[Federal Register Volume 70, Number 70 (Wednesday, April 13, 2005)]
[Notices]
[Pages 19547-19549]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1744]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51478; File No. SR-NSX-2005-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Stock Exchange 
Relating to the Exchange's Regulatory Transaction Fee

April 5, 2005.
    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 March 31, 2005, the National Stock Exchange\SM\ (``NSX'' or 
``Exchange'') 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 NSX. The Exchange 
filed this proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal effective 
upon filing with 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)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \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

    NSX proposes to amend Exchange Rule 11.10(A)(q), which pertains to 
the transaction fee that NSX assesses to members and uses to help fund 
the Exchange's fee obligations to the Commission under Section 31 of 
the Act.\5\ NSX proposes to amend the title and text of the rule to 
make clear the distinction between the Exchange's Section 31 fee 
obligations and the transaction fee the Exchange assesses members to 
fund those obligations, and to amend the text to explicitly reference 
that the NSX Rule 11.10(A)(q) fee will change in tandem with Section 31 
rate changes announced by the Commission. Proposed new language is 
underlined. Proposed deletions are in brackets.
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    \5\ 15 U.S.C. 78ee.
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* * * * *
RULES OF NATIONAL STOCK EXCHANGE
* * * * *
CHAPTER XI
Trading Rules
* * * * *

Rule 11.10 National Securities Trading System Fees

    A. Trading Fees
    (a)-(p) No change.
    (q) [SEC]Regulatory Transaction Fee. [-] Under Section 31 of the 
Act, the Exchange must pay certain fees to the Commission. To help fund 
the Exchange's obligations to the Commission under Section 31, this 
Regulatory Transaction Fee is assessed to members. To the extent there 
may be any excess monies collected under this Rule, the Exchange may 
retain those monies to help fund its general operating expense. Each 
member engaged in executing transactions on the Exchange shall pay, in 
such manner and at such times as [the Treasurer of] the Exchange shall 
direct, a Regulatory Transaction F[f]ee equal to [1/300th of one 
percent of the aggregate dollar amount] (i) the rate determined by the 
Commission to be applicable to covered sales occurring on the Exchange 
in accordance with Section 31 of the Act [of the sales on the Exchange] 
multiplied by (ii) the member's aggregate dollar amount of covered 
sales occurring on the Exchange during any computational period [of 
such securities (other than bonds, debentures and other evidences of 
indebtedness and any sale or any class of sales of securities which the 
Securities and Exchange Commission may, by rule, exempt from the 
imposition of the fee ) executed by such member].
    (r) No change.
    B. No change.
    C. 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, NSX 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. NSX 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
    Section 31 of the Act requires NSX, other national securities 
exchanges, and NASD to pay transaction fees and assessments to the 
Commission that are designed to recover the costs related to the 
government's supervision and regulation of the securities markets and 
securities professionals. On June 28, 2004, the Commission established 
new procedures governing the calculation, payment, and collection of 
fees and assessments on securities transactions owed by national 
securities exchanges and national securities associations pursuant to 
Section 31 of the Act.\6\ The new procedures became effective August 6, 
2004. In accordance with the new procedures, NSX must now provide the 
Commission with trade data on covered sales \7\ occurring on the 
Exchange, which the Commission uses to calculate the amount of fees due 
from NSX. Accordingly, the calculation of fees owed by NSX pursuant to 
Section 31 of the Act is now performed by the Commission.
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    \6\ See Securities Exchange Act Release No. 49928 (June 28, 
2004), 69 FR 41060 (July 7, 2004) (``Adopting Release'').
    \7\ ``Covered sale'' means ``a sale of a security, other than an 
exempt sale or a sale of a security future, occurring on a national 
securities exchange or by or through any member of a national 
securities association otherwise than on a national securities 
exchange.'' 17 CFR 240.31(a)(6).
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    To recover the costs of NSX's Section 31 obligation, NSX assesses a 
transaction fee on its members under Exchange Rule 11.10(A)(q). The 
Exchange has determined to modify the text of Exchange Rule 11.10(A)(q) 
in response to statements made by the Commission in its Adopting 
Release that ``it is misleading to suggest that a customer or [a self-
regulatory organization] member incurs an obligation to the Commission 
under Section 31.'' \8\ While NSX notes that it

[[Page 19548]]

has previously filed amendments Exchange Rule 11.10(A)(q) with the 
Commission,\9\ to avoid any possible confusion as discussed in the 
Adopting Release, the Exchange is revising the title and text of 
Exchange Rule 11.10(A)(q). Specifically, in conformity with the 
Adopting Release, NSX is changing the name of the rule and related 
references from ``SEC Fee'' to ``Regulatory Transaction Fee.'' The rule 
is also being amended to make clear that, to the extent the Exchange 
may collect more from members under Exchange Rule 11.10(A)(q) than is 
due from the Exchange to the Commission under Section 31 of the Act for 
covered sales occurring on the Exchange, for example due to rounding 
differences, the excess monies collected may be used by the Exchange to 
fund its general operating expense. The Exchange is also revising the 
text to explicitly reference that the Regulatory Transaction Fee rate 
applicable to each member's aggregate amount of covered sales occurring 
on the Exchange will continue to be set, as it is today, in accordance 
with Section 31 of the Act.\10\
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    \8\ See Adopting Release, 69 FR at 41072. The Exchange has also 
reviewed the rounding convention it had previously utilized in 
assessing the NSX Rule 11.10(A)(q) fee to its members. Prior to that 
review, the Exchange calculated the fee based on the sell-side value 
per trade multiplied by the Commission's current rate. This number 
was then rounded, and the rounded amount for each of the member's 
monthly sell-side transactions was then added up to arrive at the 
total amount due from the member for a given month. The Exchange 
then used the monies collected to fund the Exchange's payment of the 
amount due the Commission under Section 31 of the Act. After its 
review and after consultation with the Commission staff, the 
Exchange has determined to round the applicable fees due on a per-
member basis and not on a per-transaction basis and announced this 
change in rounding convention to its membership through a regulatory 
circular. See NSX Regulatory Circular 04-11. As of August 2, 2004, 
the fee is now calculated based on each member's overall sell-side 
transaction value multiplied by the Commission's applicable Section 
31 fee rate.
    \9\ See, e.g., Securities Exchange Act Release No. 37586 (August 
20, 1996), 61 FR 45467 (August 29, 1996) (notice of filing and 
immediate effectiveness of File No. SR-CSE-96-04). The Exchange 
recently changed its name and was formerly known as the Cincinnati 
Stock Exchange or ``CSE.'' See Securities Exchange Act Release No. 
48774 (November 12, 2003), 68 FR 65332 (November 19, 2003) (notice 
of filing and immediate effectiveness of File No. SR-CSE-2003-12).
    \10\ The Exchange is also amending Rule 11.10(A)(q) to reflect 
that the applicable fee rate is periodically adjusted in accordance 
with Section 31. In the past, NSX has notified members, through 
regulatory circulars and other means, of any periodic adjustments to 
the fee rate made by the Commission. NSX will continue to notify 
members of any such adjustments in the future since NSX seeks to 
recover the costs of its Section 31 obligation from its members. 
Because these amendments are similar to those proposed in another 
rule proposal pending with the Commission, File No. SR-CSE-2003-07, 
the Exchange plans to file amendment 3 to File No. SR-CSE-2003-07 to 
reflect these revisions.
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    Though the requirements of Section 31 of the Act, including the new 
procedures established by the Commission, apply directly to NSX and 
other self-regulatory organizations, and not their membership, the 
requirements will affect the obligations of members under Exchange Rule 
11.10(A)(q). Therefore, NSX has issued a Regulatory Circular to inform 
members of the new procedures relating to Section 31 of the Act to 
remind members of their continuing obligation to pay the transaction 
fees assessed by NSX pursuant to Exchange Rule 11.10(A)(q) so that it 
can recover the costs of its Section 31 obligation, and to clarify the 
manner in which the Exchange would use rounding to calculate each 
member's applicable NSX Rule 11.10(A)(q) fee.\11\
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    \11\ See NSX Regulatory Circular 04-011 (August 2, 2004).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\13\ in particular, in that it 
provides for the equitable allocation of dues, fees, and other charges 
among its members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has become immediately effective 
pursuant to Section 19(b)(3)(A)(ii) of the Act \14\ and subparagraph 
(f)(2) of Rule 19b-4 thereunder,\15\ because it establishes or changes 
a due, fee, or other charge imposed by the Exchange. At any time within 
60 days of the filing of such 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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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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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 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-NSX-2005-01 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-NSX-2005-01. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. 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-NSX-
2005-01 and should be submitted on or before May 4, 2005.


[[Page 19549]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1744 Filed 4-12-05; 8:45 am]
BILLING CODE 8010-01-P