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93-3 SEC Approval of Amendments to Branch-Office Fees

SUGGESTED ROUTING

Legal & Compliance
Registration

Executive Summary

The Securities and Exchange Commission (SEC) has approved an amendment to Schedule A of the NASD® By-Laws that permits the NASD to assess a $50 fee for the registration of each branch office and an annual $50 fee based on the number of registered branch offices or the number of registered persons associated with the member, whichever is lower. Previously, the number of registered persons was not considered in calculating the annual fee. The new provisions apply to assessments on member firms for the calendar year ended December 31, 1992. The text of the amendment follows this Notice.

Background and Discussion

The SEC has approved an amendment to Schedule A, Section 2 of the NASD By-Laws that permits the NASD to assess a $50 fee for the registration of each branch office and an annual $50 fee based on the number of registered branch offices or the number of registered persons associated with the member, whichever is lower.

NASD members were previously required to pay an annual fee for each registered branch office. The fee was assessed on registration of the branch and annually thereafter. The fee was imposed for each location of a member that met the definition of "branch office," as defined in Section 27 of the NASD Rules of Fair Practice, and was registered with the NASD. Section 27(g)(2) defines "branch office" as any location where a member conducts an investment banking or securities business. In addition, Section 27(g) provides that a branch office is any location where a member performs any function of an Office of Supervisory Jurisdiction (OSJ); publicly displays signage; operates from public areas of buildings, such as bank branches, even when such locations are temporarily staffed; or advertises an address in any public media. (See Notice to Members 92-18 April 1992.)

The reason for the amendment is the NASD concern with the inequity that could result from imposing branch-office fees on a member with a disproportionately large number of branch-office locations relative to its size and number of registered representatives and principals. A member with many offices staffed by registered persons on a part-time, rotating basis could be assessed a disproportionately large branch-office fee. To eliminate possible inequities, the NASD decided to revise the branch-office fee structure.

The amendment to Section 2 clarifies that a $50 fee is imposed for registering each branch office and that each branch office is also subject to a $50 annual fee. The amendment provides that the annual fee is calculated at year-end based on either the number of the registered branch offices or the number of registered representatives and principals at that time. Thus, where the number of a member's registered branch offices exceeds the combined number of the member's registered persons, the member will not be assessed branch-office renewal fees on the difference between the two. Even if the annual fee is based on the member's registered persons, members must still register each location that meets the definition of a branch office. The amendments apply to assessments on member firms for the calendar year that ended December 31, 1992.

Implementation

To take advantage of the new fee assessment structure, members need to review their operations to determine which locations must be registered with the NASD because they meet the definition of "branch office" in Section 27. Members should use Schedule E to Form BD to register any unregistered locations and to identify all locations as full- or part-time. The NASD must receive any updates to Schedule E by March 15, 1993, to affect the member's assessment for calendar year 1992. Members may file Schedule E to Form BD either in hard-copy form with the NASD's Central Registration Depository (CRD) or electronically through the Firm Access Query System (FAQS) if the members are subscribers. Call the FAQS hotline at (301) 590-6862 or the Member Services Phone Center at (301) 590-6500 for details on FAQS. For questions related to the filing of Schedule E to Form BD for the registration of branch offices, call the Member Services Phone Center.

Questions regarding this Notice should be directed to John F. Vaughn, Assistant Director, Membership at (301) 590-6500, or Elliott R. Curzon, Senior Attorney, Office of General Counsel, at (202) 728-8451.

Text of Amendment to Schedule A to the NASD By-Laws

(Note: New text is underlined; deleted text is in brackets.)

Section 2 — Fees

(a) Each member shall be assessed a fee of $50 for the registration of each [registered] branch office, as defined in the By-Laws[,]. Each member shall be assessed an annual fee for each branch office [which is open during any part of the Association's fiscal year.] in an amount equal to the lesser of (1) $50 per registered branch, or (2) the product of $50 and the number of registered representatives and registered principals associated with the member at the end of the Association's fiscal year.

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