[Federal Register Volume 63, Number 32 (Wednesday, February 18, 1998)]
[Notices]
[Pages 8241-8242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39641; File No. SR-NASD-98-06]


Self-Regulatory Organizations; Notice and Immediate Effectiveness 
of Proposed Rule Change by National Association of Securities Dealers, 
Inc. Relating to SelectNet Fees

February 10, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 30, 1998, the 
National Association of Securities Dealers, Inc. (``NASD'') or 
``Association'') through its wholly owned subsidiary, the Nasdaq Stock 
Market, Inc. (``Nasdaq'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is herewith filing a proposed rule change to lower the fees 
charged under NASD Rule 7010(l) for the execution of transactions in 
SelectNet.\2\ Under the proposed new SelectNet fee structure, fees 
would be assessed in the following manner: (1) $1.00 will be charged 
for each SelectNet order entered and directed to one particular market 
participant that is subsequently executed in whole or in part; (2) no 
fee will be charged to a member who receives and executes a directed 
SelectNet order; (3) the existing $2.50 fee will remain in effect for 
both sides of executed SelectNet orders that result from broadcast 
messages; and (4) a $0.25 fee will remain in effect for any member who 
cancels a SelectNet order. The new fees are effective February 1, 1998, 
and continue through a 90-day trial period commencing the day Nasdaq's 
SelectNet fee filing is published in the Federal Register.
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    \2\ This filing complements SR-NASD-97-98, which extended 
Nasdaq's temporary fee reduction to $1.25 per side for all SelectNet 
transactions until January 31, 1998. Due to an error in the computer 
disk version of the filing sent to the SEC, the extension of the 
temporary fee reduction was incorrectly reported in the Federal 
Register as continuing until March 31, 1998. See Securities Exchange 
Act Release No. 39555 (January 15, 1998), 63 FR 3595 (January 23, 
1998). Thus, as of February 1, 1998, the temporary SelectNet fee 
reduction extended by SR-NASD-97-98 will lapse, and new and lower 
SelectNet fees will be assessed as described in this filing.
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    Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *

7010. System Service

    (a)-(k) No Change.
    (l) SelectNet Service.
    Effective February 1, 1998, [T]the following charges shall apply to 
the use of SelectNet:

Transaction Charge $2.50/side
Directed Order Charge $1.00 (per execution, entering party only)
Cancellation Fee $.25/per order

    (m)-(n) 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. The 
text of these statements may be examined at places specified in Item IV 
below. The self-regulatory organization 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

    Nasdaq is proposing to lower its SelectNet fees. Currently, both 
sides of a transaction executed in SelectNet are assessed $2.50 
each.\3\ Nasdaq, recognizing recent significant changes in SelectNet 
usage, is proposing a new fee structure that responds to this new 
trading environment and more closely aligns SelectNet fees with current 
market activity.
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    \3\ This fee has been temporarily reduced to $1.25 per side 
since October 1, 1997. See Securities Exchange Act Release No. 39248 
(October 16, 1997), 62 FR 55296 (October 23, 1997). The fee will 
revert to $2.50 per side on February 1, 1998, for any orders not 
covered by the fee reduction (i.e., execution of broadcast orders 
will continue to be charged at $2.50 per side).
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    SelectNet transaction volume is at historic highs. In August 1997, 
more than 75,000 daily executions took place in SelectNet. This 
represented an almost fourfold increase in volume from average daily 
activity recorded in 1996. Since then, SelectNet volumes have remained 
at significantly increased levels, with more than 79,000 average daily 
transactions in November 1997 and over 88,000 in December 1997.
    The growth in SelectNet usage can be attributed to a number of 
factors, most notably the introduction of the SEC Order Execution Rules 
(``Order Execution Rules'') in January of 1997 \4\ and market maker 
decisions to electronically communicate with each other, in lieu of the 
telephone. Nasdaq also used the SelectNet system to create the access 
linkage with each electronic communication network (``ECN'') that 
sought to display its prices in Nasdaq consistent with the requirements 
of the Order Execution Rules. Accordingly, SelectNet is the only means 
of accessing orders displayed in the Nasdaq quote montage by broker-
dealers that are not subscribers to the ECN's own network. As such, 
growth in SelectNet utilization closely tracked the expansion in the 
number of Nasdaq stocks covered by the Order Execution Rules and the 
increased use of ECNs to display orders.
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    \4\ See Securities Exchange Act Release No. 37619A (September 6, 
1996), 61 FR 48290 (September 12, 1996).
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    Responding to increased SelectNet activity, Nasdaq's new fees 
reduce SelectNet cost burdens on all users. For example, a directed, 
and subsequently executed, order under the new fee structure for 
directed orders will cost only $1.00, payable by the entering party. In 
contrast, the present SelectNet fee is $5.00 with $2.50 being assessed 
on both sides of the trade. The proposed $1.00 fee on the party 
entering a directed SelectNet order represents a 60% reduction in the 
fee charged only five months ago, and is 20% less than the current 
temporarily-reduced fee of $1.25.
    Nasdaq has eliminated any execution fees for directed SelectNet 
orders

[[Page 8242]]

because Nasdaq recognizes that executing parties provide significant 
liquidity to the market on a regular and continuous basis. This 
liquidity, represented by the maintenance of executable quotes 
accessible through directed SelectNet orders, is of substantial benefit 
to all market participants. Nasdaq strongly believes that the continued 
provision of such liquidity should be encouraged and that the 
elimination of charges on directed order executions obtained through 
SelectNet is a way to help achieve that goal.
    Nasdaq notes that under the Order Execution Rules, any party may 
have its trading interest reflected in a quotation displayed for 
possible execution by an incoming directed order. For example, a 
customer's limit order that improves a market maker's price must now be 
displayed in that market maker's quote. Under Nasdaq's proposal, it is 
conceivable that customer limit orders, and the market liquidity they 
represent, may be handled by market makers at a lower cost than was the 
case under the old fee structure. Likewise, Nasdaq market makers who 
maintain executable quotes will also incur no fees when providing 
liquidity by having their quotes accessed for execution by others 
through directed SelectNet orders. Moreover, broker-dealers that enter 
directed orders seeking to access liquidity will also have their fees 
significantly reduced for any executions they obtain through SelectNet. 
These fees are also equally applied, with all market participants being 
charged the same $1.00 directed order entry fee. In sum, these fee 
reductions should result in lower overall transaction costs for all 
SelectNet system users.
    While the new fees start February 1, 1998, Nasdaq believes that a 
90-day trial period, commencing the date Nasdaq's new SelectNet fees 
are published in the Federal Register, is appropriate due to 
uncertainty regarding SelectNet usage levels as a result of the fee 
changes. Nasdaq will continue to monitor usage levels and trading 
behavior with a view to future modification of SelectNet charges if 
warranted.
    For the reason set forth above, Nasdaq believes that the proposed 
rule change is consistent with Section 15A(b)(5) of the Act, which 
requires that the rules of the NASD provide for the equitable 
allocation of reasonable dues, fees and other charges among members and 
issuers and other persons using any facility or system which the NASD 
operates or controls.

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

    This filing applies to the assessment of SelectNet fees to NASD 
members, and thus the proposed rule change is effective immediately 
upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act and 
subparagraph (e)(2) of Securities Exchange Act Rule 19b-4 thereunder 
\5\ because the proposal is establishing or changing a due, fee or 
other charge. At any time within 60 days of the 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.\6\
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    \5\ 15 U.S.C. Sec. 78(b)(3)(A)(ii).
    \6\ In reviewing the proposal, the Commission has considered the 
proposal's impact on efficiency, competition, and capital formation. 
See 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 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 File No. SR-NASD-98-06 and should be submitted by March 11, 
1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3995 Filed 2-17-98; 8:45 am]
BILLING CODE 8010-01-M