[Federal Register Volume 63, Number 201 (Monday, October 19, 1998)]
[Notices]
[Pages 55907-55908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27907]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40543; File No. SR-NASD-98-70]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To 
Establish a Logon Identification Fee for Nasdaq's Mutual Fund Quotation 
System

October 9, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 18, 1998 the 
National Association of Securities Dealers, Inc. (``NASD'') through its 
wholly-owned subsidiary, the Nasdaq Stock Market, Inc. (``Nasdaq''), 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by Nasdaq. On October 1, 1998, the NASD 
submitted Amendment No. 1 to the proposed rule change.\2\ 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).
    \2\ See, letter from Robert E. Aber, Senior Vice President and 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Commission (Oct. 1, 1998). In Amendment No. 1, Nasdaq 
clarified its position that the proposed logon identification fee is 
designed to cover only the cost of administering and maintaining the 
Internet security system.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD and Nasdaq are proposing to amend NASD Rule 7090 to add a 
logon identification fee for subscribers to Nasdaq's Mutual Fund 
Quotation System (``MFQS'' or ``Service'') that use the MFQS to 
transmit to Nasdaq fund-pricing and other required information. Below 
is the text of the proposed rule change. Additions are italicized.
* * * * *
7090. Mutual Fund Quotation Service
    (a) Funds included in the Mutual Fund Quotation Service (``MFQS'') 
shall be assessed an annual fee of $275 per fund authorized for the 
News Media Lists and $200 per fund authorized for the Supplemental 
List. Funds authorized during the course of an annual billing period 
shall receive a proration of these fees but no credit or refund shall 
accrue to funds terminated during an annual billing period. In 
addition, there shall be a one-time application processing fee of $250 
for each new fund authorized.
    (b) Funds included in the MFQS and pricing agents designated by 
such funds (``Subscriber''), shall be assessed a monthly fee of $75 for 
each logon identification obtained by the Subscriber. A Subscriber may 
use a logon identification to transmit to Nasdaq pricing and other 
information that the Subscriber agrees to provide to Nasdaq.
* * * * *

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. Nasdaq has prepared summaries, set forth in Section 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

1. Purpose
    The NASD and Nasdaq are proposing to amend NASD Rule 7090 to 
establish a $75 monthly logon identification fee

[[Page 55908]]

for Nasdaq's Mutual Fund Quotation Service.
    Currently, MFQS collects daily price and related data for open-end 
funds and money market funds, and publicly disseminates the information 
to the news media and market data vendors. Recently, Nasdaq amended its 
rules to add closed-end funds to the MFQS.\3\ Previously, closed-end 
funds could not be included because the Nasdaq Special Service Network 
(``SSN'') on which the MFQS currently resides does not accommodate some 
of the data attributes needed for closed-end funds. Nasdaq recently re-
designed and upgraded the MFQS to include closed-end funds and as part 
of Nasdaq's plan to eliminate the outdated and outmoded SSN.
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    \3\ See Securities Exchange Act Rel. No. 40519 (Oct. 5, 1998).
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    The upgraded MFQS was developed using web-based technology. The 
MFQS, which is scheduled to begin operation on or about October 26, 
1998, will permit funds included in the Service or a pricing agent 
designed by such funds (``Subscribers'') to transmit directly to Nasdaq 
via an Internet connection the following: net asset value, offer price, 
closing market price, as well as other information that Subscribers 
agree to provide to Nasdaq.\4\ Nasdaq developed a multi-pronged 
Internet security system to ensure the safety and integrity of the 
information transmitted by Subscribers to Nasdaq. Specifically, Nasdaq 
will assign to a Subscriber a logon identification(s) and will also 
provide the Subscriber with ``certificate'' software. The certificate 
software, when loaded onto a Subscriber's personal computer, will allow 
the Subscriber to interface with the MFQS and to transmit data securely 
to Nasdaq. A logon identification will allow one user at a Subscriber 
to access the MFQS at a time.\5\ Each logon identification will be 
unique and will allow a subscriber to review and update only the 
Subscriber's pricing information.
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    \4\ Each fund that is included in the MFQS signs an agreement 
with Nasdaq pursuant to which the fund agrees to provide the 
aforementioned information (as applicable) to Nasdaq on a daily 
basis. See NASD Rule 6800(b)(2). Additionally, if a fund designates 
a pricing agent to report pricing information to Nasdaq on behalf of 
the fund, the pricing agent also signs the aforementioned agreement.
    \5\ That is, the same logon identification cannot be use 
simultaneously by more than one user at the Subscriber at a time, 
although a logon identification may be used by more than one user at 
a Subscriber so long as it is done on a non-simultaneous basis. 
Thus, while more than one user at a Subscriber can share a logon 
identification to update pricing information, Nasdaq's system will 
not permit multiple users to logon simultaneously to the MFQS using 
the same logon identification. A Subscriber may order multiple logon 
identifications, each of which will be unique and which may be used 
simultaneously with one another to access the MFQS.
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    Nasdaq estimates that the MFQS's share of the on-going costs to 
administer and maintain the Internet security system will be 
$239,000.\6\ In order to recover the costs related to the 
administration and maintenance of the MFQS's portion of the Internet 
security system, the NASD and Nasdaq are proposing to establish a logon 
identification fee for those who use the Service to report pricing 
information. As proposed, a Subscriber will be assessed $75 per month 
for each logon identification a Subscriber orders. Nasdaq will permit a 
Subscriber to order a single or multiple logon identifications, each of 
which will be unique to the Subscriber.
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    \6\ At present, the security system is sized (hardware and 
personnel) to handle only the users of the MFQS and the 
NasdaqTrader.com web sites. (NasdaqTrader.com will be employing this 
Internet security system, as this website soon will be adding 
additional services that will provide members with certain 
proprietary or sensitive information.) The administrative and 
maintenance costs of the Internet security system will be allocated 
between the MFQS and NasdaqTrader.com, based on the services' 
proportionate cost. In the future, Nasdaq may use the Internet 
security system with several NASD web-based services. See, 
Securities Exchange Act Release No. 34-40542, (Oct. 9, 1998) SR-
NASD-98-71.
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2. Statutory Basis
    The NASD and Nasdaq believe that the proposed rule change is 
consistent with the provisions of Section 15A(b)(5) of the Act,\7\ 
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. The NASD and Nasdaq believe that the logon fee is 
a fair means of recovering the cost of providing security for the MFQS 
because the fee is imposed directly and only on those who use the MFQS 
and who benefit from the Internet security system that the fee is 
intended to fund. Moreover, the proposed fee is designed to cover only 
the administrative and maintenance costs of the MFQS security system.
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    \7\ 15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD and Nasdaq do not believe that the proposed rule change 
will 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

    Written 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 self-regulatory organization 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.\8\
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    \8\ In Nasdaq's 19(b)(4) filing, Nasdaq asked for accelerated 
approval. The Commission, however, has decided the proposed rule 
should be subjected to the notice and comment period found in 
Section 19(b)(2) of the Act.
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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 proposed rule 
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 98-70 and should be 
submitted by November 9, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ See 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27907 Filed 10-16-98; 8:45 am]
BILLING CODE 8010-01-M