[Federal Register Volume 63, Number 201 (Monday, October 19, 1998)]
[Notices]
[Pages 55909-55910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27908]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40542; File No. SR-NASD-98-71]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Establishment of a Pilot Program To Provide Proprietary Trading Data 
via Nasdaq Trader.com

October 9, 1998.
    On September 29, 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'') a 
proposed rule, pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ The proposed 
rule change is described in Items I, II, and III below, which Items 
have been prepared by Nasdaq. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of The Terms of 
Substance of The Proposed Rule Change

    Nasdaq is proposing to amend Rule 7010 of the Rules of the NASD, to 
establish a pilot program to provide proprietary trading data via 
Nasdaq's NasdaqTrader.com web site. Below is the text of the proposed 
rule change. Proposed new language is in italics.

(o) Nasdaq Trader.com Proprietary Data Fee

    The charge to be paid by the subscriber for each entitled user 
receiving Nasdaq Proprietary Data via NasdaqTrader.com is $100 per 
month (monthly maximum of 25 Historical Research Reports) or $150 per 
month (monthly maximum of 100 Historical Research Reports). The 
Proprietary Data Package includes:
    (1) For NASD Member Firms:
    (a) Daily Share Volume Report for a Broker/Dealer (Subscriber's 
information only)
    (b) Daily Share Volume Reports for a Security
    (c) Monthly Summaries
    (d) Monthly Compliance Report Cards (Subscriber's information only)
    (e) Historical Research Reports
    (i) Market Maker Price Movements Report
    (ii) Equity Trade Journal (Subscriber's information only)
    (2) For Non-Member Qualified Institutional Buyers:
    (a) Daily Share Volume Reports for a Security
    (b) Monthly Summaries
    (c) Historical Research Reports
    (i) Market Maker Price Movement Report
    The Association may modify the contents of the Proprietary Data 
Package.
* * * * *

II. Self-Regulatory Organization's Statement of The Purpose of and 
Statutory Basis For, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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 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 establish a pilot proprietary trading data 
distribution facility accessible to NASD members and qualified 
institutional buyers through its NasdaqTrader.com web site. Under the 
proposal, NASD member firms will be able to obtain data, verified for 
accuracy by Nasdaq's Automated Confirmation Transaction Service 
(``ACT''), regarding their trading volume in securities in which they 
report volume as well as disseminate some or all of that information to 
other users of the system. Fees from system subscribers will be used to 
offset the costs associated with the maintenance and marketing of the 
secured content as well as the product's portion of the ongoing 
maintenance and administration of the Nasdaq web security 
infrastructure.\3\
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    \3\ See Securities Exchange Act Rel. No. __ (October __, 1998) 
(File No. SR-NASD-98-70), n.4.
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    Specifically, NASD member firms who elect to receive Nasdaq's 
Proprietary Data Package (NPDP'') will be able to obtain the following: 
(1) Daily Share Volume Reports displaying the firm's own T+1 daily 
trading volume for each issue in which the firm reports volume; (2) 
Daily Share Volume Reports for a Security containing voluntarily-posted 
daily share volumes in individual issues traded by other NASD member 
firms; (3) Monthly Summaries providing monthly trading volume 
statistics for the top 50 market participants broken down by industry 
sector, security, or type of trading (e.g. block or total); (4) Monthly 
Compliance Report Cards outlining the firm's own compliance status in 
the areas of trade reporting, firm quote compliance and best execution 
obligations; and (5) Historical Research Reports consisting of Market 
Maker Price Movement Reports (``MMPMR'') which show all of a Market 
Maker's quote updates (price, size and inside quote at time of update) 
for a security on a specified date, and, Equity Trade Journals 
(``ETJs'') which detail all trades reported through ACT by the NASD 
member firm for a selected security and date.\4\ With the exception of 
the individual Daily Share Volume Reports for a Broker/Dealer, 
Compliance Report Card, and ETJ reports, non-NASD member Qualified 
Institutional Buyers (``QIBs'') \5\ who subscribe to the system will 
also be able to obtain the NPDP. Due to capacity restrictions, NPDP 
users seeking Historical Research Reports will be limited to either 25 
or 100 monthly reports depending on the subscription fee paid.
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    \4\ For a trial period, an individual firm's proprietary data 
described in numbers 1, 4 and 5 above are currently being made 
available through NasdaqTrader.com without charge. Upon SEC approval 
of the proposed fee, Nasdaq will begin to assess the proposed 
monthly fee for the entire data package.
    \5\ For purposes of this service, Nasdaq will rely on the 
definition of ``Qualified Institutional Buyer'' found in Rule 144A 
of the Securities Act of 1933.
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    The NPDP pilot proposal is a direct response to requests from 
professional Nasdaq market participants to increase the availability of 
Nasdaq-verified trading data through NasdaqTrader.com. Sell-side 
traders use share volume to display their trading activity in specific 
Nasdaq issues while buy-side representatives utilize similar data to 
determine which sell-side firm to select for execution of their orders. 
NPDP attempts to create a secure, controlled mechanism to allow these 
parties to display and view such data and make informed choices 
regarding their trading partners.
    Nasdaq also recognizes, however, that the data contained in the 
NPDP is proprietary and confidential. As such, Nasdaq has established a 
secure information display and retrieval environmental through the 
combined use of User IDs, passwords and digital certificates.\6\ To 
further protect NASD

[[Page 55910]]

member firms' proprietary data, the service is designed so that firm-
specific reports regarding daily trading volume figures will only be 
made available to the member firm itself, unless that member determines 
voluntarily to submit the information to the Daily Share Volume Report 
for a Security for dissemination to other NPDP subscribers.\7\ 
Additional firm specific reports such as the Monthly Compliance Report 
Cards and the ETJ will also be restricted so that NASD member firms 
will only be allowed to view their own information.
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    \6\ A digital certificate is an electronic code or computer file 
assigned by Nasdaq to each user to identify the person accessing its 
system and to verify that the user is accessing the correct 
database.
    \7\ Daily Share volume Reports for a Security, available for 
viewing by all system users, will be compiled based on voluntarily-
submitted daily figures.
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    Concerns for data protection, and the system security requirements 
needed to encourage greater disclosure of proprietary trading 
statistics, also shaped Nasdaq's determination to make NPDP available 
only to NASD member firms and QIBs. Nasdaq believes that these groups 
contain the largest number of market participants who may benefit from 
the availability of the voluntarily-disclosed, Nasdaq-verified, trading 
volumes and related information available via the NPDP service. At the 
same time, these participants are also the most likely to possess the 
requisite staff and resources to comply with NPDP system security 
mandates. Moreover, the QIBs defined in Rule 144A consist of entities 
registered with various regulatory bodies which Nasdaq believes 
provides an additional layer of protection against the improper use of 
its members' proprietary trading data. Finally, the Rule 144A QIB 
definition sought to be relied on by Nasdaq has already been adopted by 
the Commission as a standard delineating the characteristics of 
institutional market participants. As such, Nasdaq believes that this 
standard is an appropriate starting point to evaluate the commercial 
viability of its new data package during the pilot program.\8\
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    \8\ Nasdaq will monitor requests for the NPDP from institutes 
not meeting the QIB standard of Rule 144A with a view to expanding 
the availability of the data package to those institutions 
consistent with Nasdaq Trader.com's security limitations.
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    Given the commercial uncertainties associated with the launching of 
any new data product, Nasdaq will be establishing this new service as a 
12 month pilot program to evaluate user interest. As part of that 
evaluation, Nasdaq may experiment with the mix of information available 
in the NPDP by adding and deleting various components of the package 
based on user feedback.
    Nasdaq believes the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) \9\ of the Act. Nasdaq believes that 
the NPDP pilot fosters cooperation and coordination with persons 
engaged in facilitating transactions in securities and is not designed 
to permit unfair discrimination between customers, issuers, brokers or 
dealers.
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    \9\ Section 15A(b)(6) requires the Commission to determine that 
the rules of the association are designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers, and in general, to protect investors and the 
public interest.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 the file number in the caption 
above and should be submitted by November 19, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27908 Filed 10-16-98; 8:45 am]
BILLING CODE 8010-01-M