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95-94 NASD Requests Comment On Proposed Redefinition Of Gross Revenue For Assessment Purposes;

Comment Period Expires November 27, 1995

SUGGESTED ROUTING

Senior Management
Legal & Compliance

Executive Summary

The NASD® is requesting member comment on a proposed change to the NASD By-Law definition of Gross Revenue for NASD Assessment Purposes to require inclusion of net interest and dividend income (gross income less related interest and dividend expense but not in excess of such revenue) in assessable revenue. The change would take effect for the 1996 assessment based on revenues generated in calendar year 1995.

Background

Based on an extensive survey of members' FOCUS filings for 1995 and follow-up discussions with a number of member firm representatives, the NASD found that along with the normal interest income from customer margin accounts and dividends from trading and investment positions, a significant portion of member revenue is generated "from the securities business," representing interest associated with trading strategies involving, for example, repurchase, reverse repurchase, and stock loan/borrow transactions. The NASD Board of Governors (Board) has, therefore, approved for member comment an amendment to the definition of gross revenue to require inclusion of net interest and dividend income (gross income less related interest and dividend expense but not in excess of such revenue) in assessable revenue. This amendment treats interest and dividend income for NASD assessment purposes the same way the Securities Investor Protection Corporation treats such income for assessment purposes.

Based on FOCUS data, NASD assessment data, and survey data, the NASD estimated that this change in assessment definition, if adopted for 1995, would have generated additional assessment revenue of $3 million based on the budgeted level of assessment revenue of $39 million. Higher revenues are anticipated to be necessary beginning in 1996 to fund the commitment of greater resources to the NASD's broker/dealer regulation activities, partly in response to the recent findings and recommendations of The NASD Select Committee on Structure and Governance (the Rudman Committee).

Request For Comments

The Board believes that this amendment provides for consistent treatment of net interest and dividend income for assessment purposes, and supports the equitable allocation of dues, fees, and assessments among member firms as contained in the NASD By-Laws. The Board requests member comment before filing the amendment with the Securities and Exchange Commission. Written comments must be received no later than November 27, 1995, and should be addressed to:

Joan Conley
Corporate Secretary
National Association of
Securities Dealers, Inc.
1735 K Street, NW
Washington, DC 20006–1500.

Questions concerning this Notice may be directed to James Shelton, NASD Billing Manager, at (301) 590–6757.


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