[Federal Register Volume 67, Number 16 (Thursday, January 24, 2002)]
[Notices]
[Pages 3521-3523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1705]


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SECURITIES AND EXCHANGE COMMISSION

[Release No 34-45285; File No. SR-NASD-2001-93]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc.; Relating to Fees Associated With the Nasdaq 
Application of the Primex Auction System TM

January 15, 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 (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by Nasdaq has designated this proposal as one constituting a fee filing 
under section 19(b)(3)(A) of the Act, which renders the rule effective 
upon the Commission's receipt of this filing. Nasdaq will not assess 
fees pursuant to this fee schedule for approximately the first three 
months after the Nasdaq application of the Primex Auction System 
(``Primex'' or ``System'') is operational.\3\ Nasdaq intends to begin 
assessing fees pursuant to this fee schedule beginning on April 1, 
2002. However, Nasdaq will issue a Head Trader Alert to notify users of 
the exact date it will begin assessing fees. 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\ As described above, Nasdaq will not assess any fees pursuant 
to the fee schedule during the initial few months the System is 
operating, which also means Nasdaq will not share any transaction 
fees in accordance with the fee schedule during such period. 
However, Primex Trading N.A., L.L.C., an entity independent of 
Nasdaq and the licensor of the System, has indicated it will pay any 
revenue sharing amounts earned by participants during such period.

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[[Page 3522]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is proposing to amend NASD Rule 7010 to establish the fee 
schedule for Nasdaq's application of the Primex Auction 
System.TM Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in 
brackets.

7010. System Services

(a)-(q) No changes.

(r) Nasdaq Application of the Primex Auction System TM

    The following charges shall apply to the use of the Nasdaq 
Application of the Primex Auction System:

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(1) Transaction Charges:
    Execution Services--for all participants:
        Order entry...........................  No fee.
        Auction Response (per share, per        $.01.
         execution--$5.00 maximum).*.
    Matching Rights--Primex Auction Market
     Markers (PAMMs) only:
        50 Percent Match......................  No fee
        Two-Cent Match (per share, per          $.0025.
         retained order--$2.50 Maximum.**.
    Revenue Sharing--PAMMs only:
        Each order executed: ***..............  \1/3\ of traction fee.
(2) Monthly Access fees:
    Software:
        Workstation license or unique logon:    Per workstation logon:
            Stations/logons 1-10..............      $200.
            Stations/logons 11-25.............      $100.
            Stations/logons 26 and above......      $50.
        Proprietary interface license:          Per license:
            API specification.................      $500.
            FIX (customized protocol).........      $500.
    Network:
        Dedicated line:                         Per line:
            256K primary with backup..........      $1,564.
        Installation/Uninstall................      $1,000 per Nasdaq Staff site visit.
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* This fee applies to both Indications and ``real-time'' Responses. When two orders match directly, a fee is
  charged to the party that entered the second order.
** This fee is charged in the event a PAMM attaches its matching right to an order, and the crowd offers two
  cents or less price improvement to that order.
*** Paid to PAMM when it enters an order that interacts with crowd interest in the system. Revenue sharing
  applies only to orders in those securities in which the firm is registered as a PAMM. The revenue sharing
  amounts will be paid on a quarterly basis.

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
    On August 17, 2001, Nasdaq filed a Form PILOT to commence operation 
of the Primex System.\4\ The System is designed to replicate, in an 
electronic form, the competitive trading crowd that is associated with 
an auction market. The System is completely voluntary and available to 
any NASD member in good standing. Non-NASD members can access the 
System through an NASD member that subscribes to Primex. Members that 
desire access to the System must execute the necessary agreements with 
Nasdaq. Members granted access to the System are referred to as 
Participants. There are two types of Participants in Primex: (1) Crowd 
Participants, and (2) Primex Auction Market Makers (``PAMMs'').
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    \4\ The Form PILOT was amended on November 26, 2001. See Letter 
from Peter R. Geraghty, Associate General Counsel, Nasdaq, to John 
Polise, Senior Special Counsel, Division of Market Regulation, 
Commission, dated November 26, 2001.
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    By becoming a Participant, members automatically receive the right 
to trade as Crowd Participants. Crowd Participants can view all orders 
exposed in the System; interact with any order put to auction by 
responding to the auction using all of the System's response tools; 
submit orders to be auctioned; and trade as principal, agent, or 
riskless principal. Crowd Participants can interact with orders being 
auctioned by submitting Indications, which are instructions to the 
System that can reside within the System and automatically respond in a 
certain manner to an auction if and when orders put to auction are 
available, or by submitting a Response. A Response is an individual 
instruction that is entered and responds in ``real time'' to orders 
being auctioned. A firm that elects to register as a PAMM has the same 
rights and entitlements as Crowd Participants, but because they elect 
to meet other additional qualifications,\5\ PAMMs are entitled to 
additional privileges. For example, PAMMs are entitled to use the 
System's automated Match Parameters allowing them to participate in the 
execution of their own customer orders submitted to the System (e.g., 
the Two Cent Match Parameter or the 50% Match Parameter \6\). PAMMs 
also are entitled to

[[Page 3523]]

revenue sharing, allowing PAMMs to share in the transaction fee paid by 
other participants when such participants execute against an order 
submitted to auction by a PAMM.
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    \5\ The requirements to become and maintain registration as a 
PAMM are contained in NASD Rule 5020. In general, a PAMM for a 
particular security eligible for trading in the System must be 
either: (1) A Nasdaq market maker in the security, if the security 
is listed on Nasdaq; or (2) a Consolidated Quotation System market 
maker, if the security is listed on an exchange. PAMMs may retain 
their PAMM status for a prospective calendar quarter provided they 
had qualified by submitting to the System a minimum percentage of 
certain order-types in the previous calendar quarter, as detailed in 
NASD Rule 5020. There never is any requirement for participants to 
register as a PAMM or to submit any amount of orders at any time.
    \6\ A complete description of the matching parameters and their 
operation are contained in NASD Rule 5014. Generally, however, when 
a PAMM submits an order to the System with the 50% Match parameter, 
the order will be executed against any interest by the Crowd that 
satisfies the order during its exposure at the price(s) and size of 
such Crowd interest, for no more than 50% of the order. Any 
execution with the Crowd will immediately cause the System to 
provide the order with an additional execution of like size and 
price against the PAMM that entered the order.
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    Nasdaq will impose monthly fees to access the System. These fees 
vary based on the method chosen by the Participant to access the 
System. The System will operate on a network that is independent from 
Nasdaq's other existing systems (e.g., SuperSoesSM). Primex 
Participants will be charged a monthly fee for this independent 
network. In addition, Participants will be charged for each visit by 
Nasdaq staff to install, or uninstall, software or hardware necessary 
to access the System.
    In addition to monthly charges, Nasdaq will impose fees based on 
orders executed through the System. As set forth in the schedule of 
fees, no fee is charged for submitting an order to auction, and in 
general no fee is charged to have such orders executed.\7\ Execution 
fees are only charged against Participants that extract liquidity by 
responding to, and executing against, orders submitted for auction. 
This execution fee is a penny per share with a maximum charge of $5.00 
per execution. Accordingly, the fee would be charged to a Participant 
for any execution resulting from that Participant's Indication or real-
time Response that interacted with an order put to auction.
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    \7\ The one exception is where an order submitted to auction 
directly meets and interacts with another order submitted to 
auction, in which case the second order is treated as a Response, 
and is charged a fee accordingly.
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    In addition, and as discussed above, PAMMs have the option of 
attaching certain matching rights on orders they submit to the System. 
Nasdaq will impose a fee when a PAMM utilizes the Two-Cent Match 
feature and retains an order for execution. In such circumstances, the 
PAMM will be charged $.0025 per share, with a $2.50 maximum per 
retained order. If the PAMM does not retain the order because the order 
is executed against the Crowd Participant(s) who has offered more that 
two cents of price improvement, there is no charge to the PAMM. 
Instead, Nasdaq will share with the PAMM one-third of the transaction 
fee collected for such transaction. Nasdaq has decided to share the 
transaction fee in these circumstances to encourage PAMMS to submit 
orders for auction in the System. The revenue sharing amounts will be 
paid on a quarterly basis.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5) of the Act \8\ in that the proposed 
fees provide for the equitable allocation of reasonable fees among 
members. The fees apply equally to all Participants in the System, 
based upon the category the member has chosen to participate in the 
System. All members in the same category of Participant (e.g., PAMM) 
are subject to the same fees.
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    \8\ 15 U.S.C. 78k-1(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 foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A) of the Act \9\ and subparagraph (f)(2) of Rule 
19b-4 thereunder \10\ in that it establishes the fee schedule for the 
use of a Nasdaq system.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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    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 such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number SR-NASD-2001-93 
and should be submitted by February 14, 2002.
    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-1705 Filed 1-23-02; 8:45 am]
BILLING CODE 8010-01-M