasonable 
nexus between the regulatory costs it seeks to fund and the Debt 
TAF''); STANY at 2 (``We are unaware of any accounting done by the 
NASD, which shows revenue generated by transactions or the 
relationship between the `taxed' transaction and the cost of 
regulation associated with those transactions.'').
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     NASD Should Create an Exception for Intermediaries To 
Avoid Duplication of Fees and ``Double Taxation''

[[Page 60446]]

    Some commenters express disapproval of the proposal because they 
believe it will result in duplication of fees, also referred to as 
``double taxation.'' \13\ For example, one commenter explains that it 
``acts as an intermediary, brokering transactions on an undisclosed 
basis for corporate and government products.'' As a result, each of 
this commenter's trades results in two reportable events, resulting in 
two fees. Under the NASD's proposal, the TAF would be collected twice 
on what, according to the commenter, is the same transaction. The 
commenter notes that in addition to having such transaction ``taxed'' 
twice (once as a TRACE security and once by the TAF), two different 
parties are paying the same fees on the same transactions.\14\ To 
prevent this from occurring, the commenter suggests that the NASD 
create an exemption for those members acting as intermediary to ensure 
there is no duplication of fees.\15\
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    \13\ See CCS at 3; Rafferty at 2-3; TMC at 1 (stating that 
TheMuniCenter, an alternative trading system, ``will endure double 
transaction costs versus traditional players.''); Chapdelaine at 3; 
ABBI at 1 (``Presumably, the NASD would treat this agency function 
for debt securities in the same manner as equity transactions and 
exempt broker's brokers from the proposed rule; however this subject 
is not addressed in the proposal.''; BMA at 4 (``* * * NASD should 
be required to establish that adding the Debt TAF on top of these 
existing fees does not result, in effect, in the `double taxation' 
of Covered Debt Securities.''; Edward Jones at 2-3 (``* * * NASD's 
proposal does not preclude the imposition of two charges on a 
transaction involving a sale by a customer to the Firm followed by 
the sale to another customer from the Firm's inventory.'').
    \14\ CCS at 3.
    \15\ Id.
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     The TAF Is Improper Because MSRB Fees Adequately Allocate 
Costs to Municipal Finance Activity
    Similarly, several commenters believe the TAF is inappropriate 
because existing fees imposed by the MSRB already allocate costs to 
municipal finance activity.\16\ The commenters object to the NASD 
imposing additional fees on municipal securities because the MSRB 
currently ``assesses transaction and other fees on municipal 
securities'' and one commenter believes ``a portion of such fees are 
remitted to the NASD to help defray the NASD's costs in enforcing MSRB 
rules.'' \17\ Another commenter states that ``rulemaking and 
policymaking are regulatory functions delegated to the MSRB'' and 
therefore the NASD cannot properly impose a fee on members dealing in 
municipal securities ``at the same rate it proposes to charge dealers 
in other fixed income markets'' when it has less regulatory 
responsibility with respect to municipal securities.\18\
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    \16\ See e.g., Edward Jones at 2; Kirkpatrick at 1; Chapdelaine 
at 2; BMA at 4.
    \17\ Kirkpatrick at 1.
    \18\ Chapdelaine at 2. See also, generally, BMA at 4.
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     TAF May Have a Disparate Impact on Certain Firms and 
Investors, and Dealer-Banks Will Have an Unfair Competitive Advantage 
Because the TAF Will Not Be Imposed On Those Entities
    Several commenters claim the proposal will negatively affect 
retail-oriented firms and investors because the proposed cap reduces 
the effective fee per bond for larger transactions.\19\ Claiming the 
fee structure imposes a greater burden on retail firms and targets 
small transactions, the commenters argue that NASD has not adequately 
explained how the proposed structure for the TAF does not impose an 
unfair burden on competition or discriminate between market 
participants.\20\ Additionally, commenters note that dealer-banks that 
deal in municipal securities are subject to MSRB rules but are not NASD 
members and therefore are not subject to NASD jurisdiction. As such, 
the TAF cannot be imposed on those entities. The commenters claim this 
would give those entities an unfair competitive advantage over NASD 
members dealing in municipal securities.\21\
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    \19\ BMA at 5; Edward Jones at 2 (* * * a cap of $0.75 per trade 
would be applied uniformly to a firm effecting 1,000 trades of 
10,000 bonds each and to a firm effecting 100 trades of 100,000 
bonds each, thus resulting in fees to the firm doing the `smaller' 
business that are 10 times larger than those charged to a firm doing 
the same amount of overall activity but with institutional 
clients.''); ABBI at 2 (``The rule, as proposed, would seem to 
unfairly target smaller * * * transactions as the maximum fee is 
$.75 per trade * * *. We do not understand the rationale for this 
rate'').
    \20\ BMA at 5.
    \21\ Chapdelaine at 2; BMA at 5. Once commenter also believes 
the proposal would not apply equally to similar types of securities, 
noting that corporate debt securities that have a maturity of one 
year or less at issuance are not `TRACE-eligible' and would not be 
subject to the TAF. Id. The proposal contains no comparable 
exclusion for short-term municipal securities, even though municipal 
securities with a stated maturity of nine months or less are 
excluded from MSRB transaction assessments. Id.
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 The NASD's Proposal Lacks Clarity in How the TAF Will Be 
Implemented

    Some commenters believe the proposal has not adequately addressed 
certain practical issues regarding how the TAF will be implemented. For 
example, one commenter believes the proposal is unclear ``whether and 
to what extent current NASD guidance regarding the TAF for equity 
securities would or should apply to Covered Debt Securities.'' \22\ 
Additionally, the commenter believes the proposal is ambiguous as to 
whether compliance will require member firms to track transactions in 
covered debt securities differently than what is used for transaction 
reporting purposes.\23\
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    \22\ UBS at 1-2.
    \23\ Id. See also BMA at 2, 6-9.
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III. NASD's Response to Comments

    In response to the commenters' contention that (i) the proposed 
rule change does not contain sufficient financial information for the 
Commission to determine if the proposal meets the statutory standard 
delineated in Section 15A(b)(5),\24\ which requires that the rules of 
an association provide for the equitable allocation of reasonable dues, 
fees, and other charges,'' and (ii) that there is no nexus between the 
TAF and the regulatory costs it seeks to fund, the NASD states the 
proposal extends NASD's pricing structure to TRACE-eligible securities 
and municipal securities, areas ``over which NASD exercises primary 
examination and enforcement authority and responsibility.'' \25\ NASD 
maintains that such authority provides a direct nexus to the areas to 
which NASD proposes to extend the TAF.\26\
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    \24\ 15 U.S.C. 78o-3(b)(5).
    \25\ NASD Response Letter at 3.
    \26\ Id. NASD further states it ``need not specify costs and 
revenues on a product-by-product basis to demonstrate that the fee 
is consistent with Section 15A(b)(5) of the Act. Id.
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    Regarding the commenters' concerns that (i) the proposed rule 
change would result in duplicative fees, and that it fails to consider 
existing regulatory fees and coordinate fees across all SROs that have 
overlapping jurisdiction; (ii) the MSRB provides rulemaking and policy 
functions for municipal securities, and the fees that the MSRB already 
assesses should be used to fund all regulation; and (iii) TRACE 
transaction fees currently include charges intended to recover costs 
incurred in the oversight of the corporate debt market, making the 
extension of the TAF to include TRACE-eligible securities unnecessary, 
NASD asserts that such concerns are misguided. NASD notes that it is 
responsible for enforcing MSRB rules with respect to its members,\27\ 
which responsibility includes the supervision and regulation of member 
activities in municipal securities through examinations, financial 
monitoring, and disciplinary actions.\28\ Given these responsibilities, 
NASD argues it must

[[Page 60447]]

directly fund its regulatory costs, for it receives no portion of the 
fees that the MSRB collects from the entities subject to its rules.\29\ 
Additionally, NASD states that ``regulatory costs currently funded by 
the TRACE fee structure are not funded by any other fees or assessments 
of NASD.''\30\ NASD represents that extending the TAF to corporate and 
municipal debt will not change this scenario, and consequently, ``NASD 
will not charge duplicative member regulatory fees on TRACE-eligible 
securities.'' \31\
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    \27\ MSRB rules govern transactions in municipal securities. 
Municipal securities dealers are regulated by either the Commission 
and the NASD or the bank regulators. See Sections 3(a)(34) and 15B 
of the Act. 15 U.S.C. 78c(a)(34) and 15 U.S.C. 78o-4.
    \28\ NASD Response Letter at 4.
    \29\ NASD Response Letter at 4. NASD Response Letter 2 at 1-2 
(``NASD is simply seeking to incorporate into its member regulatory 
pricing structure, a new transaction-based TAF to recover its member 
regulatory costs for, among other things, enforcing MSRB rules 
(including supervising and regulating its members' activities in 
municipal securities through examinations, financial monitoring, 
and, as appropriate, disciplinary actions).'').
    \30\ NAS Response Letter at 4.
    \31\ Id. See also NASD Response Letter 2 at 2 (``TRACE fees are 
used to fund the operation of the reporting system, development 
costs for the system, market operations, and market regulations * * 
*. TAF fees, however, are used to fund general member regulatory 
costs such as rulemaking (other than MSRM rulemaking), policy, 
examinations, processing membership applications, financial 
monitoring, and enforcement activity.''). The NASD considers these 
latter functions member regulation, which is distinct from its 
market regulation function.
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    NASD notes that several commenters express concern that the TAF (i) 
will be assessed on multiple parties to a single transaction, (i) does 
not address competitive issues, and (i) will have a disparate impact on 
retail-oriented firms.\32\ In response, NASD readily acknowledges that 
two TAF fees will be assessed under certain circumstances. NASD states 
that this approach is consistent with how NASD assesses fees on covered 
equity securities, and states ``interactions with customers are a 
primary driver of member regulatory costs.'' \33\ Because NASD devised 
the TAF to focus on a member firm's individual trading activity, with 
the TAF being one component in NASD's program to recover its regulatory 
costs, NASD acknowledges that member firms that engage regularly in 
transactions with customers will be assessed in accordance with trading 
activity and ``in conformity with NASD's member regulatory costs.'' 
\34\ Additionally, the NASD acknowledges that the proposed rule change 
may result in assessing higher aggregate fees on certain retail 
activity that occurs in numerous smaller trades, rather than if the 
same volume of activity occurred in a lesser number of larger trades. 
However, the NASD states that retail trades ``drive member regulatory 
costs as much as, if not more than, institutional trades,'' resulting 
in higher member regulatory costs due to the higher number of 
transactions.\35\ As a result, the NASD believes it has proposed fees 
that are fairly allocated among its membership and are ``reflective of 
NASD's regulatory functions, efforts, and costs.'' \36\ Regarding the 
commenters' assertion that the TAF will result in disparities between 
fees imposed on bank municipal securities dealers that are not NASD 
members, NASD states it cannot ``comment on the manner in which banking 
regulators assess their regulated institutions for the costs of 
oversight'' and that ``the TAF serves to recover NASD's costs of member 
regulatory services in conformity with NASD's statutory obligations.'' 
\37\
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    \32\ NASD Response Letter at 5-7.
    \33\ NASD Response Letter at 5; NASD Response Letter 2 at 2.
    \34\ NASD Response Letter at 5.
    \35\ Id. at 7; NASD Response Letter 2 at 2 (``For example, the 
member regulatory costs related to 10,000 small retail bond trades 
is much greater than the member regulatory costs associated with one 
large bond trade.'')
    \36\ NASD Response Letter at 5.
    \37\ Id. at 5.
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    Finally, in response to commenters' concerns that the TAF should be 
assessed only on TRACE-eligible securities subject to TRACE reporting 
requirements, NASD amended the proposed rule change to clarify that the 
TAF will apply to ``TRACE-eligible securities'' where the transaction 
also is a ``reportable TRACE transaction,'' as those terms are defined 
in NASD Rule 6210.\38\ Also, because debt securities issued pursuant to 
Section 4(2) of the Securities Act of 1933 and re-sold pursuant to Rule 
144A in secondary market transactions are ``reportable TRACE 
transactions,'' NASD further amended the proposed rule change to 
clarify that such debt transactions are subject to the TAF.\39\
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    \38\ Id. at 8.
    \39\ Id.
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IV. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, the 
comment letters, and the NASD Response Letters, 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\40\ and, in particular, the requirements of 
Section 15A(b)(5) of the Act.\41\ 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 proposal to adjust the rate for covered 
equity securities, reduce the maximum per-trade charge on covered 
equity securities, and assess the TAF on certain corporate debt and 
municipal securities 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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    \40\ 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).
    \41\ 15 U.S.C.78o-3(b)(5).
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    On May 30, 2003, the Commission approved SR-NASD-2002-148, a 
proposed rule change that eliminated the NASD's Regulatory Fee and 
instituted a TAF, which proposal was part of the NASD's plan to 
redesign its regulatory pricing structure to better align its fees with 
NASD's functions, efforts, and costs.\42\ At that time, the Commission 
found that the TAF was consistent with Section 15A(b)(5) of the Act, 
and also indicated that, although the NASD then excluded debt, mutual 
funds, and variable annuities from the scope of the TAF, the NASD 
should consider ways to better allocate regulatory costs to encompass 
activity in all of the areas over which the NASD exercises 
oversight.\43\ The Commission need not revisit the issue of whether the 
imposition of a TAF is consistent with the Act. The issue before the 
Commission is whether it is proper for the NASD to extend the TAF to 
include the types of securities described in the instant proposed rule 
change. For the reasons described herein, the Commission finds that 
such extension is consistent with the Act in general, and consistent 
with Section 15A(b)(5) in particular.
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    \42\ See Securities Exchange Act Release No. 47946 (May 30, 
2003, 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148) (approval 
order); see also NASD Response Letter at 2. NASD represents that the 
new pricing structure is revenue neutral to NASD.
    \43\ 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 is satisfied that NASD has established a sufficient 
nexus between the proposed TAF extension to corporate debt securities 
that, under TRACE rules, are defined as ``TRACE-eligible securities'' 
and on municipal securities subject to MSRB reporting requirements, and 
the regulatory costs NASD seeks to fund with TAF-generated revenue. 
NASD, in its capacity as a national securities association, exercises 
primary

[[Page 60448]]

examination and enforcement authority and responsibility. Additionally, 
NASD is charged with enforcing compliance with MSRB rules by its 
members, which responsibility includes review of NASD member activities 
in municipal securities through examinations and disciplinary actions. 
Because NASD does not receive any portion of fees that the MSRB 
collects from its members, NASD must fund its own regulatory costs. 
Furthermore, extension of the TAF to include corporate and municipal 
debt will not alter the fact that regulatory costs funded by the TRACE 
fee structure are not funded by any other NASD-imposed fees. Therefore, 
the Commission believes it is reasonable for NASD to extend the TAF to 
encompass corporate and municipal debt as described in the proposal. 
The Commission recognizes that the proposed rule change will, under 
certain circumstances, require payment of two TAFs. The Commission 
believes this is reasonable, however, because the transactions 
described by the commenters are two separate transactions and 
interactions with customers are the primary driver of the NASD's 
regulatory costs.\44\
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    \44\ NASD Response Letter at 5.
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    With regard to the commenters' assertions that the proposal will 
adversely affect retail-oriented firms, and that the TAF will penalize 
firms that engage in small transactions as opposed to those that engage 
in large, institutional transactions, the Commission believes that NASD 
has devised a cap that is reasonable, given that NASD represents that 
retail trades typically drive NASD's member regulatory costs, and that 
such costs do not increase exponentially as the number of shares and 
bonds increase. The Commission is satisfied that the cap is consistent 
with the standards delineated in Section 15A(b)(5) of the Act.\45\ The 
Commission expects that the NASD will continue to monitor this aspect 
of the proposal to ensure that the imposition of the cap results in a 
TAF that remains consistent with the Act.
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    \45\ 15 U.S.C. 78o-3(b)(5).
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    Regarding the commenters' assertion that the proposal lacks 
information on how the TAF will be implemented, the Commission believes 
NASD has adequately addressed this concern by stating that it expects 
to apply the TAF to equity and debt securities as consistently as 
possible, and offering to consider any information relevant to this 
issue before issuing a Notice to Members with respect to debt.
    The Commission finds good cause to approve Amendment No. 1 before 
the 30th day after the date of publication of notice of filing thereof 
in the Federal Register. The NASD filed Amendment No. 1 in response to 
comments it received after the publication of the notice of filing of 
the proposed rule change.\46\ Because Amendment No. 1 is responsive to 
the commenters' concerns and because it does not present any novel 
issues, the Commission finds good cause for accelerating approval of 
Amendment No. 1.
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    \46\ See footnote 5, supra.
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2003-201 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-0609.
    All submissions should refer to File No. SR-NASD-2003-201. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 the 
filing also will be available for inspection and copying at the 
principal office of NASD. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to file number 
SR-NASD-2003-201 and should be submitted on or before October 29, 2004.

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\47\ that the proposed rule change (SR-NASD-2003-201) be, and it 
hereby is, approved, and that Amendment No. 1 be, and it hereby is, 
approved on an accelerated basis.
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    \47\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2533 Filed 10-7-04; 8:45 am]
BILLING CODE 8010-01-P