[Federal Register Volume 66, Number 12 (Thursday, January 18, 2001)]
[Notices]
[Pages 4882-4884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43831; File No. JR-NASA-00-72]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Nasdaq's Transaction Credit Pilot 
Program

January 10, 2001.
    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. (``NASD''), filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by Nasdaq. Nasdaq has designated this proposal as one 
establishing or changing a due, fee, or other charge imposed by the 
Association under Section 19(b)(3)(A)(ii) of the Act,\3\ which renders 
the proposal effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 7010, System Services, to extend 
Nasdaq's transaction credit pilot program for an additional three 
months for Tape A and B reports. The text of the proposed rule change 
is below. Proposed new language is in italics. Proposed deletions are 
in brackets.

[[Page 4883]]

7010. System Services
    (a)-(b) No Change.
    (c) * * *
    (1) No Change.
    (2) Exchange-Listed Securities Transaction Credit. For a pilot 
period, qualified NASD members that trade securities listed on the NYSE 
and Amex in over-the-counter transactions reported by the NASD to the 
Consolidated Tape Association may receive from the NASD transaction 
credits based on the number of trades so reported. To qualify for the 
credit with respect to Tape A reports, an NASD member must account for 
500 or more average daily Tape A reports of over-the-counter 
transactions as reported to the Consolidated Tape during the concurrent 
calendar quarter. To qualify for the credit with respect to Tape B 
reports, an NASD member must account for 500 or more average daily Tape 
B reports of over-the-counter transactions as reported to the 
Consolidated Tape during the concurrent calendar quarter. If an NASD 
member is so qualified to earn credits based either on its Tape A 
activity, or its Tape B activity, or both, that member may earn credits 
from one or both pools maintained by the NASD, each pool representing 
40% of the revenue paid by the Consolidated Tape Association to the 
NASD for each of Tape A and Tape B transactions. A qualified NASD 
member may earn credits from the pools according to the member's pro 
rata share of the NASD's over-the-counter trade reports in each of Tape 
A and Tape B for each calendar quarter starting with July 1, 2000 for 
Tape A reports (April 1, 2000 for Tape B reports) and ending with the 
calendar quarter starting on [October 1, 2000] January 1, 2001.
* * * * *

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

1. Purpose
    Nasdaq proposes to extend through March 31, 2001, its pilot program 
to provide a transaction credit \4\ to NASD members that exceed certain 
levels of trading activity in exchange-listed securities. Nasdaq's 
InterMarket is a quotation, communication, and execution system that 
allows NASD members to trade stocks listed on the New York Stock 
Exchange (``NYSE'') and the American Stock Exchange (``Amex''). The 
InterMarket competes with regional exchanges like the Chicago Stock 
Exchange (``CHX'') and the Cincinnati Stock Exchange (``CSE'') for 
retail order flow in stocks listed on the NYSE and the Amex. The NASD 
collects trade reports from broker-dealers trading these securities in 
the over-the-counter (``OCTC'') market and provides the trade reports 
to the Consolidated Tape Association (``CTA'') for inclusion in the 
Consolidated Tape. As a participant in the CTA Plan, the NASD is 
entitled to a portion of the revenue that the CTA generates by selling 
this market data information. NASD's share of the revenues is based on 
trades that it reports on behalf of these broker-dealers in NYSE-listed 
securities (``Tape A'') and in Amex-listed securities (``Tape B'').
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    \4\ The transaction credit can be applied to any and all charges 
imposed by the NASD or its non-self-regulatory organization 
affiliates. Any remaining balance may be paid directly to the 
member.
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    The Transaction Credit Pilot Program began in 1999.\5\ Under the 
Program, NASD shares a portion of these tape revenues by providing a 
transaction credit to NASD members who exceed certain levels of OTC 
trading activity in NYSE and Amex securities. The Program helps 
InterMarket market makers and investors lower costs associated with 
trading listed securities. The Program also is an important tool for 
Nasdaq to compete against other exchanges (particularly CSE and CHX) 
that offer similar programs \6\ and thereby maintain market share in 
listed securities.
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    \5\ See Securities Exchange Act Release No. 41174 (March 16, 
1999), 64 FR 14034 (March 23, 1999) (SR-NASD-99-13). The Program was 
subsequently extended. See Securities Exchange Act Release Nos. 
42095 (November 3, 1999), 64 FR 61680 (November 12, 1999) (SR-NASD-
99-59); 42672 (April 12, 2000), 65 FR 21225 (April 20, 2000)(SR-
NASD-00-10); and 42907 (June 7, 2000), 65 FR 37445 (June 14, 
2000)(SR-NASD-00-32).
    \6\ See Securities Exchange Act Release No. 38237 (February 4, 
1997), 62 FR 6592 (February 12, 1997) (SR-CHX-97-01) and 39395 
(December 3, 1997), 62 FR 65113 (December 10, 1997)(SR-CSE-97-12).
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    The Program works as follows: Nasdaq calculates two separate pools 
of revenue from which credits can be earned: one representing 40% of 
the gross revenues received by the NASD from the CTA for providing 
trade reports in NYSE-losted securities executed in the InterMarket for 
dissemination by CTA (Tape A), and the other representing 40% of the 
gross revenue received from the CTA for reporting Amex trades (Tape B).
    Eligibility for transaction credits is based on concurrent 
quarterly trading activity. For example, an InterMarket participant 
that enters the market for Tape A or Tape B securities during a 
particular quarter and prints an average of 500 daily trades of Tape A 
securities during the time it is in the market, or that averages 500 
Tape B prints during such quarter, would be eligible to receive 
transaction credits based on its trades during the third quarter. Only 
those NASD members who continue to average an appropriate daily 
execution level are eligible for transaction credits and thus able to 
receive a pro-rata portion of the appropriate pool.\7\ These thresholds 
permit the NASD to recover appropriate administrative costs related to 
NASD members that do not exceed the threshold and to provide an 
incentive for NASD members to actively trade in these securities.
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    \7\ As explained in Nasdaq's original pilot filing, the 
qualification thresholds were selected based on Nasdaq's belief that 
such numbers represent clear examples of a member's commitment to 
operating in the InterMarket and competing for order flow. See 
Securities Exchange Act Release No. 41174 (March 16, 1999), 64 FR 
14034 (March 23, 1999) (SR-NASD-99-13).
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    The current Program will expire on December 31, 2000. Because the 
Program has helped Nasdaq maintain market share in listed securities, 
Nasdaq proposes to extend the current Program through the first quarter 
of 2001. Nasdaq's transaction credit program is being proposed on a 
pilot basis only. There can be no guarantee that transaction credits 
will be available to qualifying NASD members beyond the term of the 
pilot.
2. Statutory Basis
    Nasdaq believes the proposed rule change is consistent with section 
15A(b)(6) of the Act \8\ in the proposal is designed to promote just 
and equitable principles of trade and to remove impediments to and 
perfect the mechanism of a national market system and, in general, to 
protect investors and the public interest. Nasdaq also believes

[[Page 4884]]

the proposal is consistent with Section 15A(b)(5) of the Act \9\ 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 of system which the Association operates or controls.
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    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ 15 U.S.C. 78o-3(b)(5).
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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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act\10\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\11\ because it establishes or changes a due, fee, or other 
charge imposed by the Association. At any time within 60 days 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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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 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 proposal 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 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 number SR-NASD-00-72 and should be 
submitted by February 8, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-1410 Filed 1-17-01; 8:45 am]
BILLING CODE 8010-01-M