[Federal Register Volume 60, Number 3 (Thursday, January 5, 1995)]
[Notices]
[Pages 1815-1816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-192]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35157; File No. SR-NASD-94-73]
Self-Regulatory Organizations; Notice and Immediate Effectiveness
of Proposed Rule Change by National Association of Securities Dealers,
Inc. Relating to an Increase in the Automated Confirmation Transaction
Service Fees
December 27, 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
8, 1994 the National Association of Securities Dealers, Inc. (``NASD''
or ``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') 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
The NASD is proposing to increase, by 15%, all existing service
fees paid by NASD members that participate in the Automated
Confirmation Transaction Service (``ACT'' or ``Service'').\1\ The
revised fees, which will take effect January 1, 1995, will be set forth
in Section A(10) of Part VIII of Schedule D to the NASD By-Laws. The
full text of the proposed rule change reflecting the 15% increase in
ACT fees is set forth below. (New language is underlined and deletions
are bracketed).
\1\The computer facilities that support the provision of ACT are
operated by The Nasdaq Stock Market, Inc. (``NSMI''), a wholly owned
subsidiary of the NASD.
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Part VIII--Schedule for NASD Charges for Services and Equipment
A. System Services
* * * * *
10. Automated Confirmation Transaction Service
The following charges shall be paid by the participant for use of
the Automated Confirmation Transaction Service (ACT):
Transaction related
charges:
Comparison........... [$0.0125] $0.0144/side per 100 shares
(minimum 40 shares; maximum 7,500 shares).
Late report--T+1..... [$0.25] $0.288/side.
Browse/query......... [$0.25] $.288/query.\1\
Terminal fee......... [$50.00] $57.00/month (ACT only terminals).
CTCI fee............. [$500.00] $575.00/month.
Service desk......... [$50.00] $57.50/month.\2\
Trade reporting...... [$.025] $0.029/month (applicable only to
reportable transactions not subject to trade
comparison through ACT).\3\
Risk Management [$.03] $0.035/side and [$15] $17.25/month per
Charges. correspondent firm.
\1\Each Act query incurs the [$0.25] $0.288 fee; however, the first
accept or decline processed for a transaction is free, to insure that
no more than [$0.25] $0.288 is charged per comparison. Subsequent
queries for more data on the same security will also be processed
free. Any subsequent query on a different security will incur the
[$0.25] $0.288 query charge.
\2\No change.
\3\No change.
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 proposed rule change is to effect a 15% across-
the-board increase in each of the service fees related to usage of ACT.
This increase, which would take effect on January 1, 1995, constitutes
the first increase in ACT fees since the Service became operational in
the fourth quarter of 1989.\2\ The necessity for this fee change traces
to expanded ACT usage as a result of (i) increased trading volumes in
The Nasdaq Stock Market (``Nasdaq'') and in the segment of the over-
the-counter (``OTC'') equities market supported by the OTC Bulletin
Board service (``OTCBB'') and (ii) the NASD mandate of real-time trade
reporting in Nasdaq SmallCap issues and OTC equities. The
aforementioned factors have caused ACT processing to consume a much
larger share of network capacity than was originally projected in 1989.
\2\See Securities Exchange Act Release No. 27551 (December 19,
1989); 54 FR 53408 (December 28, 1989).
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In this regard, a positive correlation exists between Act usage and
growth in trade volume as well as the number of securities subject to
the NASD's trade reporting requirements. Between 1989 and 1993, the
total share volume of Nasdaq grew from 33.5 to 66.5 billion shares, an
increase of 98.5%. For the first ten months of 1994, the corresponding
figure is approximately 62 billion shares. With respect to growth
[[Page 1816]] in the number of Nasdaq-listed securities, there were
4,965 Nasdaq listings at year-end 1989 compared with 5,731 in October,
1994; this represents an increase of 15.5%. Real-trade reporting for
OTC equities was initiated in December, 1993 with a total of 3,652
issues in the OTCBB at year-end. By October, 1994, this figure
increased to 5,168 issues, which represents an increase of 41.5%.\3\
Thus, at the present time, NASD members routinely use the Service to
report and compare trades in nearly 11,000 securities. The foregoing
information was factored into the calculation of the revised ACT fees.
\3\Additionally, ACT processes trade reports and effects trade
comparisons on approximately 1,000 OTC equities that are not quoted
in the OTCBB. This subset of OTC equities is characterized by
moderate trade volume and the regular submission of trade reports by
member firms.
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Additionally, the proposal is designed to recoup certain network
costs attributable to provisions of ACT through the Enterprise Wide
Network (``EWN'').\4\ The EWN is the communications component of
Nasdaq's system upgrade which will deliver the second generation of
Nasdaq Workstation service functionality (``NWII'') to market
participants. NWII is currently being phased-in. While the NWII phase-
in proceeds, ACT functionality must be provided via the EWN as well as
the older network. Therefore, a portion of the fee increase will recoup
the network costs associated with providing ACT to member firms using
the NWII service.\5\
\4\The EWN will increase the capacity of the communications
network supporting Nasdaq more than fivefold (9,600 baud to 56,000
baud). The software driving NWII is windows-based and will contain a
number of data management features that are not available in the
original Nasdaq Workstation service that resides in the 9600 baud
network.
\5\Section (a)(2) of the Rules of Practice and Procedure for the
Automated Confirmation Transaction Service defines an ACT
participant to be a member firm registered with the NASD in a market
making capacity, or a member firm that functions as an order entry
firm, a clearing broker-dealer, correspondent executing broker-
dealer, or introducing broker-dealer. Because ACT participation is
defined in this manner, ACT fees are only assessed against those
member firms that actually use the Service.
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The NASD believe that the 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. In this
instance, the increased fees being proposed relate to a package of
automation services available only to NASD member firms that qualify as
ACT participants. The proposed fee increase is the first such increase
since ACT became operational in 1989 and is necessary to offset the
network costs associated with delivering ACT to approximately 1300
member firms.\6\ As noted above, the increased network costs which this
proposal is designed to recoup have occurred as a result of the NASD's
expanded trade reporting requirements, the growth in trade volume
experienced by the Nasdaq and OTCBB market segments in recent years,
and the roll-out of the NWII. In light of these factors, the NASD and
NSMI submit that the proposed increase in ACT fees is necessary and
appropriate to achieve an equitable allocation of reasonable fees among
NASD members using the Service.
\6\During the second half of 1995, ACT fees and ACT-related
network costs will be reviewed to determine if the 1995 increase was
sufficient to recover those costs. That review may reveal that a
further increase is necessary.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and subparagraph (e) of Securities Exchange Act
Rule 19b-4 because the proposal constitutes a change in a due, fee, or
other charge for a package of automated services provided only to NASD
member firms. At any time within 60 days of the filing of such proposed
rule change, the Commission may summarily abrogate such rule change if
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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 with 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 (SR-NASD-94-73) and should be submitted by [insert date 21 days
from the date of publication].
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-192 Filed 1-4-95; 8:45 am]
BILLING CODE 8010-01-M