Self-Regulatory Organizations; Order Approving Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to the Filing Fees Under the Corporate Financing Rule

[Federal Register Volume 64, Number 100 (Tuesday, May 25, 1999)]
[Notices]
[Pages 28227-28229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41414; File No. SR-NASD-99-01]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to the Filing Fees Under the Corporate Financing Rule

May 17, 1999.
    On January 11, 1998, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), through its regulatory 
subsidiary NASD Regulation, Inc. (``NASD Regulation''), filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposed rule change pursuant to Section 19(b)(1) of Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ On 
March 18, 1999, and March 23, 1999, NASD Regulation submitted to the 
Commission Amendment Nos. 1 and 2, respectively, to the proposed rule 
change.\3\ In its filing, NASD Regulation proposed to amend Section 6 
of Schedule A to the NASD By-Laws (``Section 6 of Schedule A'') and 
NASD Conduct Rule 2710 (the ``Corporate Financing Rule'') to simplify 
the fee structure for public offerings filed under NASD Conduct Rules 
2710, 2720, and 2810. Notice of the proposal as contained in Amendment 
No. 2 was

[[Page 28228]]

published in the Federal Register on April 12, 1999 (``Notice'').\4\ No 
comments were received on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NASD Regulation filed Amendment No. 1 which superseded the 
original rule filing in its entirety. See Letter from Joan C. 
Conley, Secretary, NASD Regulation, to Katherine A. England, 
Assistant Director, Market Regulation, Commission, dated March 17, 
1999; Amendment No. 2 also superseded Amendment No. 1 and the 
original rule filing in its entirety. See Letter from Joan C. 
Conley, Secretary, NASD Regulation, to Katherine A. England, 
Assistant Director, Market Regulation, Commission, dated March 22, 
1999.
    \4\ Securities Exchange Act Release No. 41248 (April 2, 1999), 
64 FR 17707 (April 12, 1999) (File No. SR-NASD-99-01).
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I. Description of the Proposal

    The proposed rule change amends Section 6 of Schedule A to clarify 
the method of calculating the Corporate Financing filing fees by the 
Corporate Financing Department of NASD Regulation (``Department''). 
Presently, the Corporate Financing Rule requires that NASD members file 
most proposed public offerings with the Department. The Department 
reviews these filings prior to the commencement of the offering to 
determine whether the underwriting terms and arrangements are fair and 
reasonable pursuant to standards set forth in NASD Conduct Rules 2710, 
2720, and 2810. The proposal amends certain of the NASD's rules to 
address problems with the manner in which the Department calculates the 
Corporate Financing filing fees.
    Application of Fee to All Securities on Offering Document--
Currently, offerings filed with the Department are charged a fee equal 
to $500 plus .01% of the gross dollar amount of the offering, not to 
exceed $30,500. The definition of the term ``gross dollar amount of the 
offering'' in Paragraph (a)(1) of Conduct Rule 2710 allows NASD 
Regulation to collect a fee on ``all securities offered to the 
public.'' This language is often interpreted by NASD members to impose 
a fee only with respect to those specific securities currently offered 
to the public by the NASD member filing a proposed offering, even when 
the issuer has included other securities on the same offering document 
for later public sale by the same or another NASD member. Further, in 
the case of securities registered with the SEC pursuant to Rule 415, 
NASD members have argued that the Department should recalculate the 
filing fee each time a shelf take down is made so that the NASD member 
is only responsible for that portion of the Corporate Financing filing 
fee that relates to that NASD member's specific shelf take down.
    Accordingly, NASD Regulation proposes to amend Section 6(a) of 
Schedule A to clarify that the Corporate Financing filing fee will be 
calculated on the proposed maximum aggregate offering price \5\ or 
other applicable value \6\ of all securities included on a SEC 
registration statement or any other type of offering document--
regardless of whether the securities are currently ``offered to the 
public.'' Further, NASD Regulation proposes to delete the definition of 
the term ``gross dollar amount of the offering'' in Paragraph (a)(1) of 
Conduct Rule 2710 because the calculation of the Corporate Financing 
filing fee in Section 6(a) of Schedule A will no longer be based on 
this term.
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    \5\ The term ``proposed maximum aggregate offering price'' is 
the same term used in the fourth column of the fee table on the 
cover of SEC registration statement forms to identify registration 
statement.
    \6\ The inclusion of the words ``other applicable value'' is 
intended to cover debt securities or a situation in which the 
company only registers a dollar amount of securities without 
specifying the type of or number of securities being offered. This 
is the same value that would be included under the fourth column of 
the fee table titled `` proposed maximum aggregate offering price'' 
on the cover of SEC registration forms in the case where a debt 
issue or a dollar amount of securities is being registered with the 
SEC.
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    Calculation of Fee on Amendments--Section 6(b) of Schedule A 
currently requires that NASD Regulation collect an additional filing 
fee when an amendment to the offering document increases the number of 
securities being registered, regardless of whether there is any 
increase in the aggregate value of the securities that were included on 
the original offering document. This additional filing fee is 
calculated by multiplying the number of additional securities times 
their new offering price and charging a fee of .01% of this product, 
but not to exceed $30,500 for total filing fees for any offering filed. 
When an amendment decreases the maximum aggregate offering price for 
the whole offering (as well as increasing the number of securities 
offered), the collection of an additional filing fee by the Department 
is not always warranted. Conversely, the Department is currently 
prevented by the language of Section 6(b) of Schedule A from collecting 
an additional fee when the amendment increases the maximum aggregate 
offering price of the securities offered, but does not increase the 
number of securities.
    The proposal would amend Section 6(b) of Schedule A to impose an 
additional fee on amendments only when there is an increase in the 
maximum aggregate offering price or other applicable value of all 
securities included on the offering document. Specifically, an 
additional filing fee would be imposed on amendments in the amount of 
.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 included on any other type of offering 
document, with a maximum of $30,500 in total filing fees charged for 
any offering. However, no refund will be made as a result of a net 
decrease in the maximum aggregate offering price or other applicable 
value.
    The proposed change to Section 6(b) of Schedule A would clarify 
that NASD Regulation recognizes that there can be a net increase in the 
maximum aggregate offering price or other applicable value of an 
offering registered with the SEC through an amendment to the 
registration statement or through ``any other change.'' The proposed 
language also treats as an amendment a net increase in the maximum 
aggregate offering price or other applicable value that is reflected in 
an SEC Rule 430A prospectus \7\ or a related registration statement 
filed pursuant to SEC Rule 462(b).\8\
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    \7\ SEC Rule 430A permits a registrant to omit certain 
information from a prospectus that is filed as part of a 
registration statement declared effective by the SEC if the omitted 
information is contained in a prospectus filed with the SEC pursuant 
to SEC Rule 424(b) or SEC Rule 497(h) within 15 business days after 
effectiveness. If the omitted information is not contained in a 
prospectus filed with the SEC within fifteen business days after 
effectiveness, it must be contained in an effective post-effective 
amendment to the registration statement. SEC Rule 430A permits a 
registrant to reflect in the prospectus filed pursuant to SEC Rule 
424(b) or SEC Rule 497(h) or in a post-effective amendment to the 
registration statement a change in the volume of securities offered 
(if the total value of securities offered would not exceed that 
which was registered) or a change in the bona fide estimate of the 
maximum offering price range if the changes, in the aggregate, 
represent no more than a 20 percent change in the maximum aggregate 
offering price set forth in the fee table in the effective 
registration statement.
    \8\ SEC Rule 462(b) permits a registrant to file a registration 
statement that is effective upon filing if, among other things, the 
registration statement registers ``additional securities of the same 
class(es) as were included in an earlier registration statement for 
the same offering and declared effective by the Commission.''
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    SEC Rule 457--NASD Regulation also proposes to eliminate Section 
6(c) of Schedule A. Originally, this section referenced SEC Rule 457 
for the calculation of the Corporate Financing filing fees in certain 
situations. Specifically, it requires that Corporate Financing filing 
fees be computed according to SEC Rule 457, to the extent that SEC Rule 
457 is not inconsistent with Section 6 of Schedule A. NASD Regulation 
states that the proposed amendments to Section 6 of Schedule A would 
incorporate all necessary concepts for the calculation of such filing 
fees. Therefore, NASD Regulation proposes to eliminate Section 6(c) of 
Schedule A, as the reference to SEC Rule 457 is no longer necessary.
    Elimination of Duplicate Provision--Section 6 of Schedule A and 
Paragraph

[[Page 28229]]

(b)(10) of Conduct Rule 2710 include identical provisions that impose a 
fee on each filing in the amount of $500 plus .01% of the value of 
securities with a maximum filing fee limit of $30,500. NASD Regulation 
proposes to eliminate paragraph (b)(10) of Conduct Rule 2710 in its 
entirety because it duplicates Section 6 of Schedule A. NASD Regulation 
further believes that Schedule A is the more appropriate location for 
provisions that impose fees on NASD members.
    Method for Submission of Filing Fees--The language of Sections 6(a) 
and 6(b) of Schedule A currently specifies that a filing fee will 
accompany an initial filing and amendments, in certain cases. The 
proposal would eliminate this language within these sections.

II. Discussion

    The Commission has determined to approve the Association's proposal 
to amend Section 6 of Schedule A and NASD Conduct Rule 2710. The 
Commission believes that the proposal to amend Section 6 of Schedule A 
and NASD Conduct Rule 2710 to simplify the NASD's Corporate Financing 
filing fee structure for public offerings filed under NASD Conduct 
Rules 2710, 2720, and 2810 is consistent with Section 15A(b)(5) \9\ of 
the Act in that it provides for the equitable allocation of reasonable 
dues, fees, and other charges among NASD members. The Commission also 
believes that the proposal to amend Sections 6(a) and 6(b) of Schedule 
A provides enhanced guidance to both NASD members and the Department's 
staff regarding the Corporate Financing filing fee structure. The 
Commission believes that the proposed amendment to Section 6(a) will 
facilitate the calculation of Corporate Financing filing fees by the 
Department and will remove disputes over filing fees that currently 
occur over whether securities included on an offering document are 
being currently ``offered to the public.'' The Commission believes that 
requiring NASD Regulation to do a piecemeal calculation of filing fees 
to account for each NASD member's shelf take down would be time 
consuming and cause accounting difficulties for the Department.
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    \10\ 15 U.S.C. 78o-3(b)(5).
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    With respect to the proposed amendment Section 6(b) of Schedule A, 
the Commission believes that this amendment is also consistent with 
Section 15A(b)(5) \10\ of the Act in that it provides for equitable 
allocation of filing fees charged for amendments of public offerings. 
The Commission notes that the Department will charge a maximum of 
$30,500 in total filing fees for reviewing any public offerings filed. 
The Commission recognizes that the potential effect of the proposed 
amendment to Section 6(b) of Schedule A is to decrease the total 
Corporate Financing filing fees collected for amendments filed. NASD 
represents that it will provide notice to NASD members of the uniform, 
no-refund policy of NASD Regulation regarding any amendments filed that 
may result in a decrease in the maximum aggregate offering price or 
other applicable value. The Commission believes that this clarification 
will eliminate further confusion among the NASD members as to whether a 
refund would be warranted in such case. For all the reasons set forth 
above, the Commission believes that the proposed amendment to Section 
6(b) of Schedule A will provide for the equitable allocation of fees 
among NASD members.
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    \10\ 15 U.S.C. 78o-3(b)(5).
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    The Commission also believes that the language of Sections 6(a) and 
6(b) of Schedule A that currently specifies that a filing fee shall 
accompany an initial filing and amendments, in certain cases, should be 
deleted. The Commission believes that this deletion, which will provide 
NASD Regulation with greater flexibility respecting the manner in which 
filing fees are paid, is also consistent with a prior Commission order 
approving the NASD proposal implementing payment of the Corporate 
Financing filing fee by wire transfer.\11\
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    \11\ The NASD recently deleted Subsection (6)(c) of Schedule A 
to the NASD By-Laws and Subparagraph (b)(10)(C) of NASD Conduct Rule 
2710, which mandated that Corporate Financing filing fees be paid in 
the form of a check or money order. The NASD also renumbered 
Subsection (6)(d) to Subsection (6)(c) of Schedule A to the NASD By-
Laws. Securities Exchange Act Release No. 40706 (November 24, 1998), 
63 F.R. 66618 (December 2, 1998) (File No. SR-NASD-98-87).
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    The Commission also believes that it is reasonable for NASD 
Regulation to eliminate Section 6(c) of Schedule A which referred to 
SEC Rule 457 for filing fee guidance. NASD Regulation represents that 
there is no longer a need for the Department to refer to SEC Rule 457 
for guidance as to the calculation methodology of certain Corporate 
Financing filing fees. Instead, NASD Regulation represents that the 
Department may now refer to the amended Section 6 of Schedule A for 
computation guidance for the Corporate Financing filing fees. Based on 
a review of the proposed amendments to Section 6 of Schedule A, the 
Commission believes that this section incorporates all necessary 
concepts for the calculation of the Corporate Financing filing fees.
    The Commission believes that the proposal to delete the definition 
of ``gross dollar amount of the offering'' in paragraph (a)(1) of NASD 
Conduct Rule 2710 is appropriate. Given that Section 6(a) of Schedule A 
will be amended as discussed above, the Commission agrees that the 
definition will no longer be applicable.
    Further, the Commission agrees that NASD Regulation's proposal to 
delete NASD Conduct Rule 2710(b)(10) in its entirety is reasonable 
because it duplicates Section 6 of Schedule A. The Commission further 
believes that Schedule A, which incorporates all the rules relating to 
fees, is the more appropriate location for fee provisions imposed on 
NASD members.

III. Conclusion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act, and, particularly, with Section 15A 
thereof.\12\ In approving the proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation.\13\
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    \12\ 15 U.S.C. 78o-3.
    \13\ 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NASD-99-01) is approved, as 
amended.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-13111 Filed 5-24-99; 8:45 am]
BILLING CODE 8010-01-M