Request for Comments on Proposed Amendments to Section 66 of the NASD Uniform Practice Code Regarding Syndicate Expense Statements and Prompt Settlement of Commissions
TO: All NASD Members and Other Interested Persons
ATTN: Syndicate Department
LAST DATE FOR COMMENT: JANUARY 30, 1988.
The NASD requests comments on two proposed amendments to Section 66 of the NASD Uniform Practice Code. The first amendment would require syndicate managers of public offerings to provide members of underwriting syndicates with itemized statements of the expenses incurred by the syndicate. The second amendment would require that all sales commissions or concessions be paid or settled on the syndicate settlement date.
The text of the proposed amendments is attached.
BACKGROUND AND EXPLANATION OF PROPOSED AMENDMENTS
Syndicate Expense Statements
Section 66 of the NASD Uniform Practice Code requires final settlement of syndicate accounts by the syndicate manager within 90 days following the syndicate settlement date. Syndicate accounts are ordinarily 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 detail provided by syndicate managers in syndicate settlement statements, the NASD Corporate Financing Committee considered the need to require syndicate managers to provide to members of underwriting syndicates itemized statements of the expenses incurred by the syndicate. The Committee noted that Municipal Securities Rulemaking Board Rule G-ll(h) requires an itemized statement in municipal underwritings. The Committee reviewed examples of syndicate settlement statements issued under Rule G-ll(h) and syndicate settlement statements used in non-municipal underwritings and noted that the non-municipal statements were diverse in format and provided little or no detail about the nature of expenses incurred by the syndicate.
The NASD Corporate Financing and Uniform Practice Committees determined that a requirement for a standardized and detailed syndicate settlement statement is appropriate. Therefore, the Committees recommended to the Board of Governors and the Board approved an amendment to Section (56 of the Uniform Practice Code to require syndicate managers to provide to members of the syndicate an itemized settlement statement including the following expense categories: legal fees, advertising, travel and entertainment, closing expenses, loss on oversales, telephone/postage/communications, co-manager's expenses, computer/data processing charges, interest expense, and miscellaneous. The miscellaneous category would include only minor items that cannot be easily categorized elsewhere in the statement and the amount under miscellaneous would not be disproportionately large in relation to other items. Any other major expenses not included in the above categories would be itemized separately.
Under the proposed amendment, the itemized settlement statement would be provided to syndicate members by the syndicate manager no later than the date of final settlement of the syndicate account, which Section 66 requires to be within 90 days of the syndicate settlement date.
Prompt Settlement of Commissions
The Corporate Financing Committee also reviewed the practice of including commissions on "designated" sales and "manager bill and deliver" sales as an item on syndicate settlement statements. In a designated sale or manager bill and deliver sale, payment for the sale is made by the customer — usually an institution — directly to the manager of the offering and a member is designated to receive the selling commission. The Committee discussed whether commissions on such sales should be paid or settled on the syndicate settlement date — usually one week after the effective date of the offering — or later, as part of the final syndicate settlement, which occurs up to 90 days after the syndicate settlement date. Currently, syndicate managers settle commissions on regular sales on the syndicate settlement date and settle selling commissions on designated sales and manager bill and deliver sales as part of the final syndicate settlement 90 days later.
It is the general practice of NASD members participating in a public offering to pay sales commissions to registered representatives shortly after a sale. A delay in the payment of commissions by a syndicate manager can have a negative impact on the net capital of a syndicate member. Therefore, the Corporate Financing and Uniform Practice Committees determined that syndicate managers should not delay the payment of such sales commissions. They recommended to the Board of Governors and the Board approved an amendment to Section 66 of the Uniform Practice Code to require all commissions or sales concessions to be paid or settled on the syndicate settlement date. This requirement would ensure that all commissions, including commissions on designated sales and manager bill and deliver sales, would be settled on the settlement date rather than be included on the final syndicate settlement statement.
REQUEST FOR COMMENTS
TheNASD encourages all members and other interested persons to comment on the proposed amendments.Comments should be directed to:
Mr. Lynn Nellius
National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006-1506
Comments must be received no later than January 30, 1988. Comments received by this date will be considered by the NASD Corporate Financing and Uniform Practice Committees and the NASD Board of Governors. If approved by the Board, the proposed amendments must be filed with and approved by the Securities and Exchange Commission before becoming effective.
Questions regarding the proposed amendments can be directed to Richard J. Fortwengler, NASD Corporate Financing Department, at (202) 728-8258.
Frank J. Wilson
Executive Vice President and General Counsel
AMENDMENTS TO SECTION 66 OF THE NASD UNIFORM PRACTICE CODE*
Settlement of Syndicate Accounts
* New language is underlined.