Self-Regulatory Organizations; Order Approving Proposed Rule Change by the National Association of Securities Dealers, Inc., Revising Its Fees for Listing Additional Shares

[Federal Register Volume 65, Number 5 (Friday, January 7, 2000)]
[Notices]
[Pages 1210-1211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-391]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42300; File No. SR-NASD-99-40]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the National Association of Securities Dealers, Inc., 
Revising Its Fees for Listing Additional Shares

December 30, 1999.

I. Introduction and Background

    On August 20, 1999, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned subsidiary the Nasdaq Stock 
Market, Inc. (``Nasdaq''), filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder.\2\ The proposed rule change modifies the fee rate 
structures and notification requirements applied by Nasdaq to issuers 
listing additional shares on either the Nasdaq National Market 
(``NNM'') or the Nasdaq SmallCap Market (``NSCM'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    Notice of the proposed rule change was published for a comment in 
the Federal Register on November 12, 1999.\3\ The Commission received 
no comments on the proposal. This order approves the proposed rule 
change.
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    \3\ Securities Exchange Act Release No. 42108 (Nov. 4, 1999), 64 
FR 61678.
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II. Description of the Proposal

    The NASD proposes to revise its current fee schedule for listing 
additional shares. Currently, NNM issuers pay a fee of $0.02 per share 
for all issuances, subject to a cap of $17,500 per issuance, and NSCM 
issuers pay a fee of $0.01 per share for all issuances, subject to a 
cap of $7,500 per issuance. The fees are assessed only on certain 
transactions \4\ and are not subject to annual maximum caps. 
Additionally, under the current administration, fees are assessed 
discretely on each eligible issuance of shares, and fees on multiple 
issuances cannot be combined. Under the revised fee schedule, multiple 
discrete issuances could be combined on a single form, or notification, 
to the NASD for the purpose of determining fees. Both NNM and NSCM 
issuers would pay a flat fee of $0.01 per share for all issuances of 
additional shares, subject to a cap of $17,500 per notification and 
$35,000 per year. Under the proposal, the minimum fee per notification 
will be $2,000. NSCM issuers are currently subject to a minimum fee of 
$1,000 per issuance and NNM issuers to a minimum fee of $2,000 per 
issuance.
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    \4\ Generally, transactions involving the issuance of additional 
shares which raise revenues for an issuer are currently assessed 
fees, as distinguished from those transactions, such as the creation 
of an employee stock option or benefit plan, that do not. The 
proposal would eliminate this distinction and fees would be assessed 
on all issuances.
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    The NASD represents that these fees will be used to support issuer-
related initiatives such as surveillance, educational and training 
programs.\5\ The NASD believes that the proposed revision of the fee 
schedule will better spread the costs of these issuer-related 
initiatives across the base of issuers benefiting from such 
initiatives. Specifically, the revised fee structure recognizes that 
Nasdaq does not distinguish between NNM issuers and NSCM issuers in 
providing educational initiatives or surveillance measures. 
Accordingly, the per-share fee for NNM issuers has been reduced to that 
of NSCM issuers and the minimum and maximum fees payable by NSCM 
issuers have been increased to the levels paid by NNM issuers. 
Furthermore, the proposed revised fee structure would eliminate the 
current fee structure's distinction between issuance of shares eligible 
to be assessed fees. This distinction, based generally on whether or 
not an issuance was deemed to raise revenue, caused confusion for 
issuers as they attempted to interpret the fee criteria and thereby 
create difficulty for the NASD in administering of the program for 
listing additional shares.
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    \5\ The NASD described in detail the intended uses for such fee 
revenue when it established the additional shares program. See 
Securities Exchange Act Release No. 31289 (Oct 5, 1992), 57 FR 46887 
(Oct. 13, 1992), SR-NASD-99-27).
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    The proposed fee structure also would allow issuers to file 
notification of several issuances with the NASD on a single form and 
aggregate the fees assessed on those issuances toward the $17,500 
maximum fee per notification.\6\ Currently, issuers must file a 
separate notification form with respect to each discrete transaction 
that qualifies as a fee-assessable listing of additional shares, and 
each such transaction is subject to the maximum fee per issuance. 
Finally, the proposed $35,000 annual cap would limit the maximum fee an 
issuer would be required to pay which should help to ensure that no 
individual issuer will pay, as a result of frequent stock splits or 
capital raising transactions, a disproportionate share of the total 
costs of initiatives provided by

[[Page 1211]]

the Nasdaq to all NNM and NSCM issuers.
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    \6\ Each issuance must still be filed no later than 15 days 
prior to issuance of the underlying shares, as required by NASD Rule 
4310(c)(17).
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD. Specifically, the Commission finds 
that the rule change is consistent with the provisions of Sections 
15A(b) (5) and (6) of the Act.\7\ Section 15A(b)(5) requires that the 
rules of the NASD provide for the equitable allocation of reasonable 
dues, fees, and other charges among members, issuers and other persons 
using any facility or system which the NASD operates or controls. 
Section 15A(b)(6) requires in pertinent part that the rules of the NASD 
be designed to promote just and equitable principles of trade and not 
permit unfair discrimination between customers, issuers, brokers or 
dealers. The Commission believes that the revised NNM and NSCM fee 
structures, which affect the fees payable by issuers for listing 
additional shares, are consistent with the Act because they should 
serve to spread more evenly the costs of various issuer-related 
surveillance and educational initiatives among the issuers who may 
benefit from them.
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    \7\ 15 U.S.C. 78o-3(b) (5) and (6).
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IV. Conclusion

    The Commission finds that the rule change is consistent with the 
Act, in general, and in particular with Sections 15A(b) (5) and (6) of 
the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NASD-99-40) be, and hereby 
is, approved.\9\
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    \8\ 15 U.S.C. 78s(b)(2).
    \9\ In approving the proposal, the Commission has considered the 
rules' impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-391 Filed 1-6-00; 8:45 am]
BILLING CODE 8010-01-M