[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