[Federal Register Volume 67, Number 13 (Friday, January 18, 2002)]
[Notices]
[Pages 2716-2718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1356]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45273; File No. SR-NASD-2001-92]


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

January 14, 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 17, 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'' or ``SEC'') the proposed rule change as 
described in Items, I, II, and III below, which Items have been 
prepared by Nasdaq. Nasdaq filed the proposal pursuant to section 
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(2) thereunder,\4\ 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).
    \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 six months, through June 28, 2002, for Tape A and B reports. 
No other substantive changes are proposed to the Program at this time. 
The text of the proposed rule change is available at the Association 
and at the Commission.

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 the Program \5\ for an additional six 
months, through June 28, 2002, to provide a transaction credit 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

[[Page 2717]]

Exchange (``NYSE'') and the American Stock Exchange (``Amex'').\6\ 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 
Association 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, the 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 with other 
exchanges (particularly the CSE and the CHX) that offer similar 
programs \8\ and thereby maintain market share in listed securities.
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    \7\ See Securities Exchange Act Release No. 41174 (March 16, 
1999), 64 FR 14034 (March 23, 1999) (SR-NASD-19-13). The SEC issued 
notice of subsequent extensions of 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 
37455 (June 14, 2000) (SR-NASD-00-32); 43831 (January 10, 2001), 66 
FR 4882 (January 18, 2001) (SR-NASD-00-72); 44098 (March 23, 2000), 
66 FR 17462 (March 30, 2001) (SR-NASD-2001-15); 44734 (August 22, 
2001), 66 FR 4537 (August 26, 2001) (SR-NASD-2001-42); and 44734A 
(August 30, 2001), 66 FR 46853 (September 7, 2001) (correction).
    \8\ See Securities Exchange Act Release Nos. 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-listed securities executed in the InterMarket for 
dissemination by CTA (Tape A), the other representing 40% of the gross 
revenue received from 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 that quarter. Only those 
NASD members that 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.\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 completing for order flow. See 
Securities Exchange Act Release No. 41174 (March 16, 1999), 64 FR 
14034 (March 23, 1999) (SR-NASD-99-13). Nasdaq continues to believe 
that such threshold numbers represent clear examples of a member's 
commitment to operating in the InterMarket.
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    The current Program expired December 31, 2001. Because the Program 
has helped Nasdaq maintain market share in listed securities, Nasdaq 
proposes to extend the current Program for an additional six months, 
through June 28, 2002.
2. Statutory Basis
    Nasdaq believes the proposed rule change is consistent with 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 that 
the proposed rule change 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. 78o-3(b)(6).
    \11\ 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 \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 wrriten 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 
espect to the proposed rule change that are filed with the Commission, 
and all written communications relatiang 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 Association. All 
submissions should refer to file number SR-NASD-2001-92 and should be 
submitted by February 8, 2002.


[[Page 2718]]


    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. 02-1356 Filed 1-17-02; 8:45 am]
BILLING CODE 8010-01-M