[Federal Register Volume 59, Number 238 (Tuesday, December 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30517]


[[Page Unknown]]

[Federal Register: December 13, 1994]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35054; File No. SR-NASD-94-70]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by The National Association of Securities Dealers, Inc. Relating 
to Consolidation of the Level 1 and Last Sale Information Services and 
Subscriber Fees

December 6, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December 
1, 1994 the National Association of Securities Dealers, Inc. (``NASD'' 
or ``Association'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the NASD. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder, 
the following is the full text of a proposed rule change that will 
effectuate a consolidation of the Nasdaq Level 1 and Last Sale 
Information services and of the corresponding subscriber charges. The 
proposed language would modify Sections A(1) and (5) of Part VIII of 
Schedule D to the NASD By-Laws. (New language is italicized and 
deletions are bracketed.)
PART VIII
SCHEDULE OF NASD CHARGES FOR SERVICES AND EQUIPMENT

A. System Services

1. Level 1 Service
    The charge to be paid by the subscriber for each terminal receiving 
NASDAQ Level 1 Service is [$9.25] $19 per month. This Service includes 
the following data: (i) inside bid/ask quotations calculated for 
securities [quoted in] listed on [t]The Nasdaq Stock Market [Nasdaq 
System] and securities quoted in the OTC Bulletin Board (``OTCBB'') 
service; [and] (ii) the individual quotations or indications of 
interest of broker-dealers utilizing the OTCBB service; and (iii) last 
sale information on securities classified as designated securities in 
Schedule D to the NASD By-Laws, Parts X, XI, and XIII and securities 
classified as over-the-counter equity securities in Part XII of 
Schedule D.
* * * * *
5. Rescinded and reserved for future use.
    [Last Sale Information
    a. The charge to be paid by the subscriber for each terminal 
receiving Last Sale Information through a vendor shall be determined by 
the total number of securities classified by the Corporation (i) as 
designated securities under Part X and XI and (ii) those classified as 
OTC Equity Securities under Part XII of Schedule D to the NASD By-Laws. 
The following schedule of charges shall apply to the receipt of last 
sale information for such securities.

------------------------------------------------------------------------
                                                                 Charge 
                                                                   per  
                     Number of securities                       terminal
                                                                   per  
                                                                  month 
------------------------------------------------------------------------
250 or less...................................................     $2.50
251 or 500....................................................      5.00
501 or 1,000..................................................      7.50
1001 or more..................................................      9.75
------------------------------------------------------------------------

    b. The rate for each month shall be determined by the total number 
of designated securities and OTC Equity Securities at the start of 
business on the first day of that month.]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD has prepared summaries, set forth in Sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of this rule change is to establish a single service 
offering comprised of the existing Nasdaq Level 1 (``Level 1'') 
quotation and Last Sale Information (``Last Sale'') services. The 
monthly charge to be levied for the consolidated service will be $19/
terminal, the sum of the monthly charges currently assessed for receipt 
of the Last Sale and Level 1 services on an authorized terminal device. 
Hence, this rule proposal does not entail an increase in the subscriber 
charges for the individual constituent services; however, its 
implementation will result in higher fees for some Level 1 subscribers 
who do not currently pay for receipt of last sale data.
    The two services covered by this proposal are distributed by 
commercial vendors of market data pursuant to contracts with The Nasdaq 
Stock Market, Inc. (``NSMI''), a wholly-owned subsidiary of the 
NASD.1 Vendors distribute the data via their respective networks 
to the end users who pay the established charge levied by NSMI for 
receipt of the quotation and transaction information. The existence of 
separate service categories for quotation and transaction data traces 
to the evolution of The Nasdaq Stock Market (``Nasdaq''). From its 
inception in 1971, Nasdaq provided quotation information on a real-time 
basis for vendor distribution. In 1982, the NASD implemented rules 
requiring member firms to report individual transactions in the top 
tier of Nasdaq listings within 90 seconds of execution. Later, this 
reporting regime was extended to Nasdaq SmallCap issues, Nasdaq 
convertible debt issues, and equity issues traded exclusively over-the-
counter (``OTC''). In 1991, the universe of quotation data available to 
Level 1 subscribers was expanded to include real-time quotations 
entered by OTC market makers utilizing the OTCBB service. The instant 
proposal would combine the real-time quotation and transaction data for 
Nasdaq and OTC issues, respectively, into a single service distributed 
by vendors for which their subscribers will pay a single monthly charge 
of $19/terminal.
---------------------------------------------------------------------------

    \1\NSMI operates and maintains the facilities that collect and 
validate market data prior to broadcasting the data to vendors for 
redistribution.
---------------------------------------------------------------------------

    The NASD posits that this proposal will produce benefits to vendors 
as well as their customers. First, it will simplify the billing process 
by eliminating the need to separately identify and track those 
terminals receiving one or the other covered service. This should 
minimize the potential for billing disputes between vendors and their 
customers, and simplify the process by which vendors authorize (or 
deauthorize) subscriber devices for receipt of real-time quotation and 
transaction information on Nasdaq and OTC issues, Second, it will 
increase market transparency by ensuring that all subscribers to NSMI's 
comprehensive quotation data (i.e., the quotations on Nasdaq and OTCBB 
issues that Level 1 subscribers currently receive) will receive trade-
by-trade information for the same universe of quoted securities. Thus, 
the vendors' customers will automatically have access to more expansive 
data that can be used to gauge market trends and facilitate investment 
decisions. And third, implementation of this proposal will materially 
advance NSMI's efforts to simplify and update its fee structure, with a 
view toward reducing the administrative burdens and costs incurred by 
vendors that distribute quotation and transaction data from the Nasdaq 
and OTC markets, respectively.\2\ In this regard, the NASD notes that 
the SEC previously approved a similar initiative that linked the 
subscription of quotation and transaction data services for New York 
Stock Exchange (``NYSE'') listed issues and established unified 
subscriber fees. This was accomplished by certain amendments to the 
Consolidated Tape and Consolidated Quotation Plans.\3\
---------------------------------------------------------------------------

    \2\The action proposed in this filing is one of a number of 
steps contemplated in the process of responding to vendor and 
subscriber concerns respecting the administration of information 
display, utilization and entitlement.
    \3\See Release No. 34-24130 (February 20, 1987); 52 FR 6413 
(March 3, 1987). While the NYSE initiative resulted in decreased 
payments for a majority of subscribers with one display device, the 
Commission noted that some subscribers with one display device would 
pay increased charges and that certain smaller firms that had 
currently received transaction information only would experience a 
fee increase. The Commission, in its approval order encouraged the 
CTA and CQ Plan participants to monitor the operation of its revised 
structure to determine if relief for smaller firms is practicable. 
Id.
---------------------------------------------------------------------------

    The NASD and NSMI believe that that proposed rule change is 
consistent with the requirements of Section 15A(b)(5) of the Act. 
Section 15A(b)(5) specifies that the rules of a national securities 
association shall provide for the equitable allocation of reasonable 
dues, fees and other charges among members, issuers and other persons 
using any facility or system that the association operates or controls. 
The proposed change in fee structure effects the consolidation of two 
existing services into a single service, priced at the current levels 
of the constituent services. As such, the proposal does not constitute 
a fee increase for those subscribers receiving the most comprehensive 
service. However, its implementation will require that Level 1 
subscribers who had not previously received last sale data also pay for 
receipt of complete last sale data. In terms of the universe of Level 1 
terminals currently supported, this segment accounts for about 6.5% of 
the terminal population. It should be noted that this percentage has 
been declining in recent years, apparently reflecting the enhanced 
value of last sale data that now includes all Nasdaq-listed securities 
and thousands of OTC equity securities. The NASD believes that the 
additional cost of $9.75 that some subscribers will incur will be 
partially offset by the administrative savings.\4\ In particular, large 
subscribers will no longer have to verify the accuracy of billings by 
tracking terminals that receive only one of the covered services. 
Administrative savings should also accrue to vendors with large 
populations of subscribers receiving Nasdaq market data. Moreover, the 
instant proposal will effect a simplification in the fee structure 
applicable to receipt of two major data services supported by NSMI.
---------------------------------------------------------------------------

    \4\To the extent that some small volume subscribers to the 
current Level 1 service do not wish to receive the consolidated 
service they may subscribe to a vendor service offering the same 
categories of information on a delayed basis. NSMI imposes no 
subscriber charge for delayed market data.
---------------------------------------------------------------------------

    The NASD and NSMI also believe that this proposal is consistent 
with certain national market system objectives expressed by Congress in 
adopting Section 11A(a)(1) of the Act in 1975. Specifically, the 
Congress found that the efficiency of the nation's securities markets 
would be advanced by the broad dissemination of reliable quotation and 
transaction information to brokers, dealers, and investors. In other 
words, the Congress sought to increase market transparency by fostering 
opportunities for electronic delivery of current market data to the 
constituencies served by the various securities markets. The NASD 
submits that its proposal is consistent with Section 11A(a)(1) because 
it will optimize the distribution of real-time quotation and 
transaction data from the Nasdaq and OTC markets to market 
professionals handling customer orders. As a result, registered 
representatives using desk-top terminals to supply current market data 
on Nasdaq or OTC equities will automatically be able to furnish their 
customers with insider bids/offers as well as last sale prices for 
these securities. Hence, consolidation of the Level 1 and Last Sale 
services translates to expanded access to market data for retail 
investors who depend on their brokers for current market information 
Finally, the NASD notes that the Commission previously approved 
amendments to the Consolidated Tape and Consolidated Quotation Plans 
that effected a bundling of quotation and last sale data services (and 
the establishment of unified subscriber fees) respecting NYSE-listed 
securities covered by these national market system plans. Based on 
these factors, the NASD reiterates its belief that the instant proposal 
is fully consistent with the data distribution objectives contained in 
Section 11A(a)(1) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the rule change will not result in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The NASD did not solicit or receive written comments on this rule 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will: 
(A) by order approve such proposed rule change, or; (B) institute 
proceeding to determine whether the proposed rule change should be 
disapproved.

IV Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by January 3, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\17 C.F.R. 200.30-3(a)(12)
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30517 Filed 12-12-94; 8:45 am]
BILLING CODE 8010-01-M