[Federal Register Volume 65, Number 57 (Thursday, March 23, 2000)]
[Notices]
[Pages 15678-15679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7201]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42537; File No. SR-NASD-99-77]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc., Relating to the Mutual Fund Quotation Service

March 16, 2000.

I. Introduction

    On January 4, 2000, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly-owned subsidiary, the Nasdaq Stock 
Market, Inc. (``Nasdaq''), submitted to the Securities and Exchange 
Commission (``Commission``), pursuant to Section 19(b)(1) the 
Securities Exchange Act of 1934 (``Act``) \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to change the annual listing fees 
for the Mutual Fund Quotation Service (``MFQS'' or ''Service'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on February 9, 2000.;\3\ No comments were received on the 
proposal. This order approves the proposal.
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    \3\ Securities Exchange Act Release No. 42376 (February 2, 
2000), 65 FR 6340.
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II. Description of the Proposal

    In its proposed rule change, Nasdaq proposed amendments to Rule 
7090 to change the annual listing fees for the MFQS, which collects and 
disseminates data pertaining to the value of open-end and closed-end 
funds. The MFQS disseminates the valuation data for over 11,000 funds. 
The Service facilities this process by providing for the automated 
entry, through a browser-based application, of pricing data by a fund 
and a fund's pricing agent.
    Funds must meet minimum eligibility criteria in order to be 
included in the MFQS.\4\ The MFQS has two ``listss'' in which a fund 
may be included--the News Media List and the Supplemental List--and 
each list has its own eligibility requirements.\5\ If a fund qualifies 
for the News Media List, pricing information about the fund is eligible 
for inclusion in newspaper fund tables and is also eligible for 
dissemination over Nasdaq's Level 1 service,\6\ which is distributed by 
market data vendors. If a fund qualifies for the Supplemental List, the 
pricing information about that fund generally is not included in 
newspaper fund tables, but is disseminated over Nasdaq's Level 1 
Service. The Supplemental List, therefore, provides significant 
visibility for funds that do not otherwise qualify for inclusion in the 
News Media List. Each fund incurs an annual fee for

[[Page 15679]]

inclusion in the Service.\7\ At the time of this proposed rule change, 
funds included in the News Media List paid an annual fee of $275, and 
funds included in the Supplemental List paid an annual fee of $200.
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    \4\ See NASD Rule 6800.
    \5\ Id.
    \6\ Nasdaq Level 1 Service is a subscription-based data service 
that ``includes the following data: (1) inside bid/ask quotations 
calculated for securities listed in the Nasdaq Stock Market and 
securities quoted in the OTC Bulletin Board (OTCBB) service; (2) the 
individual quotations or indications of interest of broker/dealers 
utilizing the OTCBB service; and (3) last sale information on 
securities classified as designated securities in the Rule 4630, 
4640, and 4650 Series and securities classified as over-the-counter 
equity securities in the Rule 6600 Series.`` NASD Rule 7010(a).
    \7\ See NASD Rule 7090.
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    According to Nasdaq, the original MFQS was built as a DOS-based 
application, but in recent years technology has progressed, and thus 
user needs for the MFQS have increased. Responding to requests made by 
users of the MFQS, the mutual fund industry, and the Investment Company 
Institute (``ICI''), Nasdaq performed market research to determine 
which enhancements MFQS users would prefer in a redesigned Service. In 
its proposal, Nasdaq represents that since the last fee increase in 
1996,\8\ the MFQS software application has been rewritten, and notable 
technology enhancements have been implemented to support the Service's 
functionality.
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    \8\ See Securities Exchange Act Release No. 37014 (March 22, 
1996), 61 FR 14182 (March 29, 1996) (File No. SR-NASD-96-05).
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    Specifically, in 1998, Nasdaq took the list of enhancements 
requested by MFQS users and developed and implemented an entirely new 
MFQS application that uses browser-based technology. The MFQS now 
permits funds included in the Service (or pricing agents designated by 
such funds) to use the browser-based technology to transmit directly to 
Nasdaq a multitude of pricing information, including information about 
a fund's net asset value, offer price, and closing market price. Nasdaq 
has incorporated 20 of the approximately 27 enhancements suggested by 
the mutual fund industry into the new MFQS application, and two more 
are scheduled for implementation in early 2000.
    The browser-based MFQS upgrade became fully-operational in May 
1999. In its proposal Nasdaq represents that, due to the significant 
costs for development, maintenance, and support of the new MFQS 
product, additional revenue was needed to (1) sustain the quality of 
the MFQS; and (2) make future product enhancements to the MFQS, to 
improve efficiency and accuracy of price reporting. In addition, the 
MFQS is operating at a yearly loss in light of the recent technology 
enhancements to the Service. Accordingly, Nasdaq proposes to increase 
its fees for the Supplemental List from $200 to $275 and for the News 
Media List from $275 to $400.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities association, and in 
particular, with the requirements of Section 15A of the Act.\9\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 15A(b)(5) \10\ of the Act.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(5).
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    Section 15A(b)(5) \11\ of the Act requires that the rules of a 
national securities association 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. The Commission believes that Nasdaq's proposed 
increase its user fees is a fair means of recovering the cost related 
to the development and maintenance of the enhanced MFQS. Moreover, the 
Commission believes that the increase in fees will support future 
improvements to the System that will improve efficiency and accuracy in 
the collection of pricing information. The Commission finds that the 
proposal is consistent with Section 15A(b)(5) \12\ insofar as the fees 
will be imposed directly and only on those who requested and benefit 
from recent enhancements to the MFQS--users of the Service and the ICI. 
Consequently, the increased fees are reasonable and consistent with 
Section 15A(b)(5) \13\ of the Act.
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    \11\ Id.
    \12\ Id.
    \13\ Id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NASD-99-77) be and hereby is 
approved.\15\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7201 Filed 3-22-00; 8:45 am]
BILLING CODE 8010-01-M