[Federal Register Volume 60, Number 22 (Thursday, February 2, 1995)]
[Notices]
[Pages 6582-6583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2555]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35284; File No. SR-NASD-95-01]
Self-Regulatory Organizations; Notice of Proposed Rule Change by
the National Association of Securities Dealers, Inc. Relating to
Subscriber Fees For Non-NASD Members Receiving the Nasdaq
WorkstationTM II Functionality
January 27, 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 January
9, 1995 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.
Self-Regulatory Organization's Statement of the Terms of Substance of
the Proposed Rule Change
On December 14, 1994, the NASD submitted a proposed rule change--
File No. SR-NASD-94-76--to the Commission that established a new fee
schedule for NASD member firms receiving the second generation of
Nasdaq WorkstationTM service (``NWII'').\1\ The fee schedule
contained in File No. SR-NASD-94-76 became effective upon receipt by
the SEC in accordance with Section 19(b)(3)(A)(ii) of the Act and Rule
19b-4(a) thereunder.\2\ As specified in File No. SR-NASD-94-76, the new
subscriber fees for NWII will be added to Sections A(9) and E(5) of
Part VIII of Schedule D to the NASD By-Laws.
\1\The computer facilities that support the provision of NWII
are operated by The Nasdaq Stock Market, Inc. (``NSMI''), a wholly
owned subsidiary of the NASD.
\2\See Release No. 34-35189 (January 3, 1995), 60 FR 3014
(January 12, 1995).
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Pursuant to Section 19(b)(1) of the Act, the NASD hereby files this
proposed rule change to extend to non-NASD members (e.g., institutional
investors) receiving NWII functionality the same subscriber fees that
members must now pay: (a) A service charge of $100/month per server;
(b) a display charge of $500/month per presentation device; and (c) a
charge of $1,150/month for additional circuits. This rule change does
not, however, entail any further modification to the fee schedule
language for NWII that was set forth in File No. SR-NASD-94-76.
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 sole purpose of this rule change is to extend to non-NASD
members receiving the NWII, the same fees that now apply to NASD
members that subscribe to the NWII. Currently, non-NASD members can
access to Level 2 Nasdaq Workstation functionality by subscription to
the original version of the Nasdaq Workstation service (hereinafter
referred to as ``NWI'').\3\ As the NWII roll-out proceeds, it will
completely replace the existing NWI for all classes of subscribers. The
instant rule change will ensure that the same NWII charges are paid by
all subscribers, including those that do not belong to the NASD.
\3\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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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 The Nasdaq Stock Market
(``Nasdaq''). The software driving NWII is windows-based and provides
several data management features that are not available in 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.
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 new fee structure establishes 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, an 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 NWII fee structure is
premised on the assumption that a subscriber will maximize the capacity
of each server before adding a second
[[Page 6583]]
telecommunications circuit and server. However, if a subscriber elects
to add servers and circuits without maximizing, that subscriber will
bear the additional circuit cost of $1150/month, which constitutes a
pass-through of the actual cost borne by NSMI.
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. As noted
above, this proposal provides that the newly established fees for
members receiving the NWII functionality will also be paid by non-
member subscribers receiving the NWII.\4\ This, in turn, effectuates
fairness in the recovery of the applicable costs from the entire
subscriber base. As described earlier, NWII is being implemented in
phases with all current NWI subscribers in a defined area being
converted to NWII. Assuming Commission approval of this rule change,
all non-NASD members that are converted to NWII will be liable for the
new fees; NWI subscribers (i.e., members and non-members) will continue
to pay the NWI service fees until they are converted.
\4\NWI and NWII both permit the delivery 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.
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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 new NWII fees. Although higher than
the existing fees for NWI, the NWII fees are believed reasonable in
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.
Based on the foregoing, the NASD submits that the extension of the
new NWII fee schedule to non-members will result in the imposition of
uniform fees and an equitable allocation of operating costs among all
subscribers receiving the NWII functionality.
(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
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 NASD consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings 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 an
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 the 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 23, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
\5\17 CFR 200.30-3(a)(12).
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[FR Doc. 95-2555 Filed 2-1-95; 8:45 am]
BILLING CODE 8010-01-M