[Federal Register Volume 70, Number 9 (Thursday, January 13, 2005)]
[Notices]
[Pages 2440-2441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-118]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50984; File No. SR-NASD-2004-177]


Self Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Fees for Filing Documents Pursuant 
to NASD Rule 2710 (Corporate Financing Rule--Underwriting Terms and 
Arrangements)

January 6, 2005.
    Pursuant to Section 19(b)(3) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 3, 2004, 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. 
NASD has designated the proposed rule change as ``establishing or 
changing a due, fee or other charge'' under Section 19(b)(3)(A)(ii) of 
the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the 
proposal effective upon receipt of this filing by the Commission. 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)(3).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 7 of Schedule A to the NASD By-
Laws (``Section 7'') to adjust fees for filing documents pursuant to 
NASD Rule 2710 (Corporate Financing Rule--Underwriting Terms and 
Arrangements). Below is the text of the proposed rule change. Proposed 
new language is italicized; proposed deletions are in [brackets].
* * * * *
SCHEDULE A TO NASD BY-LAWS
* * * * *

Section 7--Fees for Filing Documents Pursuant to the Corporate 
Financing Rule

    (a) There shall be a fee imposed for the filing of initial 
documents relating to any offering filed with NASD pursuant to the 
Corporate Financing Rule equal to $500 plus .01% of the proposed 
maximum aggregate offering price or other applicable value of all 
securities registered on an SEC registration statement or included on 
any other type of offering document (where not filed with the SEC), but 
shall not exceed [$30,500] $75,500. The amount of filing fee may be 
rounded to the nearest dollar.
    (b) There shall be an additional fee imposed for the filing of any 
amendment or other change to the documents initially filed with NASD 
pursuant to the Corporate Financing Rule equal to .01% of the net 
increase in the maximum aggregate offering price or other applicable 
value of all securities registered on an SEC registration statement, or 
any related Rule 462(b) registration statement, or reflected on any 
Rule 430A prospectus, or included on any other type of offering 
document. However, the aggregate of all filing fees paid in connection 
with an SEC registration statement or other type of offering document 
shall not exceed [$30,500] $75,500.
* * * * *

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 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
    According to NASD, the purpose of the proposed rule change is to 
amend Section 7 to raise the maximum fee that may be charged for the 
filing of initial documents and amendments pursuant to the Corporate 
Financing Rule from $30,500 to $75,500. NASD's Corporate Financing 
Department (the ``Department'') is responsible for reviewing the 
proposed underwriting terms and arrangements of proposed public 
offerings of securities for compliance with the requirements of NASD 
Rule 2710. According to NASD, the purpose of the Department's review is 
to provide members with, among other things, regulatory guidance as to 
what constitutes fair and reasonable underwriting terms and 
arrangements. Pursuant to NASD Rule 2710, the managing underwriter of 
the offering is required to file certain documentation with the 
Department for review.
    Under Section 7, the current fee for filings pursuant to NASD Rule 
2710 is equal to $500 plus .01 percent of the proposed maximum 
aggregate offering price or other applicable value of all securities 
registered on an SEC registration statement or included on any other 
type of offering document (where not filed with the SEC), but shall not 
exceed $30,500. Thus, under Section 7, fees are currently capped with 
respect to offerings with an aggregate offering price of $300 million 
or more.
    In 1989, when the current fee structure was adopted, the $500 
minimum fee ensured that at least $500 would be charged for the 
smallest offerings.\5\ For larger offerings, a $30,500

[[Page 2441]]

cap was imposed (.01 percent of the aggregate offering price of $300 
million plus a $500 minimum flat fee). According to NASD, although the 
maximum fee was capped, approximately 90 percent of all of the 
offerings filed with NASD were at or below the cap (approximately 10 
percent of the offerings reviewed in 1989 were larger than $300 
million). According to NASD, a recent review of the corporate financing 
fees shows that the current fee structure is wholly out of date. By 
2004, because of the significant increase in the size of public 
offerings over the intervening 15 years, NASD is only capturing 
approximately 75 percent of the offerings at or below the cap. 
Accordingly, NASD is proposing to raise the current cap to place 
approximately 90 percent of the offerings at or below the cap. The 
increase is from .01 percent of $300 million to .01 percent of $750 
million, which would raise the cap from $30,500 to $75,500 ($75,000, 
plus the $500 minimum flat fee). NASD believes the proposed increase, 
which raises only the cap and not the rate imposed for the review of 
documents by the Department, would be equitably allocated among members 
underwriting the largest public offerings.
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    \5\ NASD supplemented the language included in this paragraph to 
reflect the historical purpose behind the fee structure. Telephone 
conversation and e-mail correspondence between Shirley Weiss, 
Associate General Counsel, NASD and Bradley Owens, Attorney, 
Division of Market Regulation, Commission, dated January 4, 2005.
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    NASD proposes that the fee change will be implemented on January 1, 
2005.\6\ NASD plans to conduct an annual review of costs and adjust the 
corporate financing fee, if necessary, as of January 1 each year after 
appropriate consultation with the Board and rule filings with the 
Commission. NASD will announce the implementation date of the proposed 
rule change in a Notice to Members to be published no later than 30 
days following Commission notice of filing of the proposed rule change 
for immediate effectiveness.
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    \6\ New filings received and accepted by the Department through 
its electronic filing system (COBRA) by 12 p.m., Eastern Time, on 
Thursday, December 30, 2004, will be processed under the current fee 
structure ($30,500 maximum fee). New filings that have been rejected 
will be processed under the current fee structure if corrected, re-
submitted, and accepted by the Department by the December 30, 2004 
deadline.
    COBRADesk will be shut down and unavailable for filings on 
Thursday, December 30, 2004, at 12 p.m., Eastern Time, to update 
COBRA and COBRADesk to accept the proposed new filing fee. COBRADesk 
will again be available to accept filings on Monday, January 3, 
2005, at 8 a.m., Eastern Time. COBRA will shut down at 6 p.m., 
Eastern Time, on Thursday, December 30, 2004, to permit the 
Department to test the system on Friday, December 31, 2004. The 
Department expects that COBRA will be accessible on Saturday, 
January 1, 2005. NASD will notify NASD users of system availability 
on the NASD Web site beginning on December 1, 2004.
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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 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. NASD believes that the rule change is consistent with Section 
15A(b)(5) of the Act in that the proposed fees are reasonable based on 
the general increase in the size of public offerings and are equitably 
allocated among members submitting proposed public offerings of 
securities to the Department for compliance with the requirements of 
NASD Rule 2710.

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, 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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f)(2) of Rule 19b-4 thereunder 
because it establishes or changes a due, fee, or other charge. 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.

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. 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-2004-177 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 Number SR-NASD-2004-177. 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 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 the File Number SR-NASD-2004-177 and should be 
submitted on or before February 3, 2005.

    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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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E5-118 Filed 1-12-05; 8:45 am]
BILLING CODE 8010-01-P