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

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