[Federal Register Volume 66, Number 198 (Friday, October 12, 2001)]
[Notices]
[Pages 52167-52169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25699]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44910; File No. SR-NASD-2001-67]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Nasdaq National Market Execution System Fees 
and the Introduction of a Liquidity Provider Rebate for NASD Members

October 5, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October 
4, 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 
(``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 self-regulatory organization under Section 
19(b)(3)(A)(ii) of the Act, which renders the rule effective upon 
filing with the Commission.\1\ The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ The NASD filed an amendment to the filing on October 5, 
2001. The substance of the amendment has been incorporated into this 
notice. See letter to Katherine A. England, Assistant Director, 
Commission, from John M. Yetter, Assistant General Counsel, Nasdaq. 
(October 4, 2001).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    This is a rule change, on a pilot basis, to: (1) Increase the per 
share charge for use of the Nasdaq National Market Execution System 
(``NNMS'' or ``SuperSOES''); and (2) introduce a liquidity provider 
rebate. Nasdaq has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by a self-regulatory 
organization, and therefore the proposed rule change is effective upon 
filing as applied to NASD members. The rule change will become 
operative on a pilot basis, commencing on November 1, 2001 and ending 
on October 31, 2002.\2\ During the pilot

[[Page 52168]]

period, Nasdaq will assess the effect of the rule change on market 
participants and Nasdaq and may file additional changes to the level or 
structure of its fees. The text of the proposed rule change is set 
forth below. Proposed new language is italicized; proposed deletions 
are in brackets.
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    \2\ Nasdaq also filed a companion rule filing (SR-NASD-2001-68) 
to apply the per share charge portion of the rule change to national 
securities exchanges trading Nasdaq-listed securities pursuant to 
grants of unlisted trading privileges (``UTP Exchanges''), which are 
not NASD members, and has requested that the Commission grant 
accelerated approval to the filing. SR-NASD-2001-68 will become 
effective immediately upon approval by the Commission and will be 
implemented on the first day of the month immediately following 
Commission approval.
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    * * *

7010.  System Services

    (a)-(h) No change.

(i) Transaction Execution Services

    (1) No change.
    (2) Nasdaq National Market Execution System (SuperSOES)
    The following charges shall apply to the use of the Nasdaq National 
Market Execution System:

 
 
 
Order Entry Charge.....................  $0.10 per order entry (entering
                                          party only).
Per Share Charge.......................  $0.001 per share executed for
                                          all fully or partially
                                          executed orders (entering
                                          party only).
Cancellation Fee.......................  $0.25 per order cancelled
                                          (canceling party only).
 

    For a pilot period commencing on November 1, 2001 and lasting until 
October 31, 2002, the per share charge will be $0.002 per share 
executed for all fully or partially executed orders (entering party 
only).
    (3) No change.
    (4) Liquidity provider rebate
    For a pilot period commencing on November 1, 2001 and lasting until 
October 31, 2002:
    (A) NASD members that do not charge an access fee to market 
participants accessing their quotations through the Nasdaq National 
Market Execution System will receive a rebate of $0.001 per share when 
their quotation is executed against by a Nasdaq National Market 
Execution System order.
    (B) NASD members will receive a rebate of $0.001 per share when 
they send a Nasdaq National Market Execution System order that executes 
against the quotation of a market participant that charges an access 
fee to market participants accessing its quotations through the Nasdaq 
National Market Execution System.
    (j)-(q) No change.

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 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 below in Sections (A), 
(B), and (C), 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

    On January 14, 2000, the Commission issued an order approving a 
rule change that: (1) Established the NNMS, a new platform for the 
trading of Nasdaq National Market (``NNM'') securities; (2) modified 
the rules governing the use of SelectNet for trading NNM issues; and 
(3) left unchanged trading of Nasdaq SmallCap securities through the 
Small Order Execution System (``SOES'') and SelectNet.\3\ Nasdaq began 
implementing these system changes on July 9, 2001 and completed 
implementation on July 30, 2001. Through these changes, the NNMS has 
become the primary trading platform for NNM securities, and SelectNet 
is intended to be used primarily for the transmittal and execution of 
``non-liability'' orders for market makers in NNM securities, as well 
as the transmittal and execution of ``liability'' orders to market 
participants that do not participate in the automatic execution 
functionality of the NNMS. On September 28, 2001, Nasdaq filed 
modifications to the pricing structure for SelectNet and the NNMS.\4\ 
These changes were designed as an interim modification to begin the 
process of aligning the charges to market participants for using the 
NNMS and SelectNet more closely with the costs of providing these 
services and the benefits that they provide to market participants.
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    \3\ Securities Exchange Act Release No. 42344 (Jan. 14, 2000), 
65 FR 16 (Jan. 25, 2000) (SR-NASD-99-11).
    \4\ See Securities Exchange Act Release No. 44899 (October 2, 
2001) (File No. SR-NASD-2001-63) and Securities Exchange Act Release 
No. 44898 (October 2, 2001) (File No. SR-NASD-2001-64). SR-NASD-
2001-63 applied the new fees to NASD members, effective upon filing, 
and was implemented on October 1, 2001. SR-NASD-2001-64 will apply 
the new fees to UTP Exchanges, and will be implemented on the first 
day of the month immediately following Commission approval.
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    In this filing, Nasdaq is increasing the per share charge for use 
of the NNMS and introducing a liquidity provider rebate. The per share 
charge for orders entered and executed in the NNMS will increase from 
$0.001 per share to $0.002 per share, in keeping with Nasdaq's ongoing 
efforts to align charges with costs and benefits. This increase, 
however, will be accompanied by the institution of a liquidity provider 
rebate. The rebate is designed to enhance market efficiency and 
fairness by offering incentives to market participants that provide 
liquidity through the NNMS. Nasdaq believes that the rebate will 
increase the extent to which orders are exposed to the entire market. 
The rebate is also structured to address competitive disparities 
between electronic communications networks, which may charge non-
subscribers fees for accessing their quotes, and market makers, which 
generally are prohibited by the Commission from charging access fees. 
Members that do not charge an access fee will receive a rebate of 
$0.001 per share when their quotation is executed against by an order 
sent via the NNMS; in addition, a rebate of $0.001 per share will be 
paid to members when they send an NNMS order that executes against the 
quotation of a market participant that charges in access fee. The 
rebate will be applied to reduce any charges payable by the recipient 
of the rebate to Nasdaq. Any remaining balance may be paid directly to 
the member. The rebate will be calculated on a monthly basis.
    Nasdaq believes that the proposed rule change is consistent with 
the Act, including Section 15A(b)(5) of the Act, which requires that 
the rules of the NASD provide for the equitable allocation of 
reasonable fees, dues, and other charges among members and issuers and 
other persons using any facility or system which the NASD operates or 
controls, and Section 15A(b)(6) of the Act, which requires rules that 
are not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers. Nasdaq believes that the level of fees 
charged to market participants under the proposal is reasonable. Nasdaq 
anticipates that overall fees for the NNMS, SelectNet, and SOES, net of 
the liquidity provider rebate, will be comparable to overall fees for 
the NNMS, SelectNet, and SOES under the pricing changes contained in 
SR-NASD-2001-63 and SR-NASD-2001-64. Such fees are, in turn, estimated 
to be slightly lower than overall fees for SelectNet and SOES prior to 
the introduction of the NNMS. Moreover, Nasdaq believes that the 
structure of the

[[Page 52169]]

liquidity provider rebate is equitable, because it will help to address 
competitive disparities between electronic communications networks and 
market makers stemming from access fees.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change will not 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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act and subparagraph (f) of Rule 19b-4, 
thereunder because it establishes or changes a due, fee or other charge 
imposed by the self-regulatory organization. At any time within 60 days 
of the filing of the proposed rule change, the Commission may summarily 
abrogate the 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.

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 in the 
Commission's Public Reference Room. Copies of the 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-2001-67 and 
should be submitted by November 2, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25699 Filed 10-11-01; 8:45 am]
BILLING CODE 8010-01-M