NASD Charges for Reviewing Advertisements and Sales Literature

EXECUTIVE SUMMARY

The NASD has filed an amendment to Section 13 of Schedule A to the NASD By-Laws with the Securities and Exchange Commission relating to the NASD's service charge for reviewing advertisements, sales literature, and other similar material. The new charges became effective February 1, 1991. The amended charge is $25 per item (including video or audio tapes) plus $5 per page for each page in excess of five pages, or $5 per minute of video or audio tape for each minute in excess of five. There also is an additional service charge of $200 for each item submitted for expedited review.

BACKGROUND

On January 8, 1991, the NASD filed an amendment to Section 13 of Schedule A to the NASD By-Laws with the Securities and Exchange Commission (SEC or "Commission") relating to the NASD's service charge for reviewing advertisements, sales literature, and other similar material. The amendment was effective on filing, but the NASD did not implement the change until February 1, 1991.

SUMMARY OF AMENDMENTS

Section 13 of Schedule A to the NASD By-Laws currently imposes a service charge of $25 for the review of each item of advertising or sales literature filed with or submitted to the NASD regardless of the length of the material reviewed. The NASD is amending Section 13 to permit the NASD's Advertising Department to charge $25 plus $5 per page for each page in excess of five for reviewing printed material and $25 plus $5 per minute for each minute in excess of five for reviewing video or audio tape.

The NASD is also amending Section 13 to add a fee for expedited review of items submitted to the Advertising Department. Members may elect to request expedited review of material and pay a $200 fee for each item. Expedited review would occur within three (3) business days of the receipt of the item by the department unless the department agreed to a shorter or longer period. The department may also, in its sole discretion, refuse requests for expedited review.

The Board of Governors, which approved the amendments, believes that the changes to the service charges are necessary to more closely reflect the actual cost of reviewing material submitted. The additional revenue generated from the amended charges will augment the operating budget of the NASD's Advertising Department, which is responsible for reviewing such material.

Furthermore, the Board believes that imposing additional service charges on longer materials, or materials requiring expedited review, more equitably apportions the costs of review among the members that submit material.

The Board believes it is unfair to charge members the same amount for reviewing a one-page advertisement as for reviewing a 15-page advertisement or for reviewing materials on an expedited basis. With a single, uniform charge, those members that submit shorter documents in effect subsidize the review of longer documents. The Board also believes that imposing a basic fee plus a per-minute charge for reviewing nonprint media is the most equitable method of assessing such submissions. Moreover, if there was no charge for expedited review, all submissions would likely be accompanied by a request for expedited review, which the Advertising Department would be unable to accommodate.

The NASD is also amending Section 13 to clarify that the charges imposed are limited to the pages of printed media or minutes of nonprinted media actually reviewed. By including the word "reviewed" in the amended language, the NASD is expressly limiting the charge to the material actually examined, even though the document submitted may be longer. This amendment would codify the Advertising Department's current practice of not charging for the review of those portions of a document or other submission that ordinarily are not subject to scrutiny, such as financial statements.

Finally, under the current provisions of Section 13 of Schedule A, submissions made pursuant to Article III, Section 35(c)(6) of the NASD's Rules of Fair Practice are exempted from the review fee. Section 35(c)(6) provides for spot-checking procedures of member-firm advertising. The Association recently added rules covering government securities that include a similar advertising spot-check procedure, and it also will be adding rules addressing options communications that will include an advertising spot-check procedure. The NASD is amending Section 13 to eliminate the specific reference to the Section 35 spot-check procedure and is substituting a reference to "spot-check procedures set forth in the Association's Rules of Fair Practice and Government Securities Rules." This will eliminate the need to amend Section 13 each time another section is amended or renumbered.

Questions regarding this notice may be directed to the NASD's Advertising Department at (202) 728-8330.

TEXT OF RULE CHANGE

The following is the full text of amendments to Section 13 of Schedule A to the NASD By-Laws.

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

Schedule A

* * * * *

Section 13 — Service Charge for Advertisement, Sales Literature, and Other Such Material Filed or Submitted

There shall be a service charge [of $25.00] for each and every item of advertisement, sales literature, and other such material, whether in printed, video or other form, filed with or submitted to the Association, except for items that are filed or submitted in response to a written request from the Association's Advertising Department issued pursuant to the spot check procedures set forth in [Article III, Section 35(c)(6) of] the Association's Rules of Fair Practice and Government Securities Rules[.], as follows: (1) for printed material reviewed, $25.00, plus $5.00 for each page reviewed in excess of 5 pages; and (2) for video or audio media, $25.00, plus $5.00 per minute for each minute reviewed in excess of 5 minutes.

In addition, where a member requests expedited review of material submitted to the Advertising Department there shall be an additional service charge of $200 per item. Expedited review shall be completed within three business days, not including the date the item is received by the Advertising Department, unless a shorter or longer period is agreed to by the Advertising Department. The Advertising Department may, in its sole discretion, refuse requests for expedited review.

* * * * *