[Federal Register Volume 70, Number 137 (Tuesday, July 19, 2005)]
[Notices]
[Pages 41467-41469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3832]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52018; File No. SR-NYSE-2005-39]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend NYSE Rule 440H Relating to Activity Assessment Fees

July 12, 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 June 1, 2005, the New York Stock Exchange, Inc. (``NYSE'' 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 the NYSE. On July 6, 
2005, the NYSE filed Amendment No. 1 to the proposal.\3\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Ronald Rubin, Senior Special Counsel, NYSE, 
to Katherine A. England, Assistant Director, Division of Market 
Regulation (``Division''), Commission dated July 6, 2005. In 
Amendment No. 1, the NYSE added language to its statement of the 
purpose of the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE proposes to amend NYSE Rule 440H to reflect the revised 
procedures by which the Exchange collects fees from its members and 
member organizations (``Membership'') to offset its fee obligations 
under Section 31 of the Act.\4\ The text of the proposed rule change is 
available on the NYSE's Web site (http://www.nyse.com), at the NYSE's 
principal office, and at the Commission. The text of the proposed rule 
change also appears below. Additions are italicized; deletions are 
bracketed.
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    \4\ 15 U.S.C. 78ee.
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Rule 440H

[Transaction Fees]

Activity Assessment Fees

    * * *Supplementary Material:
[Report on Form 120-A]
    .10 Statutory background.--Section 31 of the Securities Exchange 
Act of 1934 (``Exchange Act''[]4721]), as amended, requires [that 
every] national securities exchanges and associations to [each year] 
pay to the Securities and Exchange Commission (``SEC'') certain fees 
and assessments on specified securities transactions. [such sum as is 
required by Section 31 based on the aggregate dollar amount of the 
sales of securities (other than bonds, debentures and other evidences 
of indebtedness and any sale or any class of sales of securities which 
the SEC may, by rule, exempt from the imposition of the fee) transacted 
during the preceding year on such exchange.
    The Exchange has issued the following directions:
    (1)] .20 Calculation and payment of Activity Assessment Fees.--Each 
member and each member organization that effects securities [engaged in 
clearing or settling] transactions [effected] upon the Exchange that 
are defined in Section 31 of the Exchange Act as ``covered sales'' of 
securities shall pay to the Exchange Activity Assessment Fees based 
upon all of their covered sales. The Exchange shall calculate Activity 
Assessment Fees by multiplying the aggregate dollar amount of covered 
sales effected upon the Exchange by the member or member organization 
during the appropriate computational period by the Section 31(b) fee 
rate in effect during that computational period. Activity Assessment 
Fees shall be due and payable at such times and intervals as prescribed 
by the Exchange. [shall maintain a daily record of the aggregate dollar 
amount of the sales of securities made upon the Exchange and cleared or 
settled by him or it. The amount of money shall be computed upon the 
actual sales price, disregarding commissions and taxes. Blotter dates 
shall be used throughout. All sales of securities on the Exchange shall 
be included, other than bonds, debentures and other evidences of 
indebtedness and any sale or any class of securities which the SEC may, 
by rule, exempt from the imposition of the fee which the SEC imposes 
upon the Exchange under Section 31 of the Securities Exchange Act of 
1934. Odd-lot dealers shall record both the round lots and the odd lots 
which they sell on the Exchange Floor. If a member or member 
organization clears and settles a transaction for a member or member 
organization which in turn clears it for another principal, only the 
member or the member organization settling the transaction shall 
include the transaction in its record kept pursuant to this paragraph. 
Monthly reports (Form 120-A) of the daily totals above referred to 
shall be submitted to the Exchange in the manner described below.
    (2) Each such reporting member or member organization shall pay to 
the Exchange as a ``Transaction Fee'' a sum equal to the dollar amount 
as prescribed in Section 31 of the Securities Exchange Act of 1934 
based on the total aggregate dollar sales volume reported monthly on 
Form 120-A. Such transactions as may from time to time be required to 
be reported on Form 120-A are hereinafter referred to as ``120-A 
Transactions''. The total amount payable as shown on the Form 120-A 
report shall be due and payable monthly, on such date each month as the 
Exchange's Rule 440 shall require the Form 120-A referred to therein to 
be filed with the Exchange, and payment of such charge, if any, as 
shall be due with respect to 120-A Transactions in a month shall be and 
hereby is required to accompany the Form 120-A filed with respect to 
such month.
    At or before 10:30 a.m. on the 10th day of each month each member 
and each member organization required to report shall submit to the 
Treasurer's Department a report on Form 120-A showing with respect to 
120-A Transactions settled during the preceding month; aggregate dollar 
sales volume; the Transaction Fee due thereon; number of shares of 
stock; number of warrants and number of rights to subscribe.] 
Members[,] and member organizations that [which] cease [the] to effect 
[clearing and settling of] securit[y]ies transactions upon the Exchange 
[shall promptly

[[Page 41468]]

render reports for any interim period resulting from such cessation 
and] shall promptly pay to the Exchange any sum due [under the above 
directions] pursuant to this rule.

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 Exchange 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 Exchange 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
    The Exchange proposes to amend NYSE Rule 440H to reflect the 
revised procedures by which the Exchange collects fees from the 
Membership to offset its fee obligations under Section 31 of the Act.

Background

    NYSE Rule 440H currently requires each member or member 
organization engaged in clearing or settling transactions effected upon 
the Exchange to pay to the Exchange as a ``Transaction Fee'' \5\ a sum 
equal to the dollar amount as prescribed in Section 31 of the Act based 
on the total aggregate dollar sales volume the member or member 
organization has reported monthly on its Form 120-A. Historically, the 
funds collected by the Exchange from members and member organizations 
pursuant to NYSE Rule 440H were remitted in their entirety to the 
Commission.
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    \5\ Although NYSE Rule 440H was titled ``Transaction Fees'' 
until the proposed rule change became effective, the Exchange has 
renamed those fees ``Activity Assessment Fees'' and currently uses 
that name exclusively.
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    On June 28, 2004, the Commission adopted new procedures to govern 
the calculation, payment, and collection of fees and assessments on 
securities transactions owed by national securities exchanges and 
national securities associations (collectively, ``self-regulatory 
organizations'' or ``SROs'') to the Commission pursuant to Section 31 
of the Act (``Adopting Release'').\6\ Under the new procedures, each 
SRO uses new Form R31 to provide the Commission with data on its 
securities transactions. Utilizing a single, uniform methodology for 
all SROs, the Commission uses this data to calculate the amount of fees 
and assessments due. The Commission then presents each SRO with a bill 
equal to the aggregate dollar amount of its covered sales during the 
computational period multiplied by the fee rate under Section 31(b) or 
Section 31(c) of the Act applicable to covered sales for that 
computational period.\7\
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    \6\ Section 31 of the Act provides that the Exchange and other 
national securities exchanges' Commission fees will be based on the 
aggregate dollar amount of sales of securities transacted on the 
exchange (Section 31(b)), that national securities associations' 
fees will be based on the aggregate dollar amount of sales of 
securities transacted by or through any member of the association 
otherwise than on a national securities exchange (Section 31(c)), 
and that national securities exchanges are assessed for each ``round 
turn transaction'' in a security future (Section 31(d)).
    \7\ If the Section 31 fee rate changes in the middle of a 
``traditional'' computation period (e.g., in the middle of a 
quarter), the computational period may be broken up to facilitate 
appropriate application of the old and new fee rates.
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Proposed Amendment to NYSE Rule 440H
    One effect of the new Commission procedures was to explicitly sever 
any implied connection between fees the Commission charges SROs and 
fees the SROs charge their members, as well as any implied connection 
between those fees and any fees that SRO member organizations charge 
their customers.\8\ In theory, the Exchange could bill the membership 
for Activity Assessment Fees \9\ in amounts unrelated to the Exchange's 
Section 31 fees. However, the Exchange currently seeks to continue its 
policy of collecting from the membership Activity Assessment Fees that, 
as accurately as possible, equal the Exchange's Section 31 fees. In 
other words, the Exchange intends to pass the exact amount of its 
Section 31 fees through to the membership via Activity Assessment 
Fees.\10\
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    \8\ In the Adopting Release, the Commission noted that, in 
practice, ``SROs obtain the funds to pay Section 31 fees and 
assessments by assessing charges on their members, and the members 
in turn pass these charges to their customers.'' The Commission 
stressed that Section 31 of the Act ``does not address the manner or 
extent to which covered SROs may seek to recover the costs of their 
Section 31 obligations from their members. Nor does Section 31 of 
the Act address the manner or extent to which members of covered 
SROs may seek to pass any such charges on to their customers.'' See 
Adopting Release, 69 FR at 41072.
    \9\ Section 31 fees are identified as ``SEC Activity 
Remittances'' in all Exchange financial reports.
    \10\ The Exchange has incurred, and continues to incur, the 
costs of developing systems necessary for compliance with the new 
SEC procedures, and for calculation and billing of the related 
Activity Assessment Fees. The Exchange reserves the right to bill 
the Membership some form of assessment to offset these or other 
Section 31-related costs.
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    Furthermore, because the new SEC procedures and amended NYSE Rule 
440H eliminate any implied connection between Section 31 fees, Activity 
Assessment Fees, and the membership's fees to their customers,\11\ the 
Exchange will not require member organizations to follow any specific 
procedure if they choose to pass their Activity Assessment Fees through 
to their customers. Thus, so long as the names or descriptions of fees 
charged to customers do not imply a connection to Section 31 fees, the 
Exchange's Activity Assessment fees, or any other fees those customers 
are not required to pay (e.g., ``regulatory fees''), the membership has 
discretion as to the fees it charges its customers.\12\
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    \11\ NYSE Information Memo No. 04-42, dated August 5, 2004, 
notified the membership that the new SEC procedures, and the fact 
that NYSE Rule 440H does not dictate whether or how members or 
member organizations should charge customers to recover amounts paid 
to the Exchange, rendered the instructions in the ``Calculation of 
Fees--Rounding Up'' section of Information Memo No. 01-51 
inapplicable, and that ``the Commission disapproves of the practice 
of naming fees in customers'' trade confirmations `Section 31 Fees' 
or `SEC Fees.' Also, the Exchange filed SR-NYSE-2004-45, which added 
Interpretation .01 to NYSE Rule 440H: ``Members and member 
organizations should disregard the `Calculation of Fees--Rounding 
Up' section of Information Memo No. 01-51.'' See Securities Exchange 
Act Release No. 50357 (September 13, 2004), 69 FR 56257 (September 
20, 2004) (SR-NYSE-2004-45).
    \12\ NYSE Information Memo No. 05-36, dated May 13, 2005, 
emphasized that ``member organizations that choose to pass their 
Activity Assessment Fees through to their customers are not required 
to follow any specific procedures, but they must be particularly 
careful to avoid labeling their fees with any name that suggests 
that such fees are imposed or mandated by the SEC, the Exchange, or 
some other regulatory body.''
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    On June 1, 2005, the Exchange will end the current ``self-
reporting'' (i.e., Form 120-A) procedures related to Activity 
Assessment Fees, and will begin directly billing all members and member 
organizations engaged in clearing activities. Activity Assessment Fees 
will be assessed for all covered sales whose settlement dates fall 
within the applicable computational period, and will be calculated 
based on securities transaction data reported by the Depository Trust & 
Clearing Corporation (the same data used by the Exchange to prepare 
Form R31 for reporting to the Commission), and, as the NYSE noted in 
Amendment No. 1, on Crossing Sessions 2, 3, and 4 securities 
transaction data reported by the membership to the Exchange through the 
Crossing Sessions Reporting System (an application accessed through the 
Exchange's Electronic Filing Platform).

[[Page 41469]]

    Under these new procedures, the membership is no longer required to 
complete Form 120-A. Therefore, the Exchange proposes to delete the 
provisions in NYSE Rule 440H relating to Form 120-A. What remains in 
the amended rule is a more concise requirement that the membership pays 
Activity Assessment Fees at such times and intervals as prescribed by 
the Exchange, and a description of how the Exchange will calculate 
those fees. The title and language of the amended rule reflects the 
change in terminology from ``Transaction Fees'' to ``Activity 
Assessment Fees.''
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with the provisions of Section 6(b) of the Act,\13\ in 
general, and furthers the objectives of Section 6(b)(4) of the Act,\14\ 
in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among NYSE 
members.
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    \13\ 15 U.S.C. 78(f)(b).
    \14\ 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule change, as amended, establishes 
or changes a due, fee, or other charge imposed by the Exchange, it has 
become effective pursuant to Section 19(b)(3)(A)(ii) of the Act \15\ 
and subparagraph (f)(2) of Rule 19b-4 thereunder.\16\ Accordingly, the 
proposal, as amended, will take effect upon filing with the Commission. 
At any time within 60 days after the filing of the proposed rule 
change, the Commission may summarily abrogate the 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
    \17\ The effective date of the original proposed rule change is 
June 1, 2005 and the effective date of the amendment is July 6, 
2005. For purposes of calculating the 60-day period within which the 
Commission may summarily abrogate the proposal, the Commission 
considers the period to commence on July 6, 2005, the date on which 
the NYSE submitted Amendment No. 1.
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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, as amended, 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 No. SR-NYSE-2005-39 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-39. 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 Commissions 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 such 
filing also will be available for inspection and copying at the 
principal office of the NYSE.
    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-NYSE-2005-39 
and should be submitted by August 9, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3832 Filed 7-18-05; 8:45 am]
BILLING CODE 8010-01-P