NASD Reiterates Guidance Regarding Member's Disclosure of Regulatory Transaction Fees under Section 3 of Schedule A to the NASD By-Laws
June 27, 2007
NASD is reiterating its prior statements that member firms that pass on to their customers transaction fees collected under Section 3 of Schedule A to the NASD By-Laws are not permitted to refer to the fees assessed by NASD as "Section 31 Fees" or "SEC Fees." Further, NASD wants to remind firms that they should not mislabel this fee on customer confirmations, or in any representations or communications with customers.
Section 31 of the Securities Exchange Act of 1934 requires NASD and the national securities exchanges to pay transaction fees and assessments to the SEC that are designed to recover the costs related to the government's supervision and regulation of the securities markets and securities professionals. NASD obtains its Section 31 fees and assessments from its membership, in accordance with Section 3 of Schedule A to the NASD By-Laws (Section 3). NASD's Section 3 assessments apply only to transactions effected otherwise than on a national securities exchange. All of the transactions that are assessable under Section 3 are reported to NASD through automated facilities. NASD is able to use the transaction data reported to these automated facilities for billing purposes.
During a past review, NASD determined that some firms that pass these transaction fees on to their customers were mischaracterizing the fee and referring to it as either a "Section 31 Fee" or an "SEC Fee." In response to these findings, NASD issued Notice to Members (NTM) 05-11 to remind all firms of the obligation not to use this incorrect terminology. NASD is issuing this Member Alert to reiterate to members that they must continue to refrain from labeling the fees as such to avoid any confusion by their customers. (Also see NTM 04-63). In this regard, firms that are found to be mislabeling the fee must immediately cease this practice and accurately label the fee. NASD staff will check for compliance with the appropriate terminology. If NASD staff find firms that mislabel the fee on customer confirmations, or any representations or communications with customers, they may refer the matter for possible disciplinary action.