[Federal Register Volume 59, Number 131 (Monday, July 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16630]
[[Page Unknown]]
[Federal Register: July 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34297; File No. SR-NASD-94-39]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
the National Association of Securities Dealers, Inc. Relating to
Security Application Fee for The PORTAL Market
July 1, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on
June 22, 1994, the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association''), filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the NASD. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD is proposing to amend The PORTAL Market Rules, Schedule I
to the NASD By-Laws (``PORTAL Rules''), to add a security application
fee with respect to securities submitted for designation in The PORTAL
Market. Below is the text of the proposed rule change. Proposed new
language is in italics.
The PORTAL Market
Schedule I to the NASD By-Laws
* * * * *
PART VI
PORTAL MARKET TRANSACTIONS
* * * * *
Sec. 4 PORTAL Fees
PORTAL participants shall pay to the Association a fee for PORTAL
transactions or such other fees as determined by the Association, which
are set forth in Part IX of the PORTAL Rules. The Board of Governors
shall have the power to impose, alter, or amend such fees from time to
time pursuant to Article VI, Section 1 of the By-Laws.
* * * * *
PART IX
PORTAL FEES
Sec. 1 Entry Fee
When a PORTAL participant submits an application for designation of
any class of securities as a PORTAL security, it shall pay to the
Corporation a filing fee of $2,000 per class of security covered by the
security application submitted plus $200 per assigned security symbol
that is in addition to the first symbol assigned.
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 NASD 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 NASD 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
(a) Purpose
The PORTAL Market is the market operated by The Nasdaq Stock
Market, Inc., for the quotation of securities that are restricted
securities, as defined in Rule 144(a)(3) under the Securities Act of
1933 (``Securities Act''), or are securities that are treated as if
restricted.\1\ In order to qualify for inclusion in The PORTAL Market,
a security that is restricted or treated as if restricted must be
eligible to be sold pursuant to Rule 144A under the Securities Act, \2\
be in negotiable form, and be assigned a CUSIP or other security
identification number that is different from any identification number
assigned to any unrestricted securities of the same class.
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\1\Part II, PORTAL Rules, provides that to qualify for initial
designation and continued designation in the PORTAL Market, a
security shall be either a restricted security, as defined in Rule
144(a)(3) under the Securities Act, or a security that upon issuance
and continually thereafter only can be sold pursuant to Regulation S
under the Securities Act, Rule 114A, or Rule 144 under the
Securities Act, or in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4 of the
Securities Act and not involving any public offering.
\2\This provision requires that the security meet the
requirements of Rule 144A(d)(3) and (4) under the Securities Act,
which are, respectively, the ``fungibility'' and ``information
delivery requirement'' conditions of Rule 114A.
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The PORTAL Market has processed over one thousand applications for
designation as a PORTAL security. Designation of a security as a PORTAL
security permits the security to be assigned a CUSIP number by Standard
& Poor's Corporation and be cleared and settled through the Depository
Trust Company. Section 2 of the PORTAL Rules permits any PORTAL
participant to submit an application for security designation, rather
than the issuer of the security. ``PORTAL participants'' include PORTAL
dealers, PORTAL brokers, and PORTAL investors. The first two categories
of PORTAL participants are required to be brokers and dealers
registered with the Commission under Section 15 of the Exchange Act and
members of the NASD. The third category of PORTAL participants are
institutional investors that are not members of the NASD that meet the
definition of ``qualified institutional buyer'' under Rule 144A.
The NASD has operated The PORTAL Market since it initiated
operations in June 1990 without the imposition of any fees on users.
The NASD is proposing to adopt a filing fee of $2,000 per security
application submitted plus $200 for each security identification symbol
assigned after the first symbol. Many private offerings of securities
are of securities that are sold in multiple tranches, each of which is
treated as a separate security, even though part of a single private
offering, and assigned a separate identification symbol by The PORTAL
Market.
The NASD believes that the imposition of a PORTAL filing fee will
assist The Nasdaq Stock Market, Inc. to cover continuing costs
associated with the operation of the PORTAL Market, including
significant costs associated with the processing of security
applications. The processing of security applications for The PORTAL
Market requires an immediate review of all applications, as private
placements are usually on a very short time schedule. Such review must
ensure that the security meets all of the requirements in Part II of
the PORTAL Rules, as set forth above.
Applications are generally submitted the day prior to commencing
the private placement or the day prior to conducting a ``road show,''
if such a road show is used, and approval is necessary within one or
two days at the most.\3\ In addition, because of a continuing lack of
knowledge regarding the procedures for obtaining approval for PORTAL
designation, Depository Trust Company book-entry approval, and the
issuance of a CUSIP number from Standard & Poor's, The Nasdaq Stock
Market, Inc. staff must work closely with the applicant to complete the
process. Further, private offerings that rely on Rule 144A for
redistribution of the securities to qualified institutional buyers are
many times unique in their structure, as well as frequently involving
issues related to SEC Regulation S and compliance with the CUSIP
identification number requirement when an offshore offering occurs
simultaneously with a U.S. private placement. Finally, there are many
issues with multiple tranches, each of which must be assigned a
separate security symbol. Given the efforts required by The Nasdaq
Stock Market, Inc. staff, the NASD belies that the fees as proposed are
appropriate.
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\3\In the case of private offerings, such a ``road show'' is
quite abbreviated as the number of potential investors is generally
no more than 75.
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(b) Statutory Basis
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(5) of the Exchange Act,\4\ which
requires that the rules of the Association provide for the equitable
allocation of reasonable dues, fees and other charges among members and
issuers and other persons using any facility or system which the
Association operates or controls in that the proposed rule change
equitably applies a filing fee to all applications submitted by PORTAL
dealers, PORTAL brokers, and PORTAL qualified investors for the
designation of securities in The PORTAL Market.
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\4\15 U.S.C. 78o-3 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Exchange Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. by order approve such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the file number in the caption
above and should be submitted by August 1, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 94-16630 Filed 7-8-94; 8:45 am]
BILLING CODE 8010-01-M
