[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Notices]
[Pages 51980-51981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25919]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40454; File No. SR-NASD-98-25]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Fees for Nasdaq Market Distributors or Vendors

September 22, 1998.

I. Introduction

    On May 14, 1998,\1\ the Nasdaq Stock Market, Inc. (``Nasdaq'') 
filed with the

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Securities and Exchange Commission (``SEC'' or ``Commission''), 
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
amend NASD Rule 7010, on system services. The proposed rule change 
establishes an annual, scaled administrative fee, payable by Nasdaq 
market data distributors or vendors, for data usage monitoring costs 
and other administrative expenses incurred by Nasdaq. A notice of the 
proposed rule change appeared in the Federal Register on June 3, 
1998.\4\ The Commission received no comment letters concerning the 
proposed rule change. The Commission is approving the proposed rule 
change.
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    \1\ The NASD initially submitted this proposal on March 16, 
1998. However, a substantive amendment was requested to clarify the 
applicability of the proposed fee. The NASD filed Amendment No. 1 on 
April 28, 1998. See letter from Thomas P. Moran, Senior Attorney, 
Office of General Counsel, The Nasdaq Stock Market, Inc., to Mignon 
McLemore, Esq., Division of Market Regulation, SEC, dated April 28, 
1998 (``Amendment No. 1''). On May 14, 1998, the Board filed another 
substantive amendment modifying the proposed rule language. See 
letter from Thomas P. Moran, Senior Attorney, Office of General 
Counsel, The Nasdaq Stock Market, Inc., to Katherine A. England, 
Division of Market Regulation, SEC, dated May 14, 1998 (``Amendment 
No. 2'').
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ Securities Exchange Act Release No. 40035 (May 27, 1998), 63 
FR 30276.
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    Nasdaq has established an annual, scaled fee for Nasdaq real-time 
market data distributors or vendors to cover the expenses Nasdaq incurs 
to administer and monitor market data usage.
    Previous, Nasdaq real-time market data distributors or vendors were 
required to submit annually a list, certified by a public accountant 
and paid for by the distributor or vendor, of all subscribers receiving 
real-time Nasdaq data.\5\ Alternatively, a Nasdaq real-time market data 
distributor or vendor could elect to pay a lower fee and have its 
service usage verified by an on-site review (``OSR'') conducted by 
Nasdaq staff. The purpose of both the accountant certification and the 
OSR was to provide Nasdaq with independent confirmation of Nasdaq data 
usage. Nasdaq has eliminated the certified-list requirement and OSR 
alternative, and thus their attendant costs, and replaced them with the 
annual scaled administrative fees proposed in this filing.\6\ Nasdaq 
will retain the right, however, to demand a certified usage report, 
paid for by the distributors or vendor, in cases involving 
discrepancies in distributor or vendor reporting.\7\
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    \5\ Once this administrative fee becomes effective, Nasdaq will 
suspend indefinitely its current contractual requirement that Nasdaq 
real-time data distributors or vendors provide an annual accountant-
certified list of their subscribers who receive Nasdaq data.
    \6\ Distributors using per-quote and usage based reporting will 
have their monitoring fees determining by having their monthly 
payment totals divided by the professional subscriber fee rate, 
resulting in a terminal equivalent. For example, a distributor or 
vendor that is being charged $1,000 month for its per-quote usage of 
Nasdaq Level 1 Service will have that $1,000 fee divided by the 
existing $20 monthly Level 1 per-terminal fee which results in a 
terminal equivalent of 50 with an annual monitoring fee of $500.
    For 1998 billing purposes only, Nasdaq will not impose those 
administrative fees on any firm that incurs costs and submits a 
certified usage report in 1998 prior to the effective date of 
Nasdaq's new fee schedule. See Amendment No. 2, supra note 1.
    \7\ Similarly, the submission of an unrequested, accountant-
certified usage list will not preclude Nasdaq from conducting its 
own OSR nor will it exempt a distributor or vendor from payment of 
the administrative fee.
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II. Discussion

    The Commission believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder.\8\ Specifically, the 
Commission believes that the approval of the proposed rule change is 
consistent with section 15A(b)(5) \9\ of the Act. Instead of requiring 
a public accountant's certification from its members verifying usage of 
Nasdaq market data, the Nasdaq will assess them an annual 
administrative fee which will be used to conduct Nasdaq-initiated OSRs, 
manage distributor applications, monitor vendor services, and perform 
other compliance activities. The revenue generated from this fee will 
benefit all Nasdaq members as it will allow Nasdaq staff to equitably 
and uniformly apply its expertise when conducting an OSR of any member. 
This fee structure should also reduce members' expenses as it is priced 
at levels similar to current OSR fees which, being consistently less 
expensive than the cost of obtaining an independent verification of 
data usage from a certified public accountant, are used by the majority 
of Nasdaq real-time market data distributors or vendors. As such, the 
Commission believes this administrative fee will not result in a 
material increase in overall monitoring fees paid by most Nasdaq data 
distributors or vendors.\10\
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    \8\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. This new fee 
structure should allow Nasdaq staff to directly and uniformly apply 
its expertise in monitoring data usage. The new fee structure also 
establishes a more efficient means of fee collection. Moreover, this 
terminal-based fee, compared to that of a CPA certification, should 
provide vendors and distributors with a reduction in expenses. 15 
U.S.C. 78c(f).
    \9\ Section 15A(b)(5) requires the Commission to determine that 
the Association's rules are designed to 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 
association operates or controls.
    \10\ According to Nasdaq, it does not currently require delayed 
data distributors to meet audit requirements or pay an OSR fee. 
Nasdaq believes that the imposition of new minimal charges on 
delayed distributors is justified to compensate Nasdaq for the 
resources expended in initiating, managing and monitoring vendors' 
accounts to ensure they are in compliance with Nasdaq requirements, 
particularly those designed to protect investors. See letter from 
Thomas P. Moran, Senior Attorney, Office of General Counsel, The 
Nasdaq Stock Market, Inc. to Katherine A. England, Assistant 
Director, Division of Market Regulation, SEC, dated September 14, 
1998 (detailing the allocation of Nasdaq resources used in 
monitoring delayed data usage).
    Nasdaq also advises that those vendors who receive both delayed 
and real-time data, will not be billed separately for each type of 
data but will only pay for the highest level of service received. 
This practice will continue for Nasdaq's proposed administrative 
fees as well. See Amendment No. 1, supra note 1.
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III. Conclusion

    For the above reasons, the Commission believes that the proposed 
rule change is consistent with the provisions of the Act, and in 
particular with section 15A(b)(5).
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NASD-98-25) be, and hereby, 
is approved.

    \11\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-25919 Filed 9-28-98; 8:45 am]
BILLING CODE 8010-01-M