Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the National Association of Securities Dealers, Inc., Relating to Fees for the Late Payment of Service Charges

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34479; File No. SR-NASD-94-34]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the National Association of Securities Dealers, Inc.,

Relating to Fees for the Late Payment of Service Charges

August 2, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 27,

1994, the National Association of Securities Dealers, Inc. (``NASD'' or

``Association'') filed with the Securities and Exchange Commission

(``Commission'' or ``SEC'') the proposed rule change as described in

Items I, II, and III below, which Items have been prepared by the NASD.

On July 29, 1994, the NASD filed with the Commission Amendment No. 1 to

the proposed rule change.\1\ The Commission is publishing this notice

to solicit comments on the proposed rule change from interested

persons.

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\1\Amendment No. 1 to the proposal corrects a mathematical error

in an example provided in the language of the proposed rule change,

and explains that the new late fee established by the proposal will

be assessed to accounts that are in arrears prior to the

implementation of the new late fee charge. Letter from Joan Conley,

Corporate Secretary, NASD, to Elizabeth MacGregor, Branch Chief,

Commission, dated July 28, 1994.

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I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

The NASD proposes to adopt a uniform and consistent methodology for

assessing fees for late payment of Nasdaq Stock Market service charges.

(Additions are in italics; deletions are bracketed.)

Schedule D

Part IX

* * * * *

H. Late Fees

All charges imposed by The Nasdaq Stock Market, Inc. that are

past due 45 days or more will be subject to a late fee computed by

taking the summation of one and one-half percent (1\1/2\%) of the

amount past due for the first month plus one and one-half percent

(1\1/2\%) of the amount past due for any month thereafter,

compounded by late fees assessed for previous months.

To illustrate how later fees are assessed, if an account is past

due $1,000 for 45 days, the late fee would be $30.22. This charge

reflects a charge of $15 for the first month past due ($1,000 x 1\1/

2\%) and $15.22 for the second month past due ($1,015 x 1\1/2\%).

[NASDAQ charges, except those for NASDAQ Level 1 and NASDAQ/NMS Last

Sale services, that are past due for 60 days or more shall be

subject to a late fee of ten percent (10%) of the amount past due.

Charges for NASDAQ Level 1 and NASDAQ/NMS Last Sale services

that are past due shall be subject to a late fee equal to one and

one-half percent (1\1/2\%) per month of the unpaid balance

commencing forty-five (45) days after the invoice date.]

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

1. Purpose

In view of the NASD's implementation of a consolidated billing

system for virtually all direct subscriber services provided by The

Nasdaq Stock Market, Inc. (``NSM''), the NASD proposes to adopt a

uniform and consistent methodology for assessing fees for the late

payment of NSM charges. Specifically, for NSM charges that are past due

45 days or more, the NASD proposes to assess late fees by taking the

summation of one and one-half percent (1\1/2\%) of the amount past due

for the first month plus one and one-half percent (1\1/2\%) of the

amount past due for any month thereafter, compounded by late fees

assessed for previous months.

Currently, Section H of Part IX of Schedule D to the By-Laws

provides that charges for Nasdaq Level 1 and Nasdaq/NMS Last Sale

services which are past due 45 days will be assessed a fee equal to

1\1/2\% per month of the unpaid balance. For all other Nasdaq charges,

namely, charges for the Nasdaq Level 2/3 service, Over-the-Counter

Bulletin Board (``OTCBB''), Mutual Fund Quotation Program, and Nasdaq

Workstation service (collectively referred to hereinafter as ``Nasdaq

charges''), the late payment fee presently is equal to 10% of the

amount past due for 60 days or more. By eliminating the current

practice of using these two different methods to assess late fees for

various NSM charges, the NASD's operational efficiency will be enhanced

and public confusion concerning the NASD's late fee policy likely will

be diminished.

The NASD also is proposing to amend Section H to provide that the

section governs fees for the late payment of NSM charges instead of

``NASDAQ charges.'' This amendment reflects the merger, effective June

30, 1993, of two of the NASD's corporate subsidiaries, Nasdaq, Inc. and

NASD Market Services, Inc. (``MSI''), into one consolidated subsidiary

called The Nasdaq Stock Market, Inc. In addition, this amendment serves

to subject charges for services provided by MSI (the NSM after the

merger) to late payment fees (e.g., SOES, SelectNet, and ACT charges).

Currently, other than for Nasdaq/NMS Last Sale service charges, there

is no fee for the late payment of service charges that previously were

assessed by MSI but now are assessed by the NSM after the merger. Thus,

the proposal enhances the consistency and uniformity of late payment

charges assessed by the NSM.

The NASD notes that the current 10% late fee charge has produced

revenues of approximately $35,000 annually. However, the NASD also

notes that its implementation of a subscriber deposit policy in April

1990 has been very effective in offsetting potential losses from

subscribers with delinquent accounts.\2\ Therefore, the NASD believes

the 10% fee for late payments is no longer necessary and that the 1\1/

2\% fee for amounts past due over 45 days is a reasonable way to impose

fees for the late payment of service charges.

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\2\See Securities Exchange Act Release No. 27924 (April 20,

1990), 55 FR 17691 (File SR-NASD-90-25).

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2. Statutory Basis

The NASD believes that the proposed rule change is consistent with

Section 15A(b)(5) of the Act. Section 15A(b)(5) requires that the rules

of a national securities 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. Specifically, by instituting a

uniform and consistent policy for assessing fees for the late payment

of service charges imposed by the NSM, the NASD believes that the

amount charged for the late payment of fees will be reasonable and

equitably allocated. Moreover, the uniform late fee policy will enhance

the efficiency of the NASA's new consolidated billing system and likely

decrease confusion concerning the method by which fees for the late

payment of NSF charges are determined.

B. Self-Regulatory Organization's Statement on Burden on Competition

The NASD believes that the proposed rule change will not result in

any burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Commerce on the Proposed

Rule Change Received From Members, Participants, or Others

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 NASD 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 30, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\3\

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\3\17 CFR 200.30-3(a)(12) (1989).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-19376 Filed 8-8-94; 8:45 am]

BILLING CODE 8010-01-M