[Federal Register Volume 67, Number 35 (Thursday, February 21, 2002)]
[Notices]
[Pages 8051-8053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4172]



[[Page 8051]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45444; File No. SR-NASD-2002-17]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Expand Program for Sharing Market Data Revenue With NASD 
Members, Reduce Charge for Automated Give-Up Trade Reports, and Delete 
Fee Schedule for the ReSource Service

February 14, 2002.
    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 February 
5, 2002, 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. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended, from interested persons.

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

    This is a proposed rule change to: (1) Expand Nasdaq's program for 
sharing market data revenue with NASD members; (2) reduce the charge 
for automated give-up (``AGU'') trade reports submitted to Nasdaq's 
Automated Confirmation Transaction Service (``ACT''); and (3) delete 
the fee schedule for the ReSource Service, a service that Nasdaq had 
proposed to assist NASD member market centers in meeting their 
reporting obligations under Rule 11Ac1-5,\1\ but that Nasdaq has 
decided not to offer. Pursuant to Section 19(b)(3)(A)(ii) of the Act 
\2\ and Rule 19b-4(f)(2) thereunder,\3\ 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. Nasdaq 
implemented the rule change as of February 11, 2002. 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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    \1\ 17 CFR 240.11Ac1-5.
    \2\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \3\ 17 CFR 240.19b-4(f)(2).
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* * * * *
7010. System Services
    (a) (1) No change.
    (2) Market Data Revenue Sharing
    (A) For a pilot period [commencing on February 1, 2002 and] lasting 
until October 31, 2002, NASD members shall receive a market data 
revenue sharing credit. The total credit shall be calculated in 
accordance with the following formula:
    Credit=(0.[6]80)  x  (Eligible Revenue)  x  (Member's Volume 
Percentage)
    (B) Definitions. The following definitions shall apply to this 
Rule:
    (i) ``Eligible Revenue'' shall mean:
    a. the portion of the net distributable revenues that Nasdaq, 
through the NASD, is eligible to receive under the Nasdaq UTP Plan, 
that is attributed to the Nasdaq Level 1 Service for Eligible 
Securities, minus
    b. the portion of the fee charged to Nasdaq by NASD Regulation, 
Inc. for regulatory services allocated to the Nasdaq Level 1 Service 
for Eligible Securities.
    (ii) ``Eligible Securities'' shall mean all Nasdaq National Market 
securities and any other security that meets the definition of 
``Eligible Security'' in the Nasdaq UTP Plan.
    (iii) ``Member's Volume Percentage'' shall mean the average of:
    a. the percentage derived from dividing the total number of trades 
in Eligible Securities [conducted on non-Nasdaq transaction systems] 
that the member reports in accordance with NASD trade reporting rules 
to the Automated Confirmation Transaction Service (``ACT'') by the 
total number of trades in Eligible Securities reported to ACT by NASD 
members, and
    b. the percentage derived from dividing the total number of shares 
represented by trades in Eligible Securities [conducted on non-Nasdaq 
transaction systems] that the member reports in accordance with NASD 
trade reporting rules to ACT by the total number of shares represented 
by all trades in Eligible Securities reported to ACT by NASD members.
    (iv) ``Nasdaq UTP Plan'' shall mean the Joint Self-Regulatory Plan 
Governing the Collection, Consolidation and Dissemination of Quotation 
and Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privilege Basis.
    (b)--(f) No change.
    (g) Automated Confirmation Transaction Service.
    The following charges shall be paid by the participant for use of 
the Automated Confirmation Transaction Service (ACT):
Transaction Related Charges:
Comparison--$0.0144/side per 100 shares (minimum 400 shares; maximum 
7,500 shares)
Automated Give-Up--$[0.01]0.029/side [per 100 shares (minimum 400 
shares; maximum 7,500 shares)]
Late Report--T+N--$0.288/side
Browse/query--$0.288/query \*\
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    \*\ Each ACT query incurs the $0.288 fee; however, the first 
accept or decline processed for a transaction is free, to insure 
that no more than $0.288 is charged per comparison. Subsequent 
queries for more data on the same security will also be processed 
free. Any subsequent query on a different security will incur the 
$0.288 query charge.
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Terminal fee--$57.00/month (ACT only terminals)
CTCI fee--$575.00/month
Nasdaq ACT--$300/month (full functionality) or $150/month (up to an 
average of twenty transactions per day each month) \**\
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    \**\ For the purposes of this service only, a transaction is 
defined as an original trade entry, either on trade date or as-of 
transactions per month.
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Trade reporting--$0.029/side (applicable only to reportable transaction 
not subject to trade comparison through ACT) \***\
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    \***\ The trade reporting service charge is applicable to those 
trades input into ACT for reporting purposes only, such as NSCC 
Qualified Special Representative reports and reports of internalized 
transactions.
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Risk Management Charges[:]--$0.035/side and $17.25/month per 
correspondent firm (maximum $10,000/month per correspondent firm)
Corrective Transaction[:]--$0.25/Cancel, Error, Inhibit, Kill, or 
``No'' portion of
Charge--No/Was transaction, paid by reporting side; $0.25/Break, 
Decline transaction, paid by each party[;]

    (h)--(p) No change.
    [(q) Nasdaq ReSource \SM\ Service]
    [(1)(A) Subscribers to the Nasdaq ReSource \SM\ Service shall be 
charged an Activation Fee and an Annual Subscription Fee, both of which 
generally will vary depending upon a subscriber's trading volume, as 
measured in accordance with paragraphs (B) through (D) below, and 
corresponding tier classification as follows:]

------------------------------------------------------------------------
                                                Average monthly trade
                   [Tier                               volume]
------------------------------------------------------------------------
[1........................................  500,000 or greater]
[2........................................  100,000-499,999]
[3........................................  10,000-99,999]
[4........................................  5,000-9,999]
[5........................................  1,000-4,999]
[6........................................  500-999]
[7........................................  0-499]
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[[Page 8052]]

    [(B) During the first year of the Resource \SM\ Service (i.e., 
August 2001 through July 2002) Nasdaq will assign subscribers to one of 
the tiers listed in paragraph (A) above based on their average monthly 
trading volume reported to the tape, for the period from September 1, 
2000, through February 28, 2001, in Nasdaq National Market securities 
for which the subscriber is registered as a market maker.]
    [(C) Members that subscribe to the Resource \SM\ Service other than 
at the beginning of a ``Subscription Year,'' as the term is defined 
below, will be assigned to one of the tiers listed in paragraph (A) 
above based on their average monthly trading volume reported to the 
tape, during the six month period preceding the date of their 
subscription, in Nasdaq National Market securities for which the 
subscriber is registered as a market maker.]
    [(D) Beginning in July of 2002, and on an annual basis thereafter, 
Nasdaq will review each subscriber's average monthly trading volume and 
assign the subscriber to one of the tiers listed in paragraph (A) above 
based on their average monthly trading volume reported to the tape, 
during the preceding six month period, in Nasdaq National Market 
securities for which the subscriber is registered as a market maker.]
    [(2)(A) Activation Fees and Annual Subscription Fees shall be as 
follows:]

------------------------------------------------------------------------
                                                              Annual
                   [Tier                     Activation    Subscription
                                                 Fee           Fee]
------------------------------------------------------------------------
[1........................................        $3,000        $35,000]
[2........................................         3,000         30,000]
[3........................................         2,000         20,000]
[4........................................         1,000         10,000]
[5........................................         1,000          7,500]
[6........................................         1,000          5,000]
[7........................................         1,000          2,500]
------------------------------------------------------------------------

    [(B) The Activation Fee shall be billed after execution of the 
Addendum to Nasdaq Workstation II Subscriber Agreement for Nasdaq 
Resource \SM\ (``Agreement'').]
    [(C) The Annual Subscription Fee shall be charged after execution 
of the Agreement, and at the beginning of each Subscription Year 
thereafter. A ``Subscription Year'' shall mean a 12-month period from 
August 1st to July 31st. The Annual Subscription Fee will be pro-rated 
on a monthly basis for those firms that subscribe to the Service other 
than at the beginning of a Subscription Year. Nasdaq will offer no 
refunds of the Annual Subscription Fee.]
* * * * *

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 December 27, 2001, Nasdaq filed a proposed rule change to 
implement a mechanism for market data revenue sharing.\4\ Nasdaq is now 
proposing amendments to these rules that will have the effect of 
providing additional market data revenue sharing. In addition, Nasdaq 
is proposing to lower the charge for AGU trade reports submitted to 
ACT. Finally, as a ``housekeeping'' matter, Nasdaq is deleting Rule 
7010(q), which contains fees for a proposed service that Nasdaq has 
decided not to offer.
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    \4\ See Securities Exchange Act Release No. 45342 (Jan. 28, 
2002), 67 FR 5109 (Feb. 1, 2002) (SR-NASD-2001-96).
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Market Data Revenue Sharing
    Under its market data revenue sharing program, which went into 
effect on February 1, 2002, Nasdaq shares with NASD members a portion 
of the market data revenue that it receives, through the NASD, under 
the Joint Self-Regulatory Plan Governing the Collection, Consolidation 
and Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privilege 
Basis (the ``Nasdaq UTP Plan'' or the ``Plan''). Under the Plan, 
Nasdaq, through the NASD as a Plan participant, receives a share of 
market data revenues distributed by the Plan's securities information 
processor, based on reported trades attributable to Nasdaq under the 
Plan. Nasdaq, in turn, makes a portion of the revenue that it receives 
available to the members whose trade reporting activity generated the 
revenue. Under the revenue sharing program that went into effect on 
February 1, Nasdaq shares market data revenue solely on the basis of 
trades that were not effected through a Nasdaq transaction system, such 
as internalized trades, but that are reported to ACT. Nasdaq is now 
proposing to expand the credit to share a portion of the revenue 
associated with trades executed through Nasdaq transaction systems, 
such as SuperSOES and SelectNet.
    Under the current program, a member's credit for non-Nasdaq 
transaction system trades was set at 60% of the net Level 1 revenue 
attributable to the member's reports of non-Nasdaq transaction system 
trades in securities covered by the Plan (``Eligible Securities''), 
with the pool of sharable revenue being comprised of Level 1 revenues 
distributable to Nasdaq under the Nasdaq UTP Plan minus an allocated 
portion of the NASDR regulation fee, and the member's non-Nasdaq 
transaction system trade report activity being measured by total number 
of trades and share volume. Nasdaq is now proposing to share on the 
basis of all trades that are reported to ACT and to increase the 
percentage of the pool of revenue shared to 80%.\5\
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    \5\ Nasdaq represents that it may file a proposed rule change 
with the Commission to increase this percentage further, as 
warranted by market conditions.
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    The original formula focused on the reporting of non-Nasdaq 
transaction system trades, such as internalized trades, because Nasdaq 
expects that members will have increasingly greater options to report 
such trades to UTP Exchanges in the future. In order to continue to 
provide an attractive environment for the reporting of these trades, 
Nasdaq concluded that it is appropriate to share a portion of the data 
revenue associated with these trades with members that report them to 
Nasdaq. Although all Nasdaq transaction system trades are automatically 
reported to Nasdaq through ACT, Nasdaq also faces competition for trade 
executions. Accordingly, Nasdaq believes that it is also appropriate to 
share a portion of the market data revenue associated with system 
trades, as a means of lowering the overall costs incurred by members to 
execute transactions through Nasdaq systems.
Automated Give-Up Fee
    ACT is the Nasdaq system used by members to report and compare 
trades for clearance and settlement, and transmit trade reports for 
regulatory purposes and public dissemination. In a ``give-up'' 
arrangement, a member reports or accepts a trade in ACT on behalf of 
another member by identifying in the ACT screen give-up box the member 
on whose behalf the trade is being reported or accepted. The

[[Page 8053]]

Automated Give-Up (``AGU'') feature allows a broker to enter and lock-
in a trade when it is responsible for both sides of the trade. This 
occurs when two of its ``give-ups'' trade with each other or the broker 
trades with one of its own give-up firms. Without AGU, the broker would 
be required to submit an entry for one side and either accept the trade 
or submit an entry for the other side. By using AGU, the broker avoids 
the need to accept the trade or submit the second entry. Accordingly, 
use of AGU substantially reduces the use of Nasdaq system resources. 
The fee for AGU reports is currently $0.01 per side per 100 shares, 
with a minimum of 400 shares and a maximum of 7,500 shares (i.e., $0.04 
to $0.75 per side). In an effort to encourage greater use of ACT, 
Nasdaq is reducing the fee to a flat $0.029 per side, the same fee that 
is charged for ACT's basic trade report, and is eliminating the minimum 
and maximum restrictions.
Nasdaq ReSource SM Service
    As a ``housekeeping'' matter, Nasdaq is deleting Rule 7010(q), 
which contains fees for the Nasdaq Resource \SM\ Service, a service 
that Nasdaq had proposed to assist NASD member market centers in 
meeting their reporting obligations under SEC Rule 11Ac1-5,\6\ but that 
Nasdaq has decided not to offer.
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    \6\ 17 CFR 240.11Ac1-5.
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    Nasdaq believes that the proposed rule change is consistent with 
the Act, including Section 15A(b)(5) of the Act,\7\ 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,\8\ which requires rules 
that are not designed to permit unfair discrimination between 
customers, issuers, brokers or dealers. Nasdaq believes that the fee 
reduction and revenue sharing credit increase implemented by this 
filing are allocated in an equitable fashion and will result in lower 
charges for members.
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    \7\ 15 U.S.C. 78o-3(b)(5).
    \8\ 15 U.S.C. 78o-3(b)(6).
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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 on the 
proposed rule change contained in this filing.

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 \9\ and subparagraph (f) of Rule 19b-4,\10\ 
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.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f).
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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 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-2002-17 and should be submitted by March 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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-4172 Filed 2-20-02; 8:45 am]
BILLING CODE 8010-01-P