[Federal Register Volume 63, Number 229 (Monday, November 30, 1998)]
[Notices]
[Pages 65832-65833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31820]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40694; File NO. SR-NASD-98-70]


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

November 19, 1998.

I. Introduction

    On September 18, 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'') a proposed rule 
change pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ In its proposal, 
Nasdaq sought to establish a logon identification fee for its Mutual 
Fund Quotation Service (``MFQS''). Notice of the proposal was published 
in the Federal Register on October 19, 1998. (``Notice'').\3\ No 
comments were received on the filing. This order approves the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 40543 (Oct. 9, 
1998), 63 FR 55907 (File No. SR-NASD-98-70).
---------------------------------------------------------------------------

II. Description of the Proposal

    Nasdaq proposed to amend NASD Rule 7090 to charge a $75 logon 
identification fee for subscribers of Nasdaq's MFQS. Currently, 
subscribers of the MFQS transmit pricing information and other data to 
Nasdaq through the service. Nasdaq then distributes the information to 
the news media and market data vendors. Until recently, Nasdaq could 
not use the MFQS to collect price information on closed-end funds 
because of technological limitations. However, using web based 
technology, Nasdaq re-designed and upgraded the MFQS. The upgraded 
system can now handle the pricing of closed-end funds. Further, the 
enhancements allow MFQS subscribers

[[Page 65833]]

to transmit price information and other data to Nasdaq over the 
Internet.
    As part of the upgrade, Nasdaq created software to protect the 
information transmitted over the Internet. Each MFQS subscriber will be 
given a unique logon identification which will allow the subscribers to 
securely transmit price information and other data to Nasdaq. A logon 
identification can only be used by one person at a time; if a 
subscriber wants two people to simultaneously submit its pricing 
information, the subscriber must order two logon identifications. 
According to Nasdaq, the Internet security software was also developed 
to protect sensitive information transmitted to the NasdaqTrader.com 
system. In the future, Nasdaq indicates that it may also use the 
Internet security system with other NASD web-based services.
    Nasdaq estimates that the MFQS's share of the on-going costs to 
administer and maintain the Internet security system will be $239,000. 
To pay for the administrative and maintenance costs of the MFQS, Nasdaq 
proposed to charge $75 a month for each logon identification a 
subscriber orders. According to Nasdaq, the fee will only be used to 
cover the administrative and maintenance costs of the Internet security 
software; Nasdaq maintains that the fee will not be used to pay for the 
development costs of the software.

III. Discussion

    As discussed below, the Commission has determined to approve the 
Association's proposal creating a $75 logon identification fee for 
subscribers of Nasdaq's MFQS. The standard by which the Commission must 
evaluate a proposed rule change is set forth in Section 19(b) of the 
Act. The Commission must approve a proposed NASD rule change if it 
finds that the proposal is consistent with the requirements of Section 
15A of the Act \4\ and the rules and regulations thereunder that govern 
the NASD.\5\ In evaluating a given proposal, the Commission examines 
the record before it. In addition, Section 15A of the Act establishes 
specific standards for NASD rules against which the Commission must 
measure the proposal.\6\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78o-3.
    \5\ 15 U.S.C. 78s(b).
    \6\ 15 U.S.C. 78o-3.
---------------------------------------------------------------------------

    Specifically, the Commission believes that the proposal is 
consistent with Section 15A(b)(5) of the Act in that it provides 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. In its proposal, the 
Association sought to charge MFQS subscribers $75 a month for each 
logon identification fee the subscriber orders.
    The Commission believes that this charge provides for the 
reasonable allocation of fees among those who use the system. MFQS 
subscribers, who benefit from the Internet security system, are the 
only ones who are charged with the fee. Moreover, Nasdaq represented to 
the Commission that the fee will only be used to cover the maintenance 
and administrative costs of operating the Internet security system and 
not to cover the development costs of the security system. Nasdaq also 
represented to the Commission that the fee will be allocated between 
the MFQS and the NasdaqTrader.com service based on each service's 
proportionate usage of the security system.\7\ Because the fee is only 
assessed against those who benefit from the Internet security system 
and the fee will only be used to cover the MFQS's portion of the on-
going operational costs of the security system, the Commission believes 
that the NASD has provided for the equitable allocation of fees among 
persons using a system which the Association operates and controls.
---------------------------------------------------------------------------

    \7\ Along with SR-NASD-98-70, the NASD also filed SR-NASD-98-71. 
The NASD has withdrawn SR-NASD-98-71. See Securities Exchange Act 
Release No. 40658 (Nov. 10, 1998), 63 FR 64136 (Nov. 18, 1998) 
(notice of withdrawal of SR-NASD-98-71).
---------------------------------------------------------------------------

IV. Conclusion

    The Commission believes that the proposed rule change is consistent 
with the Act, and, particularly, with Section 15A thereof.\8\ In 
approving the proposal, the Commission has considered its impact on 
efficiency, competition, and capital formation.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78(c)f.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NASD-98-70) be and hereby 
is, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-31820 Filed 11-27-98; 8:45 am]
BILLING CODE 8010-01-M