[Federal Register Volume 61, Number 251 (Monday, December 30, 1996)]
[Rules and Regulations]
[Pages 68590-68595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33056]
[[Page 68590]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 270
[Release No. 34-38073, IC-22415, File No. S7-32-96]
RIN 3235-AH10
Securities Transactions Exempt From Transaction Fees
AGENCY: Securities and Exchange Commission.
ACTION: Final Rule.
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SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is adopting amendments to Rule 31-1 under the
Securities Exchange Act of 1934 and an amendment to Rule 24e-2 under
the Investment Company Act of 1940. The purpose of these amendments is
to conform Rules 31-1 and 24e-2 to recently enacted legislation. Rule
31-1 is being amended to conform the Rule to legislation which extends
transaction fees to transactions in OTC securities (other than bonds,
debentures, and other evidences of indebtedness) subject to prompt
last-sale reporting.
EFFECTIVE DATES: Section 270.24e-2 paragraph (a) is effective December
30, 1996.
Section 240.31-1 Preliminary Notes and paragraph (f) are revised
effective January 1, 1997.
Section 240.31-1 is revised effective September 1, 1997.
Section 240.31-1 Preliminary Note is revised effective October 1,
1997.
FOR FURTHER INFORMATION CONTACT: David Oestreicher, Esq. or James
McHale, Esq. regarding the amendments to Rule 31-1 under the Securities
Exchange Act of 1934 at 202/942-0173 or 202/942-0190; Office of Market
Supervision, Division of Market Regulation, Mail Stop 5-1. For further
information regarding the amendment to Rule 24e-2 under the Investment
Company Act of 1940, please contact Robin Gross at 202/942-0640; Office
of Regulatory Policy, Division of Investment Management, Mail Stop 10-
2, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC. 20549.
SUPPLEMENTARY INFORMATION:
I. Introduction
Pursuant to recently enacted legislation, beginning January 1,
1997, transaction fees will be collected on all Nasdaq securities.
Initially, for transactions occurring over-the-counter (``OTC'') these
fees will be collected pursuant to the Omnibus Consolidated
Appropriations Act for Fiscal Year 1997 (``Appropriations Act'').\1\
Beginning on September 1, 1997, these fees will be collected under
Section 31 of the Exchange Act as amended.
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\1\ Pub. L. 104-208, 110 Stat. 3009 (1996).
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The amendments to Rule 31-1 \2\ under the Securities Exchange Act
of 1934 (``Exchange Act'') will modify, effective January 1, 1997, the
existing exemption from transaction fees for Nasdaq securities
contained in Rule 31-1 so that transactions in OTC securities occurring
on a national securities exchange pursuant to unlisted trading
privileges (``UTP'') would be subject to transaction fees collected by
national securities exchanges. The amendments also would revise the
Preliminary Notes to Rule 31-1 in three phases to coincide with
legislative changes. The amendments will be effective January 1, 1997,
September 1, 1997, and October 1, 1997. Moreover, the Commission also
is taking action to eliminate the existing exemption for Nasdaq
securities in its entirety. Finally, the amendments clarify that off-
exchange transactions in OTC securities subject to UTP will be subject
to section 31(d) of the Exchange Act, as amended (rather than section
31(c)).
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\2\ 17 CFR 240.31-1
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The Commission also is adopting an amendment to Rule 24e-2 under
the Investment Company Act of 1940 (``Investment Company Act''), the
rule that governs the payment of fees by certain registered investment
companies for additional securities registered on a post-effective
amendment to a registration statement.
II. Background
Section 31 of the Exchange Act \3\ currently requires transaction
fees to be paid to the Commission based on sales of securities
registered on a national securities exchange. Specifically, section 31
requires every national securities exchange to pay an annual fee to the
Commission based on the aggregate dollar amount of the sale of
securities (other than bonds, debentures, and other evidences of
indebtedness) transacted on that exchange.\4\ In addition, section 31
requires payment of similar fees by broker-dealers for OTC transactions
in securities registered on a national securities exchange (``third
market trades'').\5\ Section 31 also provides the Commission with
authority to exempt any sale of securities or any class of sales of
securities from imposition of the transaction fee if the Commission
finds that such exemption is consistent with the public interest, the
equal regulation of markets and brokers and dealers, and the
development of a national market system.\6\
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\3\ 15 U.S.C. 78ee.
\4\ The fee is equal to 1/300 of one percent of the aggregate
dollar value of securities sold.
\5\ For transactions otherwise than on a national securities
exchange, the fee is currently paid by the broker-dealer on the sale
side of the transaction. If, however, there is no broker-dealer on
the sale side of the transaction, then the broker-dealer on the buy
side of the transaction is required to pay the fee. Where no broker-
dealer is involved in the transaction, no fee is required. See Rule
31-1.
\6\ In response to The National Securities Markets Improvement
Act of 1996, the Commission plans at a later time to solicit comment
on a prior Commission proposal to exempt certain transactions
effected after regular trading hours from the imposition of
transaction fees. See Securities Exchange Act Release No. 29238 (May
28, 1991), 56 FR 25056 (June 3, 1991).
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In September 1985, the Commission allowed exchanges to trade OTC
securities without listing these securities, on a UTP basis (``OTC/UTP
securities'').\7\ A collateral effect of this action would have been to
subject securities principally traded OTC (i.e. Nasdaq securities) to
section 31 fees, even though section 31 was not designed to apply to
transactions in such securities.\8\ Therefore, pursuant to its
exemptive authority, the Commission amended Rule 31-1 to exempt
transactions in Nasdaq securities from section 31 by adding paragraph
(f).\9\ This exemption was predicated on the Commission's belief that
it was preferable to address the application of section 31 fees to the
OTC market in a uniform and orderly manner, rather than through the
automatic application
[[Page 68591]]
of section 31 as a result of an exchange's decision to trade OTC/UTP
securities or the concurrent designation of Nasdaq/NMS securities. \10\
In light of recent legislation, however, the exemption afforded to
these Nasdaq securities is no longer appropriate.
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\7\ The Commission's grant of UTP was conditioned on, among
other things, the Commission approving a joint plan to consolidate
exchange and OTC quotations and transaction reports in OTC
securities upon which UTP are granted. See Securities Exchange Act
Release No. 22412 (September 16, 1985), 50 FR 38640 (September 24,
1985); and Securities Exchange Act Release No. 22413 (September 16,
1985), 50 FR 38515 (September 23, 1985).
\8\ As a technical matter, under section 12(f)(6) of the
Exchange Act (15 U.S.C. 781(f)(6)), securities trading OTC, which
are also admitted to UTP on an exchange are deemed to be
``registered.'' Therefore, if construed literally, section 31 would
have required payment of fees by the exchange(s) for transactions in
OTC/UTP securities occurring on the exchange, as well as by broker-
dealers trading such securities OTC. Similarly, stocks that were
listed on a regional exchange and then received concurrent Nasdaq
National Market System (``NMS'') designation would have been subject
to section 31, i.e., both the exchange and OTC trades in such
securities would have been subject to section 31 transaction fees.
\9\ See Securities Exchange Act Release No. 23229 (May 13,
1986), 51 FR 18578 (May 21, 1986). The Commission amended the Rule
again in June 1987. See Securities Exchange Act Release No. 24635
(June 23, 1987), 52 FR 24149 (June 29, 1987). In May 1988, the
Commission extended the effectiveness of Rule 31-1(f) for an
additional year. See Securities Exchange Act Release No. 25671 (May
6, 1988), 53 FR 17180 (May 16, 1988). Finally, in May 1989, the
Commission extended the effectiveness of Rule 31-1(f) indefinitely.
See Securities Exchange Act Release No. 26790 (May 6, 1989), 54 FR
20524 (May 12, 1989).
\10\ Without the exemption, the application of section 31 fees
to all transactions in particular OTC securities would have depended
entirely on exchange decisions to trade OTC/UTP securities, or on
issuer decisions to retain an exchange listing despite the stock
being designated an Nasdaq/NMS security.
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III. Discussion
On September 30, 1996, the SEC's appropriation for fiscal year 1997
was enacted as part of the Appropriations Act. In addition to funding
the agency for fiscal year 1997, the Appropriations Act extends
transaction fees to all sales of securities transacted otherwise than
on a national securities exchange (other than bonds, debentures and
other evidences of indebtedness) subject to prompt last-sale reporting,
\11\ effective January 1, 1997.\12\
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\11\ The Commission notes that Congress intended transaction
fees to be applied to OTC securities subject to prompt last sale
reporting in the same circumstances as section 31 fees currently are
applied to transactions in exchange-traded securities. Accordingly,
all of the exemptions presently contained in Rule 31-1 (for example,
initial public offering transactions) will apply to transactions in
securities subject to the Appropriations Act fee, except for the
exemption for Nasdaq securities in paragraph ``(f)'' of Rule 31-1.
\12\ Specifically, the Appropriations Act provides that
effective January 1, 1997, every national securities association
shall pay to the Commission a fee at a rate of 1/300th of one
percent of the aggregate dollar amount of sales transacted by or
through any member of such association otherwise than on a national
securities exchange (of securities) (other than bonds, debentures,
and other evidences of indebtedness), subject to prompt last sale
reporting pursuant to the rules of the Commission or a registered
national securities association, excluding any sales for which (a)
fee is paid under section 31 of the Exchange Act. Moreover, the
legislation requires every national securities association to pay
the fee on or before September 30, 1997, with respect to
transactions and sales occurring during the period beginning on
January 1, 1997, and ending at the close of August 31, 1997.
Beginning September 1, 1997, a similar fee will be required by
section 31(d) of the Exchange Act as amended by Title IV of the
National Securities Markets Improvement Act of 1996. See section
III, C ``Off-Exchange Trades of OTC Securities,'' infra.
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On October 11, 1996, The National Securities Markets Improvement
Act of 1996 (``Improvement Act''),\13\ was signed into law. The
Improvement Act amends section 31 of the Exchange Act to extend
transaction fees to transactions in OTC securities subject to prompt
last sale reporting, effective September 1, 1997.\14\ The Improvement
Act also explicitly amends section 31 of the Exchange Act to provide
that, effective October 1, 1997, the transaction fee arising out of the
sale of third market trades will be payable by each national securities
association.\15\ The Improvement Act further amends section 31,
effective October 1, 1997, to require payment of section 31 fees to the
Commission two times per year, instead of one time per year as section
31 presently requires.\16\
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\13\ Pub. L. No. 104-290, 110 Stat. 3416 (1996).
\14\ Specifically, section 31(d)(1) of the Exchange Act will
provide, in part, that ``(e)ach national securities association
shall pay to the Commission a fee at a rate equal to 1/300 of one
percent of the aggregate dollar amount of sales transacted by or
through any member of such association otherwise than on a national
securities exchange of securities (other than bonds, debentures, and
other evidences of indebtedness) subject to prompt last sale
reporting pursuant to the rules of the Commission or a registered
national securities association, excluding any sales for which a fee
is paid under subsection (c) * * * .''
\15\ Presently, section 31 requires broker-dealers to remit
directly to the Commission transaction fees arising out of third
market trades. This procedure will continue until October 1, 1997.
See section III, D ``Third Market Transactions,'' infra.
\16\ Section 31(e) will require payment of all transaction fees
on or before March 15, with respect to transactions occurring during
the period beginning on the preceding September 1 and ending at the
close of the preceding December 31. The fee for transactions
occurring during the period beginning on the preceding January 1 and
ending at the close of the preceding August 31, will be payable to
the Commission on September 30. Pursuant to section 31(g) of the
Exchange Act, as amended, the Commission will publish in the Federal
Register notices of the fee rates applicable under section 31 for
each fiscal year, beginning with fiscal year 1998.
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Currently, sales of OTC/UTP securities occurring on a national
securities exchange are exempted from section 31 fees. This exemption
is no longer appropriate in view of Congress' express intention to
extend transaction fees to all OTC securities subject to prompt last
sale reporting. The Commission believes that the law intends fees on
transactions in Nasdaq securities to apply equally, whether such
transactions occur on an exchange or OTC. Accordingly, the Commission
is eliminating, effective January 1, 1997, the current exemption in
Rule 31-1(f) with respect to transactions in those Nasdaq securities
occurring on a national securities exchange pursuant to OTC/UTP. As a
result, as of January 1, 1997, the same fees will apply to OTC and
exchange trades in Nasdaq securities, consistent with the equal
regulation of markets, brokers and dealers, and the development of a
national market system.
The Commission also is phasing in amendments to the Preliminary
Notes to Rule 31-1 on three dates (January 1, 1997, September 1, 1997,
and October 1, 1997), to make them consistent with the changes in law.
Finally, effective September 1, 1997, the Commission is implementing a
technical amendment to Rule 31-1 to clarify that fees arising out of
off-exchange transactions in OTC/UTP securities will be collected
pursuant to section 31(d) of the Exchange Act, and not section
31(c).\17\ In amending the Rule, the Commission has considered the
amendments' impact on efficiency, competition, and capital
formation.\18\
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\17\ The Commission notes that the purpose of this exemption is
to carry out the intent of Congress, based on the revenue
projections used by Congress at the time of the Appropriations Act
and the Improvement Act, that transaction fees for these types of
trades be collected pursuant to section 31(d) of the Exchange Act.
\18\ 15 U.S.C. 78c(f) and 15 U.S.C. 80a-2(c).
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Because the Appropriations Act extends transaction fees to the OTC
market effective January 1, 1997, the Commission is issuing this
release and amending Rule 31-1 on an emergency basis. A delay in
amending the Rule could lead to confusion over the responsibilities of
those persons affected by the new legislation.
Although the Administrative Procedure Act (``APA'') states that an
agency must provide general notice of proposed rulemaking and an
opportunity for comment, these requirements do not apply if the agency,
for good cause, finds that those procedures are ``impracticable,
unnecessary, or contrary to the public interest.'' \19\ The Commission
finds that good cause exists, and that notice and comment are
unnecessary, because the amendments to Rule 31-1 are being adopted to
make the Rule consistent with the Appropriations Act and the
Improvement Act. In addition, the Commission finds that good cause
exists, and that notice and comment are unnecessary for the amendment
to Rule 24e-2 under the Investment Company Act (eliminating the $100
minimum fee), because the Commission has ceased collecting the fee
pursuant to the Improvement Act.
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\19\ 5 U.S.C. 553(b)(B).
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Moreover, although the APA generally requires publication of an
adopted rule at least thirty days before its effective date,\20\ this
requirement does not apply if the agency determines, for good cause,
not to provide pre-effective publication. As mentioned above, a delay
in amending Rule 31-1 until after the January 1, 1997 effective date of
the Appropriations Act could lead to confusion over the
responsibilities of those persons affected by the legislation.
Accordingly, the Commission finds good cause not to provide pre-
effective publication for the amendments to Rule
[[Page 68592]]
31-1. The Commission also finds that good cause exists not to provide
pre-effective publication for the amendment to Rule 24e-2 under the
Investment Company Act because the amendment is intended to eliminate a
source of confusion for registrants and a delay would only serve to
prolong the potential confusion of registrants. Finally, under 5 U.S.C.
804, the revisions to Rules 31-1 and 24e-2 are exempt from the
definition of the term ``rule'' for purposes of Chapter 8, entitled
``Congressional Review of Agency Rulemaking,'' because the revisions
are to rules of ``agency organization, procedure, or practice * * *''
and conform agency practice and procedure to that required by the
Appropriations Act and the Improvement Act.
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\20\ 5 U.S.C. 553(d).
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The following sections describe the interim and permanent
obligations of each national securities exchange, national securities
association and broker-dealer with regard to the payment of transaction
fees.
A. Exchange-Registered Securities Transacted on an Exchange
The only substantive change for a national securities exchange
remitting transaction fees arising out of the sale of exchange-
registered securities \21\ on the exchange is the timing for payment of
such fees.\22\ As noted above, the amendments made to section 31 by the
Improvement Act require, among other things, payment of transaction
fees two times per year, instead of one time per year. This change,
however, does not go into effect until October 1, 1997, and will not
affect the fee payment schedule until January 1, 1998. Accordingly, the
fee arising out of transactions occurring between January 1, 1996 and
December 31, 1996 will be payable on March 15, 1997. Likewise, the fee
arising out of transactions occurring between January 1, 1997 and
December 31, 1997 will be payable to the Commission on March 15, 1998.
Pursuant to section 31(e), however, the section 31 fee arising from
transactions that occur between January 1, 1998 and August 31, 1998,
will be due to the Commission on or before September 30, 1998. The fee
arising from transactions between September 1, 1998 and December 31,
1998, will be payable to the Commission on or before March 15, 1999.
This payment schedule will continue in this manner indefinitely.
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\21\ As used herein, the term ``exchange-registered securities''
refers to those securities registered on a national securities
exchange by an issuer taking an affirmative action (e.g. filing Form
8-A), and not OTC securities deemed ``registered'' under section
12(f)(6) of the Exchange Act based on OTC/UTP trading. Cf. note 8,
supra.
\22\ The Commission also notes that, as a result of the
amendments to Rule 31-1 made herein, effective January 1, 1997,
every national securities exchange will be responsible for remitting
section 31 transaction fees based on sales of OTC/UTP securities
transacted on such exchange. See ``OTC Securities Transacted on an
Exchange pursuant to OTC/UTP,'' section III, B, infra.
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B. OTC Securities Transacted on an Exchange Pursuant to OTC/UTP
Effective January 1, 1997, Rule 31-1(f) will be amended to
effectively include within the coverage of existing section 31 of the
Exchange Act transactions in those Nasdaq securities occurring on a
national securities exchange pursuant to OTC/UTP. Therefore, beginning
January 1, 1997, every national securities exchange will be responsible
for remitting transaction fees to the Commission for exchange
transactions in OTC/UTP securities, pursuant to existing section 31 of
the Exchange Act. Effective October 1, 1997, every national securities
exchange will be responsible for the payment of these fees pursuant to
section 31(b) of the Exchange Act, as revised by the Improvement Act.
Once section 31(e) of the Exchange Act becomes effective on October
1, 1997, the transaction fee payable by an exchange arising from the
sale of OTC/UTP securities on such exchange will be payable in two
installments per year. Accordingly, the payment schedule for fees
arising out of transactions in OTC/UTP securities is identical to the
payment schedule for fees arising out of transactions in exchange-
registered securities effected on an exchange.23
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\23\ See Section III, A, ``Exchange-Registered Securities
Transacted on an Exchange,'' supra.
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C. Off-Exchange Trades of OTC Securities
As discussed above, both the Appropriations Act and section 31 as
amended by the Improvement Act extend transaction fees to securities
(other than bonds, debentures and other evidences of indebtedness)
traded otherwise than on a national securities exchange, and subject to
prompt last sale reporting pursuant to the rules of the Commission or a
registered national securities association. The phrase ``securities
subject to prompt last sale reporting'' as used in the legislation
includes securities designated as Nasdaq National Market
securities,24 securities designated as Nasdaq SmallCap
securities,25 and securities traded on the NASD's Bulletin Board
system (``OTCBB'').26 Moreover, although the NASD's rules do not
require transaction reporting for certain types of transactions, if the
underlying securities are subject to prompt last sale reporting, the
NASD is responsible for collecting a transaction fee even if the
particular transaction is not subject to last-sale reporting.27
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\24\ See National Association of Securities Dealers, Inc.
(``NASD'') Rule 4632.
\25\ See NASD Rule 4642.
\26\ See NASD Rule 6550.
\27\ Among other trades, NASD Rule 4632(e) excludes from its
transaction reporting requirements odd-lot transactions, and
purchases or sales of securities effected upon the exercise of an
option. The NASD, however, is required to collect fees on both of
these types of transactions, unless the underlying security is not
subject to prompt last sale reporting. The NASD also is required to
collect transaction fees for after-hours trades in securities
subject to prompt last sale reporting. The Commission notes,
however, that no transaction fee will arise for transactions where
the buyer and seller have agreed to trade at a price substantially
unrelated to the current market for the security, e.g. to enable the
seller to make a gift. See NASD Rules 4632(e)(5), 4642(e)(4),
6420(e)(5), and 6620(e)(3). Finally, the Commission notes that as
prompt last sale reporting is extended to additional securities,
such securities will become subject to transaction fees.
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Pursuant to the Appropriations Act, fees arising from off-exchange
transactions in OTC securities occurring between January 1, 1997 and
August 31, 1997 will be payable to the Commission by a national
securities association on or before September 30, 1997.28 Pursuant
to sections 31(d) and 31(e) of the Exchange Act as amended by the
Improvement Act, transaction fees arising from such trades occurring
from September 1, 1997 to December 31, 1997 will be due from a national
securities association on March 15, 1998.29 Off-exchange
transactions in OTC securities occurring between January 1, 1998 and
August 31, 1998 will result in a fee due to the Commission from a
national securities association on or before September 30, 1998. Fees
due for such transactions occurring between September 1, 1998 and
December 31, 1998 will be payable on or before March 15, 1999. This
payment schedule will continue in this manner indefinitely.
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\28\ Even though Rule 31-1(f) will continue to exempt these
types of transactions from existing Section 31 of the Exchange Act
until September 1, 1997, when section 31(d) of the Exchange Act
takes effect, these transactions will be covered by the
Appropriations Act beginning January 1, 1997.
\29\ Effective September 1, 1997, fees arising out of off-
exchange trades of OTC securities subject to OTC/UTP will be payable
pursuant to section 31(d). A clarifying amendment to Rule 31-1(f)
will become effective on September 1, 1997, in order to exempt these
types of trades from the payment of fees under section 31(c). As a
result, fees arising out of these types of transactions will be
collected pursuant to Section 31(d). As noted above, this technical
amendment is necessary in order to carry out the intent of Congress
that all trades in OTC securities be treated equally no matter where
those trades occur.
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D. Third Market Transactions
Broker-dealers will continue to remit transaction fees arising out
of third
[[Page 68593]]
market trades directly to the Commission until October 1, 1997,
pursuant to existing section 31 of the Exchange Act. Section 31(c) of
the Exchange Act as amended by the Improvement Act, requires fees
arising out of third market trades to be paid by each national
securities association effective October 1, 1997.30 Specifically,
the fee arising from third market transactions occurring between
January 1, 1997 and September 30, 1997 will be payable by each broker-
dealer on or before March 15, 1998, pursuant to current section 31 of
the Exchange Act. Based on the Improvement Act's amendments to section
31, the fee arising from third market transactions occurring between
October 1, 1997 and December 31, 1997 also will be due from a national
securities association on or before March 15, 1998. The fee arising
from third market transactions occurring between January 1, 1998 and
August 31, 1998 will be due from a national securities association on
or before September 30, 1998. For third market trades occurring between
September 1, 1998 and December 31, 1998, the transaction fee is due
from a national securities association on or before March 15, 1999.
This payment schedule will continue in this manner indefinitely.
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\30\ Section 31(d) of the Exchange Act as amended by the
Improvement Act, excludes any sales for which a fee is paid under
section 31(c).
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E. Options Transactions
With respect to options transactions occurring on a national
securities exchange, the options exchanges, or the Options Clearing
Corporation (``OCC'') on behalf of the exchanges, will continue to be
responsible for the payment of section 31 fees on such options
transactions.31 Moreover, any sale of exchange-registered
securities to or by a person exercising an exchange-registered option
contract shall require the exchange itself or the OCC on behalf of the
exchange to pay a section 31 fee in an amount determined on the basis
of the exercise price. In addition, as a result of the Appropriations
Act, effective January 1, 1997, any sale of OTC securities (subject to
prompt last sale reporting) to or by a person exercising an exchange-
registered option contract shall require payment of a transaction fee,
in an amount determined on the basis of the exercise price, by the
appropriate national securities association or the OCC on behalf of the
association.32 Further, when section 31(d) of the Exchange Act
becomes effective on September 1, 1997, any sale of securities covered
by section 31(d) to or by a person exercising an exchange-registered
option contract will require payment of a section 31 fee, in an amount
determined on the basis of the exercise price, by the appropriate
national securities association or the OCC on behalf of such
association.
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\31\ The Commission notes that this transaction fee arises on
the options transaction regardless of whether the underlying
security is traded on a national securities exchange, or otherwise
than on an exchange. Moreover, the payment schedule for fees arising
out of options transactions occurring on a national securities
exchange is the same as for exchange-registered equity securities
discussed above.
\32\ The payment schedule for these fees is the same as the
payment schedule for off-exchange trades of OTC securities discussed
above.
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With regard to transactions in OTC options, no transaction fee will
arise because these securities are not currently subject to prompt last
sale reporting.33 However, broker-dealers will continue to remit
section 31 fees directly to the Commission for any sale of exchange-
registered securities to or by a person exercising an OTC option, in an
amount determined on the basis of the exercise price, until October 1,
1997, when these fees will be collected by the appropriate national
securities association.34 Moreover, as a result of the
Appropriations Act and the Reform Act, effective January 1, 1997, any
sale of OTC securities to or by a person exercising an OTC option also
shall require payment of a transaction fee, in an amount determined on
the basis of the exercise price, by the appropriate national securities
association.35
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\33\ Pursuant to the Appropriations Act and the Improvement Act,
should options traded otherwise than on a national securities
exchange become subject to prompt last sale reporting in the future,
transaction fees also will be applicable to those options
transactions. Accordingly, effective October 1, 1997, the
Preliminary Notes to Rule 31-1 will provide for the collection of
section 31 fees for transactions in OTC options subject to prompt
last sale reporting.
\34\ See section III, D, ``Third Market Transactions,'' supra.
\35\ The Commission notes that the NASD, as the only currently
registered national securities association, will be responsible for
the collection of these fees effective January 1, 1997.
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V. Amendment to Rule 24e-2 Under the Investment Company Act
The Commission is adopting an amendment to Rule 24e-2 under the
Investment Company Act of 1940, the rule that governs the payment of
fees by certain registered investment companies for additional
securities registered on a post-effective amendment to a registration
statement filed under the Securities Act of 1933 (15 U.S.C. 77a et
seq.) (``Securities Act''). The amendment eliminates the $100 minimum
fee currently in the Rule. The Rule's $100 minimum fee was designed to
correspond to the $100 minimum fee requirement under section 6(b) of
the Securities Act (15 U.S.C. 77f(b)), which was eliminated by the
Improvement Act. The Commission ceased collecting the fee under Rule
24e-2 on October 11, 1996 and the amendment would eliminate a source of
confusion for registrants.
V. Effects on Competition and Regulatory Flexibility Act Considerations
Section 23(a)(2) of the Exchange Act,36 requires the
Commission, in adopting rules under the Exchange Act, to consider the
competitive effects of such rules, if any, and to balance any impact
with the regulatory benefits gained in terms of furthering the purposes
of the Exchange Act. As noted above, in amending Rule 31-1 the
Commission is merely conforming the Rule to recently enacted
legislation. Moreover, adoption of the amendment to Rule 31-1 will not
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act. The amendment will
promote efficiency and capital formation by equalizing the treatment of
exchange-listed and OTC securities.
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\36\ 15 U.S.C. 78w(a)(2).
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The Regulatory Flexibility Act 37 is not applicable to the
revisions to Rule 31-1, nor is it applicable to the amendment to Rule
24e-2 under the Investment Company Act. The Regulatory Flexibility
Act's flexibility analysis requirements are limited to rulemaking for
which the Commission would be required by the APA to publish general
notice of proposed rulemaking.38
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\37\ 5 U.S.C. 601-612.
\38\ 5 U.S.C. 603(a). As noted above, the Commission is not
required to solicit public comment due to the nature of the
Commission's revisions to Rule 31-1.
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The Paperwork Reduction Act does not apply because the proposed
amendments do not impose recordkeeping or information collection
requirements, or other collections of information which require the
approval of the Office of Management and Budget under 44 U.S.C. 3501,
et seq.
VI. Statutory Basis
The amendments to Rule 31-1 under the Exchange Act are being
adopted pursuant to 15 U.S.C. 78a et seq., particularly sections 23(a)
and 31 of the Exchange Act, and pursuant to Pub. L. No. 104-208. The
amendment to Rule 24e-2 under the Investment Company Act is being
adopted pursuant to 15
[[Page 68594]]
U.S.C. 80a-1 et seq., 80a-37, and 80a-39 unless otherwise noted.
List of Subjects in 17 CFR Part 240
Reporting and recordkeeping requirements, Securities.
VII. Text of the Amendments
For the reasons set forth above, the Commission amends part 240 of
chapter II, title 17 of the Code of Federal Regulations as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78k-1, 78l, 78m,
78n, 78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a 20, 80a-
23, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
2. Effective January 1, 1997, Sec. 240.31-1 is amended by revising
the Preliminary Notes and paragraph (f) to read as follows:
Sec. 240.31-1 Securities transactions exempt from transaction fees.
Preliminary Notes
If a sale of a security for which a fee is paid under section 31
of the Act is effected on a national securities exchange, the
transaction fee must be paid by that exchange. With regard to sales
of securities for which a fee is paid under section 31, effected
otherwise than on a national securities exchange, the fee is to be
paid by the registered broker or dealer on the sale side of the
transaction. When there is no registered broker or dealer on the
sale side of the transaction (as, for example, where a third market
dealer purchases securities for its own account from a public
customer), the fee is to be paid by the registered broker or dealer
on the purchase side of the transaction. Where no registered broker
or dealer is involved in the transaction, no fee arises.
The fee for options transactions occurring on a national
securities exchange is to be paid by the exchange itself, or by the
Options Clearing Corporation on behalf of the exchange, and such fee
is to be computed on the basis of the option premium (market price)
for the sale of the option, and the exercise price of the option in
the event of its exercise. In addition, any sale of securities for
which a fee is paid under section 31, occurring otherwise than on a
national securities exchange, to or by a person exercising an option
contract shall require payment of a section 31 fee, in an amount
determined on the basis of the exercise price, by the registered
broker or dealer selling the securities. If there is no registered
broker or dealer on the sale side of such transaction, then the fee
is to be paid by the registered broker or dealer on the purchase
side of the transaction. If no registered broker or dealer is
involved in the transaction, no fee arises.
* * * * *
(f) Transactions in Nasdaq securities as defined in Sec. 240.11Aa3-
1 (Rule 11Aa3-1 under the Act) except for:
(1) Transactions in those Nasdaq securities for which transaction
reports are collected, processed, and made available pursuant to the
plan originally submitted to the Commission pursuant to Sec. 240.17a-15
(subsequently amended and redesignated as Rule 11Aa3-1) under the Act,
which plan was declared effective as of May 17, 1974; and
(2) Transactions in those Nasdaq securities occurring on a national
securities exchange pursuant to unlisted trading privileges.
3. Effective September 1, 1997, Sec. 240.31-1 is revised to read as
follows:
Sec. 240.31-1 Securities transactions exempt from transaction fees.
Preliminary Notes
If a sale of a security for which a fee is paid under section 31
of the Act is effected on a national securities exchange, the
transaction fee must be paid by that exchange. With regard to sales
of securities for which a fee is paid under section 31, effected
otherwise than on a national securities exchange (except those
securities for which a fee is paid under section 31(d)), the fee is
to be paid by the registered broker or dealer on the sale side of
the transaction. When there is no registered broker or dealer on the
sale side of the transaction (as, for example, where a third market
dealer purchases securities for its own account from a public
customer), the fee is to be paid by the registered broker or dealer
on the purchase side of the transaction. Where no registered broker
or dealer is involved in the transaction, no fee arises.
The fee for options transactions occurring on a national
securities exchange is to be paid by the exchange itself, or by the
Options Clearing Corporation on behalf of the exchange, and such fee
is to be computed on the basis of the option premium (market price)
for the sale of the option, and the exercise price of the option in
the event of its exercise. In addition, any sale of securities for
which a fee is paid under section 31 (except those securities for
which a fee is paid under section 31(d)), occurring otherwise than
on a national securities exchange, to or by a person exercising an
option contract, shall require payment of a section 31 fee, in an
amount determined on the basis of the exercise price, by the
registered broker or dealer selling the securities. If there is no
registered broker or dealer on the sale side of such transaction,
then the fee is to be paid by the registered broker or dealer on the
purchase side of the transaction. If no registered broker or dealer
is involved in the transaction, no fee arises. Finally, any sale of
securities for which a fee is paid under section 31(d), to or by a
person exercising an option contract, shall require payment of a
section 31 fee, in an amount determined on the basis of the exercise
price, by the appropriate national securities association or by the
Options Clearing Corporation on behalf of the association.
(a) The following shall be exempt from section 31 of the Act:
(1) Transactions in securities offered pursuant to an effective
registration statement under the Securities Act of 1933 (except
transactions in put or call options issued by the Options Clearing
Corporation) or offered in accordance with an exemption from
registration afforded by section 3(a) or 3(b) thereof (15 U.S.C. 77c(a)
or 77c(b)), or a rule thereunder.
(2) Transactions by an issuer not involving any public offering
within the meaning of section 4(2) of the Securities Act of 1933 (15
U.S.C. 77d(2));
(3) The purchase or sale of securities pursuant to and in
consummation of a tender or exchange offer;
(4) The purchase or sale of securities upon the exercise of a
warrant or right (except a put or call), or upon the conversion of a
convertible security; and
(5) Transactions which are executed outside the United States and
are not reported, or required to be reported, to a transaction
reporting association as defined in Sec. 240.11Aa3-1 (Rule 11Aa3-1
under the Act) and any approved plan filed thereunder;
(b) Over-the-counter (``OTC'') transactions in OTC securities which
are subject to unlisted trading privileges on a national securities
exchange shall be exempt only from section 31(c) of the Act.
4. Effective October 1, 1997, the Preliminary Note to Sec. 240.31-1
is revised to read as follows:
Sec. 240.31-1 Securities transactions exempt from transaction fees.
Preliminary Note
The section 31 fee for options transactions occurring on a
national securities exchange, or transactions in options subject to
prompt last sale reporting occurring otherwise than on an exchange,
is to be paid by the exchange or the national securities association
itself, respectively, or the Options Clearing Corporation on behalf
of the exchange or association, and such fee is to be computed on
the basis of the option premium (market price) for the sale of the
option. In the event of the exercise of an option, whether such
option is traded on an exchange or otherwise, a section 31 fee is to
be paid by the exchange or the national securities association
itself, or the Options Clearing Corporation on behalf of the
exchange or association, and such fee is to be computed on the basis
of the exercise price of the option.
* * * * *
[[Page 68595]]
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
5. The authority citation for part 270 continues to read, in part,
as follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-37, 80a-39 unless
otherwise noted;
* * * * *
6. Section 270.24e-2 is amended by revising paragraph (a) to read
as follows:
Sec. 270.24e-2 Computation of fee.
* * * * *
(a) The fee to be paid at the time of filing of such amendment
shall be calculated in the manner specified in section 6(b) of the
Securities Act of 1933 except that, for the purposes of such
calculation, the maximum aggregate price at which the securities are
proposed to be offered may be deemed to be the maximum aggregate
offering price, as determined by Rule 457(d) (17 CFR 230.457(d)) under
the Securities Act of 1933, of:
(1) The amount of securities (number of shares or other units)
being registered reduced by;
(2) The amount of securities (number of shares or other units) of
the same class redeemed or repurchased by the issuer in its previous
fiscal year (which amount of securities must, for purposes of this
paragraph (a)(2), be reduced by the amount of any securities used in a
reduction made by the issuer with respect to such shares pursuant to
paragraph (c) of section 24f-2 of the Act during the current fiscal
year) provided that, when more than one such amendment is filed by an
issuer in any one fiscal year, the total amount of securities used for
such reductions during any fiscal year in which such reductions are
made may not exceed the total amount of securities which were redeemed
or repurchased by the issuer during its previous fiscal year; and
* * * * *
Dated: December 23, 1996.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-33056 Filed 12-24-96; 2:38 pm]
BILLING CODE 8010-01-P
