[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Notices]
[Pages 3014-3015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-716]



[[Page 3014]]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35189; File No. SR-NASD-94-76]


Self-Regulatory Organizations; Notice and Immediate Effectiveness 
of Proposed Rule Change by National Association of Securities Dealers, 
Inc., Relating to Subscriber Fees for Nasdaq Workstation II and 
Systems-Related Testing Fees

January 3, 1995.
    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 
14, 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 NASD has designated this proposal as one establishing 
or changing a fee under Section 19(b)(3)(A(ii) of the Act, which 
renders the rule effective upon the Commission's receipt of this 
filing. 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 
revise the fee structure applicable to NASD members receiving the 
second generation of Nasdaq Workstation Service 
(hereinafter referred to as ``NWII'') functionality.\1\ Additionally, 
the NASD is proposing to implement fees that member firms would pay to 
test certain communications interfaces. The proposed fees would take 
effect on January 1, 1995 and be reflected in Sections A(9) and E(5), 
respectively, of Part VIII of Schedule D to the NASD By-Laws. The full 
text of the proposed rule change is set forth below. (New language is 
underlined and deletions are bracketed.)

    \1\The computer facilities that support the provisions of NWII 
are operated by The Nasdaq Stock Market, Inc. (``NSMI''), a wholly 
owned subsidiary of the NASD.
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Part VIII--Schedule of NASD Charges for Services and Equipment

a. System Services
* * * * *
    9. Nasdaq Workstation Service
* * * * *
    The following charges shall apply to the receipt of Level 2 or 
Level 3 Nasdaq Service via equipment and communications linkages 
prescribed for the Nasdaq Workstation II service.

Service Charge--$100/month per server
Display Charge--$500/month per presentation device
Additional Circuit--$1,150 per month
* * * * *
E. Other Services
    1. No change.
    2. No change.
    3. No change.
    4. Testing Services.
    Subscribers that conduct tests of their computer-to-computer 
interface (``CTCI'') or digital interface (``DIS/CHIPS'') with the 
central processing facilities of The Nasdaq Stock Market, Inc. 
(``NSMI'') shall pay the following charges:
$285/hour--For CTCI/DIS/CHIPS testing between 9:00 a.m. and 5:00 p.m. 
E.T. on business days;
$333/hour--For testing at all other times on business days, or on 
weekends and holidays.

The foregoing fees shall not apply to testing occasioned by (i) new or 
enhanced services and/or software provided by NSMI or (ii) 
modifications to software and/or services initiated by NSMI in response 
to a contingency.

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 amend the subscriber fees 
applicable to NASD member firms that use the NWII to support their 
trading in The Nasdaq Stock Market (``Nasdaq'') and/or the OTC Bulletin 
(``OTCBB'') component of the over-the-counter (``OTC'') equities 
market. The rule change also would establish a new category of fees to 
be paid by member firms (either directly or through billings from their 
service bureaus) for testing communication interfaces with central 
processing facilities that support Nasdaq.
    The roll-out of NWII, which began in November, 1994, constitutes a 
significant milestone in the upgrade of hardware, software, and network 
facilities that comprise the infrastructure of Nasdaq. The software 
driving NWII is windows-based and provides several data management 
features that are not available in the original version of Nasdaq 
Workstation service (hereinafter referred to as ``NWI''). Moreover, a 
new network--known as the Enterprise Wide Network (``EWN'')--has been 
developed to deliver NWII functionality. The capacity of the EWN is 
more than five times that of the network developed for NWI (i.e., 
56,000 baud versus 9,600 baud). Since the NWII roll-out has now begun, 
it is appropriate to implement service fees calculated to recover the 
higher costs of operating and maintaining the NWII functionality and 
the EWN.\2\

    \2\The NWII roll-out will occur in five phases with the final 
phase scheduled for completion in mid-1996. Each phase consists of 
installing NWII at all subscriber sites in a defined geographic 
area. Thus, while the roll-out proceeds, some subscribers will 
continue to utilize NWI and will pay the existing charges for that 
service.
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    Under the NWII, each subscriber location will have at least one 
service delivery platform or server that resides on the EWN. (The 
server functions as the subscriber's gateway to the EWN.) Each server 
will be capable of supporting up to eight presentation devices (i.e., 
Workstations). To recover the operational and maintenance costs 
associated with providing NWII, the proposed fee structure would 
establish a charge of $100/month per server and a charge of $500/month 
for each workstation or presentation device linked to that server. 
Thus, an NWII subscriber with 8 Workstations and 1 server would pay 
$4,100/month under the proposed fee structure. Although it is possible 
to support as many as eight Workstations on a single server, and NWII 
subscriber might wish to configure its operating environment, for 
example, with two servers, each supporting 4 Workstations. In this 
circumstance, the subscriber would pay $1,150/month for the second 
circuit at the same location, $200/month for the two servers, and 
$4,000/month for receipt of NWII functionality on 8 Workstations. The 
proposed fees are premised on the assumption that a subscriber will 
maximize the capacity of each server before adding a second 
telecommunications circuit and server. However, if a firm elects to add 
servers and circuits without maximizing, that firm will bear the 
additional circuit cost of $1150/month which constitutes a 
[[Page 3015]] pass-through of the actual cost borne by NSMI.
    Regarding the proposed testing fees, these have been calculated to 
recover NSMI's actual costs in accommodating members' requests for 
testing of specialized communications interfaces with NSMI's central 
processing facilities. Typically, such testing occurs when new broker-
dealer subscribers are added to an existing computer-to-computer 
interface (``CTCI'') maintained by a service bureau or when a broker-
dealer (with its own digital interface) has effected a major change in 
its internal systems/software applications. The scope, purpose, and 
longevity of the test are determined by the subscriber. NSMI 
participates in the testing process by providing a test environment 
that closely approximates the production environment for the service(s) 
which the subscriber wishes to test (e.g., the Automated Transaction 
(``ACT'') service). Derivation of the testing fees involved a review of 
NSMI testing logs for 1993; the computation of direct and indirect 
costs allocable to tests actually performed; and the breakdown of those 
costs into hourly rates. In sum, the proposed testing fees would pass-
through the actual costs incurred by NSMI in accommodating subscribers' 
testing needs. No testing fee would be assessed in circumstances where 
major systems/software change instituted by NSMI have prompted the 
subscriber's test.
    The NASD believes 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. It should 
be noted that the proposed NWII fees will be payable exclusively by 
NASD member firms that receive Level 2 or Level 3 Nasdaq service via 
the NWII offering. As described earlier, NWII is being implemented in 
phases with all current NWI subscribers in a defined area being 
converted to NWII.\3\ Thus, beginning January 1, 1995, all NASD members 
that are converted to NWII will be liable for the new fees; NWI 
subscribers will continue to pay the NWI service fees until they are 
coverted.

    \3\NWI and NWII both permit the deliver of either Level 2 or 
Level 3 Nasdaq service. Subscription to Level 3 is limited to NASD 
members that meet the financial and operational requirements for 
market making. Subscription to Level 2 Nasdaq service is open to 
non-members as well as members because it does not provide the 
functionality needed to enter quotations as a market maker. 
Extension of the NWII fees to non-member subscribers will be the 
subject of a separate Rule 19b-4 filing. Meanwhile, any non-members 
converted to NWII will continue to pay the prevailing rate for NWI 
functionality.
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    The NASD believes that the proposed NWII fees are reasonable in 
that they were calculated to recover the projected costs of operating 
and maintaining the NWII software, hardware, and the EWN. The 
development costs associated with NWII have been expensed by NSMI and 
will not be recovered through the proposed NWII fees. Although higher 
than the existing fees for NWI, the NWII fees are believed reasonable 
that subscribers will be provided the increased functionality embedded 
in the new software package, increased network capacity to accommodate 
future growth in traffic and business volume, and upgraded hardware 
capable of more rapid processing of message traffic to and from market 
participants.
    Regarding the proposed testing fees, these have been calculated to 
recover the actual costs incurred by NSMI to accommodate the testing 
requirements of CTCI and digital interface subscribers. All entities 
that would be required to pay these testing fees are either NASD 
members or service bureaus that incur testing charges will pass them on 
to their broker-dealer customers. Hence, the affected NASD members will 
ultimately pay the testing charge incurred by their service bureaus.
    Based on the foregoing factors, the NASD submits that both 
categories of proposed fees are reasonable and designed to achieve an 
equitable allocation of operating costs among NASD members utilizing 
the affected NSMI services.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the proposed 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

    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)(ii) of the Act and subparagraph (e) of Rule 19b-4 
thereunder, because the proposal constitutes a change in a ``due, fee 
or other charge'' or specific automated services provided 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 NW., 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 February 2, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\

    \4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-716 Filed 1-11-95; 8:45 am]
BILLING CODE 8010-01-M