[Federal Register Volume 66, Number 3 (Thursday, January 4, 2001)]
[Notices]
[Pages 826-828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-152]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43769; File No. SR-NASD-00-73]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc., Relating to EWN II Fees for NASD Members

December 22, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 13, 2000, 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'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by Nasdaq. Nasdaq has designated his proposal as one 
establishing or changing a due, fee or other charge imposed by the 
self-regulatory organization under section 19(b)(3)(A)(ii) of the Act, 
which renders the rule effective upon Commission receipt of this 
filing. 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

    The National Association of Securities Dealers, Inc. (``NASD''), 
through its wholly-owned subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq'') is herewith filing a proposed rule change to increase the 
fees associated with the Enterprise Wide Network II (``EWN II'') to 
pass on costs associated with increasing its capacity. Nasdaq has 
designated this proposal as one establishing or changing a due, fee or

[[Page 827]]

other charge imposed by the self-regulatory organization under section 
19(b)(3)(A)(ii) of the Act, which renders the rule effective upon 
Commission receipt of this filing. Below is the text of the proposed 
rule change. Proposed new language is underlined; proposed deletions 
are in brackets.

NASD Rule 7010. System Services

(a)-(e) No Change
(f) Nasdaq Workstation Service
    (1) No Change
    (2) The following charges shall apply to the receipt of Level 2 or 
Level 3 Nasdaq Service via equipment and communications linkages 
prescribed for the Nasdaq Workstation II Service:
    Service Charge: [$1,500]$1,875/month per service delivery platform 
(``SDP'') from December 13, 2000 through February 28, 2001; $2,035/
month per SDP beginning March 1, 2001.
    Display Charge: $525/month per presentation device (``PD'').
    Additional Circuit/SDP Charge: [$2,700]$3,075/month from December 
13, 2000 through February 28, 2001, and $3,235/month beginning March 1, 
2001.*
    A subscriber that accesses Nasdaq Workstation II Service via an 
application programming interface (``API'') shall be assessed the 
Service Charge for each of the subscriber's SDPs and shall be assessed 
the Display Charge for each of the subscriber' API linkages, including 
an NWII substitute or quote-update facility. API subscribers also shall 
be subject to the Additional Circuit/SDP Charge.
    *No change to footnotes.
* * * * *

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 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. The 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

1. Purpose
    The purpose of this filing is to amend the subscriber fees 
applicable to NASD members that use the Nasdaq Workstation II 
(``NWII'').
    In 1994, Nasdaq rolled out the NWII service, which provided many 
enhancements to the then-existing Nasdaq Workstation service.\3\ As 
part of the NWII rollout, Nasdaq installed a network, known as the 
Enterprise Wide Network (``EWN I''), to deliver NWII functionality. To 
access NWII service, each subscriber location has at least one service 
delivery platform (``SDP''), or server, that resides on the network and 
connects to Nasdaq by a dedicated circuit. The SDP functions as the 
subscriber's gateway from the NWII to the enterprise wide network. Each 
SDP currently is permitted to support up to eight presentation devices 
(``PD''), or Nasdaq Workstation IIs, although a firm may elect to have 
fewer than eight PDs on a single SDP. In addition, a subscriber may 
obtain NWII service through an application programming interface 
(``API''), which essentially allows a firm to obtain NWII Service using 
the firm's own hardware (e.g., personal computer) and software systems 
to access, display, interface with, and operate NWII service.
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    \3\ NWII provides a windows-based environment and several data 
management facilities not previously available in Nasdaq's former 
(pre-1994) workstation service.
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    Due to the ongoing growth in the Nasdaq market and increases in 
daily share volume after EWN I was installed,\4\ Nasdaq became 
concerned in 1997 that its existing enterprise wide network capacity 
was rapidly approaching maximization. Specifically, the network's 
bandwidth--the amount of data that can be transmitted through a given 
communications circuit in a fixed amount of time--could only handle one 
and one-half billion shares per day. EWN I was expected to reach 
maximum circuit capacity during the second quarter of 1999.\5\ To avoid 
the potential for any disruption to the Nasdaq market, Nasdaq 
contracted in late 1997 with MCI Communications Corporation (``MCI'') 
to build a new network--EWN II--to accommodate increased usage and 
provide increased circuit capacity.
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    \4\ When Nasdaq installed EWNI, Nasdaq's average daily share 
volume (for 1994) was 295 million and projections showed that the 
average daily share volume for 1997 would be 520 million. In 1997, 
however, average daily share volume was 650 million.
    \5\ Similar to any other private network, EWN I was designed to 
have a maximum circuit capacity (i.e., 2,100 circuits).
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    EWN II is a significant improvement over EWN I. Among other things, 
the system is fully scaleable and twice as fast as EWN I. The network 
was originally built with a 128 kilobit (``kb'') data stream feed speed 
scaleable up to T1 speed (1544 kilobits) levels. Nasdaq began 
converting subscribers to EWN II in 1998 and completed the conversion 
in 1999. In conjunction with the conversion, the Nasdaq filed fee 
increases which became effective in 1998 relating to EWN II.\6\
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    \6\ See Securities Exchange Act Rel. Nos. 40434 (Sep. 11, 1998), 
63 FR 49937, and 40716 (Dec. 2, 1998), 63 FR 66619.
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    Since that time, Nasdaq share volume has continued to increased 
dramatically. The highest average daily share volume for a month in 
2000 was just over 2 billion shares, compared to less than 1.5 billion 
in 1999, and less than 1 billion in 1998. The highest peak share volume 
day in 2000 was just under 3 billion shares, compared to under 2 
billion in 1999, and just over 1 billion in 1998. The highest actual 
cumulative share volume for a month occurred twice in 2000 at over 40 
billion shares, compared to over 30 billion in 1999, and almost 20 
billion in 1998. In March 2000, share volume increased by over 103% 
compared to March 1999. In April 2000, the peak share volume increased 
by over 103% compared to April 1999.
    To accommodate these increases, Nasdaq expanded the EWN II 
bandwidth from 128 kb to 192 kb in October 2000. The expanded bandwidth 
also gives Nasdaq the ability to support new products as they are 
introduced and future trading applications that will be developed. As a 
result of expansion to a 192 kb bandwidth, the fees that WorldCom \7\ 
charges Nasdaq have increased by $375 per month per circuit. Nasdaq 
proposes to pass on these costs to subscribers for the billing period 
covered by December 13, 2000 through February 28, 2001.\8\
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    \7\ MCI and WorldCom merged in September 1998.
    \8\ The Commission notes the effective date for this proposed 
fee increase is December 13, 2000, the date this filing was received 
by the Commission. Nasdaq has amended its filing to change its 
stated effective date from December 1, 2000 to December 13, 2000, 
and has indicated that it intends to submit a separate filing 
pursuant to Section 19b-2 proposing to recover its fees for the 
period of December 1-12, 2000. See Letter from Edward S. Knight, 
Executive Vice President and General Counsel, Nasdaq, to Katherine 
England, Assistant Director, Division of Market Regulation, SEC, 
dated December 21, 2000.
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    In order to accommodate additional increases in volume expected to 
accompany decimalization, Nasdaq will expand EWN II bandwidth to 256kb, 
and consequently, the fees that WorldCom charges Nasdaq will increase 
by an additional $160 per month per circuit. As of December 2000, 
Nasdaq projects that decimalization in penny increments will 
significantly increase the number of quote updates, such that on high 
volume days, a 192 kb

[[Page 828]]

bandwidth would be inadequate to support quote traffic. Therefore, 
Nasdaq proposes to pass on the costs associated with the increase to a 
256 kb bandwidth effective March 1, 2001.
    Under the proposal, the fee charged to a subscriber for an SDP 
would increase from $1,500 per month for each server to $1,875 per 
month from December 13, 2000 through February 28, 2001, and then to 
$2,035 per month, beginning March 1, 2001.\9\ The charge for an 
additional circuit would increase from $2,700 per month to $3,075 per 
month from December 13, 2000 through February 28, 2001, and then 
increase again on March 1, 2001 to $3,235 per month.\10\
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    \9\ See Id.
    \10\ As noted above, a T1 circuit supports up to six SDPs, and 
an SDP supports up to eight PDs. A subscriber will be subject to the 
additional circuit charge when the subscriber has not maximized 
capacity on its SDPs by placing eight PDs and/or API servers on an 
SDP; in such case, the NASD/Nasdaq will charge the additional 
circuit charge for those ``underutilized'' SDPs (the difference 
between the number of SDPs a subscriber has and the number of SDPs 
the subscriber would need to support its PDs and/or API servers, 
assuming an eight-to-one ratio). A subscriber also will be subject 
to the additional circuit charge when the subscriber has not 
maximized capacity on its T1 circuits by placing six
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    Although NASD Rule 7010(f)(2) generally applies to both members and 
non-member subscribers to NWII service, this filing will only effect a 
change to the fees charged to NASD members. Nasdaq is filing a separate 
but virtually identical rule change to impose the proposed new fees on 
non-member subscribers.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5) of the Act,\11\ 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 proposed fees, which will only apply to those who utilize 
NWII service, simply pass on the costs associated with increasing the 
capacity of EWN II to keep pace with volume increases. Ensuring 
adequate capacity is absolutely essential to protecting the integrity 
of the Nasdaq market, maintaining the confidence of the investing 
public, and preparing for decimalization.
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    \11\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to section 19(b)(3)(A)(ii) \12\ of the Act and subparagraph 
(f)(2) of Rule 19b-4 thereunder.\13\ At any time within 60days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
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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 
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 20549-0609. 
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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to the File No. SR-NASD-00-73 
and should be submitted by January 25, 2001.

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-152 Filed 1-3-01; 8:45 am]
BILLING CODE 8010-01-M