[Federal Register Volume 66, Number 140 (Friday, July 20, 2001)]
[Notices]
[Pages 38049-38051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18171]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44558; File No. SR-NASD-99-12]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1, 2 and 3 by the National Association of 
Securities Dealers, Inc. To Establish a Pilot Program To Provide Daily 
Share Volume Reports via NasdaqTrader.com

July 16, 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 February 18, 1999, 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 (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by Nasdaq. On March 24, 1999, Nasdaq amended the proposal.\3\ The 
original proposal and Amendment No. 1 were published in the Federal 
Register on April 9, 1999 for notice and comment.\4\ On May 30, 2001, 
the NASD again amended the proposal, which amendment completely 
replaces and supersedes the original filing and Amendment No. 1.\5\ On 
July 10, 2001, Nasdaq again amended the proposal.\6\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On February 18, 1999, Nasdaq submitted its initial proposal 
to provide only T+1 daily share volume reports in each Nasdaq 
security to market data vendors, NASD members, and non-NASD member 
Qualified Institutional Buyers (``QIBs'') as defined in Rule 144A 
under the Securities Act of 1933. 17 CFR 230.114A. After discussions 
with at least one market data vendor, and internal discussions at 
Nasdaq, Nasdaq filed an amendment on March 24, 1999 (``Amendment No. 
1''). Amendment No. 1 completely replaced and superseded the 
original proposal.
    \4\ Securities Exchange Act Release No. 41244 (April 1, 1999), 
64 FR 17429.
    \5\ See May 29, 2001 letter from Edward S. Knight, Executive 
Vice President and General Counsel, Nasdaq, to Katherine A. England, 
Assistant Director, Division of Market Regulation (``Division''), 
SEC and attachments (``Amendment No. 2''). Amendment No. 2 
completely replaced and superseded Amendment No. 1. In Amendment No. 
2, Nasdaq proposed new fees.
    \6\ See July 9, 2001 letter from Edward S. Knight, Executive 
Vice President and General Counsel, Nasdaq, to Belinda Blaine, 
Associate Director, Division, SEC (``Amendment No. 3''). In 
Amendment No. 3, Nasdaq: (1) Clarified that Amendment No. 2, as 
further amended by Amendment No. 3, should replace and supersede 
entirely the original proposal and Amendment No. 1; (2) clarified 
that the proposal is filed by the Association through its 
subsidiary, Nasdaq; (3) clarified that the asterisked footnote at 
the bottom of pages three and nine of Amendment No. 2 that defines 
``Qualified Institutional Buyer'' should be included in the proposed 
rule language of Section 7010(p); (4) clarified that modifications 
to Nasdaq Post Data during the pilot period will be limited to minor 
enhancements to the content of the package made in accordance with 
Section 19(b) of the Act and Rule 19b-4 thereunder; and (5) provided 
an explanation of the rationale underlying the choice of the fees 
for Nasdaq Post Data.
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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, Systems Services, to 
establish a fee for the Volume and Issue Data Package provided through 
the NasdaqTrader.com web site. The text of the proposed rule change is 
below. Proposed new language is in italics.

Rule 7010  System Services

    (a)-(o) No changes.
    (p) NasdaqTrader.com Volume and Issue Data Package Fee. The 
charge to be paid by the subscriber for each entitled user receiving 
the Nasdaq Volume and Issue Data Package via NasdaqTrader.com shall 
be $70 per month. The charge to be paid by market data vendors for 
this information shall be $35 per month for each end user receiving 
the information through the data vendor. The availability of this 
service through NasdaqTrader.com shall be limited to NASD members, 
Qualified Institutional Buyers * and data vendors. The Volume and 
Issue Data package includes:

    (1) Daily Share Volume reports
    (2) Daily Issue Data
    (3) Monthly Volume Summaries

    * For purposes of this service, see definition of ``Qualified 
Institutional Buyer'' found in Rule 144A of the Securities Act of 
1933.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In is 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 he 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 establish a fee for a voluntary trading data 
distribution facility, accessible to NASD members, buy-side 
institutions (Qualified Institutional Buyers (``QIBs'') \7\) and market 
data vendors through its NasdaqTrader.com web site. Under the proposal, 
subscribers to this service, as well as retail customers of 
participating market data vendors, will be able to obtain the Volume 
and Issue Data Package, proposed to be name ``Nasdaq Post Data'' 
(``Post Data'').
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    \7\ For purposes of this service, Nasdaq will rely on the 
definition of ``Qualified Institutional Buyer'' found in Rule 144A 
of the Securities Act of 1933. 17 CFR 230.144A.
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    Post Data will consist of three separate reports that will be 
provided as a single package. The first item will be the Daily Share 
Volume Report, to be named ``Nasdaq Volume Post,'' which will provide 
subscribes with access to T+1 daily share volume in each Nasdaq 
security, listing the volume by each NASD member firm that reports 
volume in the security and has voluntarily chosen to permit the 
dissemination of this information. The daily share volume will be 
verified for accuracy by Nasdaq's Automated Confirmation Transaction 
Service (``ACT''). The second item, the ``Daily Issue Data'' report, 
will contain a summary of the previous day's activity for every Nadaq 
issue. The third item, ``Monthly Summaries,'' will provide monthly 
trading volume statistics for the top 50 market participants, broken 
down by industry sector, security, or type of trading (e.g., block or 
total).
    Post Data will be made available in two ways through the 
NasdaqTrader.com web site. The information will be provided to market 
data vendors to be redistributed to their retail customers for which 
the data vendor will pay a $35 per month fee to Nasdaq for each end 
user obtaining this information. The information will also be provided 
directly to subscribers, limited to NASD members and non-NASD member 
QIBs, for a fee of $70 per month.
    Nasdaq filed this proposal in direct response to requests form 
professional Nasdaq market participants to increase the availability of 
Nasdaq-verified

[[Page 38050]]

trading data through NasdaqTrader.com. Sell-side traders use share 
volume to display their trading activity in specific Nasdaq issues, 
while buy-side representatives use similar data to determine which 
sell-side firm to select for execution of their orders. Post Data will 
provide a secure, controlled mechanism to allow these parties to view 
such data and make informed choices regarding their trading partners.
    Modifications to Post Data during the pilot period will be limited 
to minor enhancements to the content of the package, and will be made 
in accordance with section 19(b) of the Act \8\ and Rule 19b-4 
thereunder.\9\ Any such modifications will be provided at no additional 
cost to the subscribers and would be available to data vendors for 
redistribution.
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    \8\ 15 U.S.C. 78s.
    \9\ 17 CFR 240.19b-4.
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    Nasdaq recognizes the proprietary and confidential nature of the 
data contained in Post Data. As such, Nasdaq has established a secure 
information display and retrieval environment through the combined use 
of User Ids, passwords and digital certificates. To further protect 
NASD member firms' proprietary data, the service is designed so that 
the information will only be made available to the member firm itself, 
unless that member determines voluntarily to submit the information to 
be included in the Nasdaq Volume Post report for dissemination to other 
subscribers or vendors.
    Concerns for data protection, and the system security requirements 
needed to encourage greater disclosure of proprietary trading 
statistics, also shaped Nasdaq's determination to make Post Data 
available only to NASD member firms, market data vendors, and QIBs. It 
is Nasdaq's belief that these groups represent the largest number of 
market participants who may benefit from the availability of the 
voluntarily disclosed, Nasdaq-verified, trading volumes. At the same 
time, these participants are also the most likely to possess the 
requisite staff and resources to comply with the system security 
mandates. Moreover, the QIBs defined in Rule 144A consist of entities 
registered with various regulatory bodies, which registration Nasdaq 
believes provides an additional layer of protection against the 
improper use of its members' proprietary trading data. Finally, the 
Rule 144A QIB definition upon which Nasdaq seeks to rely has already 
been adopted by the Commission as a standard delineating the 
characteristics of institutional market participants.
    Given the commercial uncertainties associated with the launching of 
any new data product, Nasdaq will establish this service as a 12-month 
pilot program, beginning from the date of Commission approval, to 
evaluate user interest. At the end of the 12-month pilot, Nasdaq will 
evaluate the program and make a determination to terminate the program, 
continue the program for an additional 12-month pilot, or continue the 
program as a permanent feature of NasdaqTrader.com.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of sections 15A9(b)(5) and (6) of the Act.\10\ Section 
15A(b)(5) requires the equitable allocation of reasonable fees and 
charges among members and other users of facilities operated or 
controlled by a national securities association. Section 15A(b)(6) 
requires rules that foster cooperation and coordination with persons 
engaged in facilitating transactions in securities and that are not 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers. Nasdaq believes that the proposed fees represent an 
equitable allocation of reasonable fees among members and other users 
of the Nasdaq facilities associated with the offering of the Post Data 
product. Nasdaq established the fees in question based upon its 
consideration of numerous factors, including but not limited to: (1) 
The costs associated with the development, ongoing enhancement, 
maintenance, operation, and marketing of the Post Data product; (2) the 
cost associated with the ongoing maintenance and administration of the 
Nasdaq web security infrastructure that will be used to grant and 
validate access to the Post Data product; (3) reasonable overhead costs 
allocable to the Post Data product; and (4) projected subscriptions, 
usage, and revenues associated with the Post Data product during its 
initial period of availability. Nasdaq employed standard formulae to 
perform these projections, although such projections are inherently 
speculative.
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    \10\ 15 U.S.C. 78o-3(b)(5) and (6).
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    In addition, Nasdaq believes that the proposed fees foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and are not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers. Nasdaq 
will make the Post Data product available to vendors on a wholesale 
basis for $35 per end user, and will charge $70 per direct user, who 
will access the product through the Nasdaq Trader web site. This fee 
differential reflects the projected cost of the incremental web 
security that is required to entitle direct users of the Post Data 
product. This fee structure also permits wholesale buyers to re-sell 
the Nasdaq product for up to a 100% premium before adding any value of 
any kind to the product. In other words, a vendor could purchase Post 
Data from Nasdaq for $35, and then re-sell it to end users without 
modification for $65 and still under-price Nasdaq vis a vis those end 
users. Nasdaq believes that this pricing structure, which Nasdaq will 
make available to all customers on a non-discriminatory basis, will 
stimulate, rather than stifle, competition.

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, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited or nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the NASD consents, the Commission will:
    A. By order approve proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written date, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is constituent 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

[[Page 38051]]

proposed rule change between the Communication 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 Nasdaq. All submissions should refer to file number 
SR-NASD-99-12 and should be submitted by August 10, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority: \11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-18171 Filed 7-19-01; 8:45 am]
BILLING CODE 8010-01-M