[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\3\ NASD Regulation filed Amendment No. 1 which superseded the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1999; Amendment No. 2 also superseded Amendment No. 1 and the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
