[Federal Register Volume 66, Number 62 (Friday, March 30, 2001)]
[Notices]
[Pages 17462-17463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7894]



[[Page 17462]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44098; File No. SR-NASD-01-15]


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

 March 23, 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 March 12, 2001, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its subsidiary The Nasdaq Stock 
Market, Inc. (``Nasdaq''), 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 constituting the 
establishment or change of a due, fee or other charge imposed by the 
Association under section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-
4(f)(2),\4\ which renders the rule 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).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 (``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.
* * * * *

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 [January 1] April 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 June 30, 2001, its pilot program 
to provide a transaction credit \5\ to NASD members that exceed certain 
levels of trading activity in exchange-listed securities. Nasdaq's 
InterMarket \6\ 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 (``OTC'') 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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    \5\ The transaction credit can be applied to any and all charges 
imposed by NASD or its non-self-regulatory organization affiliates. 
Any remaining balance may be paid directly to the member.
    \6\ Nasdaq's InterMarket formerly was referred to as Nasdaq's 
Third Market. See Securities Exchange Act Release No. 42907 (June 7, 
2000), 65 FR 37445 (June 14, 2000) (SR-NASD-00-32).
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    The Program began in 1999.\7\ 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 
exchanges (particularly CSE and CHX) that offer similar programs \8\ 
and thereby maintain market share in listed securities.
    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-listed securities executed in the InterMarket for 
dissemination by CTA (Tape A) and the other representing 40% of the 
gross revenue received from CTA for reporting Amex trades (Tape B).
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    \7\ See Securities Exchange Act Release No. 41174 (March 16, 
1999), 64 FR 14034 (March 23, 1999) (SR-NASD-99-13). The NASD has 
subsequently extended the Program. 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); 42907 (June 7, 2000), 65 FR 37445 (June 
14, 2000) (SR-NASD-00-32); 43831 (January 10, 2001), 66 FR 4882 
(January 18, 2001) (SR-NASD-00-72).
    \8\ See Securities Exchange Act Release No. 38237 (February 4, 
1997), 62 FR 6592 (February 12, 1997) (SR-CHX-97-01) and Securities 
Exchange Act Release No. 39395 (December 3, 1997), 62 FR 65113 
(December 10, 1997) (SR-CSE-97-12).
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    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

[[Page 17463]]

receive transaction credits based on its trades during that quarter. 
Only those NASD members that continue to average a specified daily 
execution level are eligible for transaction credits and thus able to 
receive a pro-rata portion of the appropriate pool.\9\ 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 to NASD members to actively trade in these securities.
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    \9\ 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 Program will expire on March 31, 2001. Because the Program has 
helped Nasdaq maintain market share in listed securities, Nasdaq 
proposes to extend the Program through the second 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 the 
provisions of section 15A(b)(6) of the Act \10\ in that 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 the proposal is consistent with section 15A(b)(5) 
of the Act \11\ 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.
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    \10\ 15 U.S.C. 78-3(b)(6).
    \11\ 15 U.S.C. 78-3(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 \12\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \13\ 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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    \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 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-01-15 and 
should be submitted by April 20, 2000.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-7894 Filed 3-29-01; 8:45 am]
BILLING CODE 8011-01-M