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88-73 Amendment to NASD UPC That Requires Syndicate Managers to Provide Itemized Expense Statements to Members of Underwriting Syndicates

SUGGESTED ROUTING*

Senior Management
Corporate Finance
Legal & Compliance
Syndicate

*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The Securities and Exchange Com mission (SEC) has approved an amendment to the NASD Uniform Prac tice Code that requires syndicate managers of public offerings to provide itemized expense statements to members of underwriting syndicates.

The text of the amendment follows this notice.

BACKGROUND

Section 66 of the NASD Uniform Practice Code requires final settlement of syndicate accounts by the syndicate manager within ninety days following the syndicate settlement date. Syndicate accounts are established by underwriting groups to process the income and expenses of the syndicate in distributions of corporate securities.

As a result of concerns about the lack of details provided by syndicate managers in syndicate settlement statements, the NASD considered the need to require syndicate managers to provide to members of underwriting syndicates itemized statements of the expenses incurred by the syndicate. The Municipal Securities Rule Making Board Rule G-ll(h) currently requires an itemized statement in municipal underwritings. Compared with syndicate expense statements issued pursuant to Rule G-ll(h), syndicate expense statements used in non-municipal underwriting are diverse in format and generally provide little or no detail about the nature of expenses incurred by the syndicate. The NASD is concerned that the lack of detail in the syndicate expense statement reduces the syndicate manager's accountability for syndicate funds and determined that a detailed expense statement could result in more care being taken in determining actual syndicate expenses.

DESCRIPTION OF AMENDMENT

On August 3, 1988, the SEC approved the NASD's adoption of an amendment to Section 66 of the Uniform Practice Code (Code) to require syndicate managers to provide an itemized expense statement to the underwriting syndicate no later than the date of final settlement of the syndicate account, which Section 66 requires to be within 90 days after the syndicate settlement date.1 The expense statement is required to include, where applicable, the following expense categories: legal fees; advertising; travel and entertainment; closing expenses; loss on oversales; telephone; postage; communications; co-manager's expenses; computer and data processing charges; interest expense; and miscellaneous. The amendment to Section 66 provides that the "miscellaneous" category should include only minor items that cannot be easily categorized elsewhere in the statement and that the amount under miscellaneous should not be disproportionately large in relation to other items. It is anticipated that any other major expense that cannot be included in the enumerated categories will be itemized separately.

Although the new rule was effective on Commission approval on August 3,1988, the NASD will provide a 30-day grace period from the date of this notice until November 3, 1988, for members to adjust their administrative procedures to comply with the new provision.

Questions concerning this notice can be directed to the NASD Corporate Financing Department at (202) 728-8258 or to Suzanne E. Roth-well, Associate General Counsel, NASD Office of General Counsel, at (202) 728-8247.

UNIFORM PRACTICE CODE

Sec. 66

(Note: New language is underlined.)

SETTLEMENT OF SYNDICATE ACCOUNTS

(a) Definitions
(1) "selling syndicate" means any syndicate formed in connection with a public offering to distribute all or part of an issue of corporate securities by sales made directly to the public by or through participants in such syndicate.
(2) " syndicate account" means an account formed by members of the selling syndicate for the purpose of purchasing and distributing the corporate securities of a public offering.
(3 ) " syndicate manager" means the member of the selling syndicate that is responsible for maintenance of syndicate account records.
(4) "syndicate settlement date" means the date upon which corporate securities of a public offering are delivered by the issuer to or for the account of the syndicate members.
(b) Final settlement of syndicate accountsshall be effected by the syndicate manager within90 days following the syndicate settlement date.
(c) No later than the date of final settlementof the syndicate account the syndicate managershall provide to each member of the selling syndicate an itemized statement of syndicate expenses that shall include, where applicable, the followingcategories of expenses: legal fees; advertising;travel and entertainment; closing expenses; loss onoversales; telephone, postage, communications; co-manager's expenses; computer and data processing charges; interest expense; and miscellaneous.The amount under "miscellaneous" should not bedisproportionately large in relation to other itemsand should include only minor items that cannotbe easily categorized elsewhere in the statement.Any other major items not included in the abovecategories shall be itemized separately.

1 Securities Exchange Act Release No. 25962 (August 3,1988).



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