[Federal Register Volume 67, Number 13 (Friday, January 18, 2002)]
[Notices]
[Pages 2714-2716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45266; File No. SR-NASD-2001-88]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Computer to Computer Interface Fees

January 10, 2002.
    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 7, 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. 
On January 10, 2001, Nasdaq filed Amendment No. 1 to the proposed rule 
change.\3\ 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\ Amendment No. 1 contains the rule text of the proposed rule 
filing, as well as represented that all non-members affected by the 
proposed rule change had been alerted about the filing and that no 
unlisted trading privilege exchange would be affected by the filing. 
See letter from John Yetter, Assistant General Counsel, Nasdaq, to 
Katherine England, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated January 8, 2002 (``Amendment No. 
1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change increase the fee assessed on NASD non-
members that continue to use the x.25 Computer-

[[Page 2715]]

to-Computer Interface (``CTCI'') to access Nasdaq services rather than 
transitioning to the Transmission Control Protocol/Internet Protocol 
(``TCP/IP'') CTCI.
    The text of the proposed rule change is set forth below. New text 
is italicized. Deleted text is bracketed.
* * * * *
Rule 7010. System Services
    (a)-(e) No change.
    (f)(1)-(2) No change.
    (3) The following charges shall apply for each CTCI subscriber:*


------------------------------------------------------------------------
                Options                               Price
------------------------------------------------------------------------
Option 1--Dual 56kb lines (one for       $1275/month.
 redundancy) and single hub and router.
Option 2--Dual 56kb lines (one for       $1600/month.
 redundancy), dual hubs (one for
 redundancy), and dual routers (one for
 redundancy).
Option 3--Dual T1 lines (one for         $8000/month.
 redundancy), dual hubs (one for
 redundancy), and dual routers (one for
 redundancy), and dual routers (one for
 redundancy). Includes base bandwidth
 of 128kb.
Disaster Recovery Option--Single 56kb    $975/month.
 line with single hub and router. (For
 remote disaster recovery sites only.).
Bandwidth Enhancement Fee (for T1        $4000/month per 64kb increase
 subscribers only).                       above 128kb T1 base.
Installation Fee.......................  $2000 per site for dual hubs
                                          and routers.
                                         $1000 per site for single hub
                                          and router.
Relocation Fee (for the movement of TCP/ $1700 per relocation.
 IP--Lines within a single location.
------------------------------------------------------------------------

    (g)-(q) No change.
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    * As reflected in SR-NASD-00-80 and SR-NASD-00-81, x.25 CTCI 
circuits are being replaced with TCP/IP CTCI circuits. Pursuant to 
SR-NASD-2001-87 and SR-NASD-2001-88, the fee for x.25 CTCI circuits, 
which has remained $200 per month per circuit--is increased to 
$1,275 per month per circuit until the date of the termination of 
such circuits.
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* * * * *
    In prior rule filings, Nasdaq established the fees to be charged 
for TCP/IP CTCI linkages, which are now reflected in NASD Rule 
7010(f)(3).\4\ In those filings, Nasdaq indicated that it would impose 
TCP/IP fees on a rolling basis on NASD non-members as they converted to 
TCP/IP CTCI linkages. Accordingly, Nasdaq has continued to charge the 
previous CTCI fee of $200 per month per CTCI circuit to NASD members 
that have continued to use x.25 CTCI circuits. In this filing, Nasdaq 
is increasing the monthly charge to $1,275 per circuit.\5\ Nasdaq plans 
to assess the new fee during the months of February and March 2002 and 
to terminate remaining x.25 CTCI circuits at the end of March, although 
both the date for implementing the new fee and the date for terminating 
x.25 CTCI circuits are subject to adjustment.\6\ Nasdaq has provided 
and will continued to provide notice to market participants of these 
dates through NasdaqTrader.com alerts, direct mail, and telephone calls 
to NASD members that have not yet converted to TCP/IP CTCI linkages, 
and will notify the Commission via letter if there is an change in 
these dates.\7\
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    \4\ See Securities Exchange Act Release No. 43821 (Jan. 8, 
2001), 66 FR 3627 (Jan. 16, 2001); Securities Exchange Act Release 
No. 43815 (Jan. 8, 2001), 66 FR 3625 (Jan. 16, 2001); and Securities 
Exchange Act Release No. 44144 (Apr. 2, 2001), 66 FR 18332 (Apr. 6, 
2001).
    \5\ The increase will not be imposed, however, on members that 
use x.25 CTCI circuits solely for the purpose of accessing the Fixed 
Income Pricing System, which is scheduled to be replaced by a new 
corporate bond trade reporting and transaction dissemination 
facility known as TRACE in 2002. See Securities Exchange Act Release 
No. 43873 (Jan. 23, 2001), 66 FR 8131 (Jan. 29, 2001).
    \6\ Nasdaq has indicated that those members utilizing the 
remaining x.25 CTCI circuits will be unable to link to the CTCI 
system at the end of March. Nasdaq does not foresee any 
circumstances that would cause it to adjust the date of termination 
of the x.25 CTCI circuits at this time. January 3, 2002 telephone 
conversation between John Yetter, Assistant General Counsel, Nasdaq, 
and John Riedel, Staff Attorney, Division, Commission.
    \7\ On December 12, 2001, Nasdaq issued a Head Trader alert that 
provided notice of the fee increase and posted the alert on the 
NasdaqTrader.com website. At that time, Nasdaq also began making 
direct contacts with customers that continue to use x.25 CTCI 
circuits to alert them of the change, and had contacted all non-
members that might be affected by SR-NASD-2001-88 within several 
days. See Amendment No. 1, supra note 3.
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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 in 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

1. Purpose
    Nasdaq's CTCI network is a point-to-point dedicated circuit 
connection from the premises of brokerages and service providers of 
Nasdaq's Trumbull Connection processing facilities. Through CTCI, firms 
are able to enter trade reports to Nasdaq's Automated Confirmation 
Transaction Service (``ACT'') and orders to Nasdaq's Small Order 
Execution (``SOES'') and SuperSOES systems. CTCI also processes 
SelectNet transaction confirmation reports.
    In response to numerous requests from market participants that 
Nasdaq upgrade the speed and reliability of its CTCI data transmission 
environment, Nasdaq began the process last year of ``sunsetting'' its 
CTCI x.25/bisynch network in favor of a new network that provides 
greater capacity and a more efficient transmission protocol. The CTCI 
x.25/bisynch network can only transmit data up to 19.2 kilobits per 
second (``kb''). The new CTCI network operates over the Enterprise Wide 
Network II (``EWN II'') and provides connectivity over more powerful 
56kb and T1 data lines. In addition, the new CTCI network uses the 
industry-standard TCP/IP transmission protocol, a protocol that is 
robust, efficient, and well known among the technical community. In 
order to take advantage of the new CTCI network, users are required to 
upgrade their current x.25/19.2kb lines to either 56kb or T1 lines.
    Although the conversion process has been underway since January of 
this year, as of late November, 295 x.25CTCI circuits held by 60 firms 
remained active. Nasdaq is urging non-members that still rely upon 
these outmoded connections to complete their

[[Page 2716]]

conversions as soon as possible. Nasdaq believes that charging a higher 
price to non-members that have failed to convert will provide them with 
a financial incentive to complete their conversions in a timely fashion 
and thereby assist Nasdaq in achieving its goal of terminating this 
almost obsolete network. Moreover, as more and more users convert to 
TCP/IP, Nasdaq's per circuit cost of continuing to offer the x.25 CTCI 
connections increases. Since the x.25 CTCI network is provisioned to 
support over 600 circuits, Nasdaq believes that it is appropriate to 
pass through the expense of that network to those firms that have 
failed to transition. The fee increase, together with continued 
transition support from Nasdaq staff, will allow Nasdaq to ``sunset'' 
the x.25 CTCI network on March 31, 2002 (or sooner, if all x.25 CTCI 
subscribers have transitioned prior to that date).
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the Act, including Section 15A(b)(5) of the Act,\8\ 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.
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    \8\ 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, as amended.

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

    Nasdaq has either solicited nor received written comments on the 
proposed rule change.

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 or 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 self-regulatory organization consents, the Commission will:
    (A) By order approve such 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 data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 Nasdaq. All submissions should refer to file number 
SR-NASD 2001-88 and should be submitted by February 4, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-1301 Filed 1-17-02; 8:45 am]
BILLING CODE 8010-01-M