[Federal Register Volume 67, Number 41 (Friday, March 1, 2002)]
[Notices]
[Pages 9489-9491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4876]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45472; File No. SR-NASD-2001-86]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Fees for Nasdaq Index Information

February 22, 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 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'' or ``SEC''), 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 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 7030, Special Options, to 
increase the monthly fee charged to market data vendors for non-core, 
real-time information about Nasdaq indexes (``Index Information'').\3\ 
Nasdaq established this ``Index Fee'' in 1992 at $500 per month and it 
remains at $500 today although: (1) Nasdaq has increased the amount of 
Index Information provided to market data vendors for that fee; (2) 
Nasdaq's costs of providing the Index Information are substantially 
higher today than in 1992; and (3) the audience for Index Information 
has exploded in recent years. Accordingly, Nasdaq proposes to raise the 
fee to $2,000 per month.
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    \3\ Nasdaq recommended to the SEC Advisory Committee on Market 
Information that the SEC relax its review of commercial products and 
services, including market data products that are outside the core 
functions of an SRO-operated market. The Advisory Committee, noting 
the regulatory disparity between SROs and unregistered commercial 
entities, in turn recommended that the SEC consider streamlining the 
SRO fee-filing requirement for non-core data. See Report of the 
Advisory Committee On Market Information: A Blueprint For 
Responsible Change, at fn. 283 and accompanying text.
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.

                                              7030. Special Options
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Receive only printer.................................  ......................  $100/month.
Local Posting........................................  Permits subscriber to   $10/month.
                                                        use Nasdaq Level 3
                                                        terminals to enter
                                                        quotations
                                                        simultaneously into
                                                        an internal computer
                                                        system.
Dual Keyboard........................................  ......................  $15/month.
Nasdaq Market Indexes................................  Permits vendor to       [$500]$2,000/month.
                                                        [process Nasdaq Level
                                                        1 and Last Sale data
                                                        feeds solely for the
                                                        purpose of supplying
                                                        subscribers with]
                                                        distribute real-time
                                                        calculations of the
                                                        Nasdaq market indexes
                                                        to all of its
                                                        subscribers,
                                                        including those that
                                                        do not otherwise
                                                        subscribe to real-
                                                        time Nasdaq Level 1
                                                        or NQDS services.

[[Page 9490]]

 
Non-Continuous Access to Nasdaq Level 1 and Last Sale  Permits vendor to       $.005/query.
 Information.                                           process and
                                                        distribute Nasdaq
                                                        Level 1 and Last Sale
                                                        Information to its
                                                        subscribers on a non-
                                                        continuous or query-
                                                        response basis.
 
*                  *                  *                  *                  *                  *
                                                        *
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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 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
    Since 1971, Nasdaq has distributed Index Information through its 
proprietary data feeds. Until 1992, Index Information was only 
available to subscribers that purchased the full Nasdaq Level 1 and 
Last Sale entitlements (at a combined monthly fee of $16.25).\4\ In 
1992, Nasdaq proposed an index distribution fee (``Index Fee'') that 
would allow vendors to distribute real-time Nasdaq index information to 
all of their subscribers, including those that did not contract for the 
full Nasdaq Level 1 and Last Sale entitlements. When Nasdaq adopted a 
separate Index Fee, it sought the widest possible dissemination of 
Index Information by charging a flat, ``one size fits all'' fee that 
permits market data vendors to distribute Index Information to an 
unlimited number of end users. In addition, Nasdaq eschewed a formal 
subscriber agreement between market data vendors and end users, 
permitting those vendors wide latitude in distribution. Having paid the 
flat monthly fee of $500, market data vendors are then permitted to 
distribute the Index Information to all of their subscribers.
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    \4\ Nasdaq Level 1 service is a data feed that provides 
subscribers with the best bid and offer quotations and size in 
Nasdaq securities both within the Nasdaq market and among the 
participants in the Nasdaq UTP Plan. The Last Sale service provides 
subscribers with transaction reports from all participants in the 
Nasdaq UTP Plan.
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    Nasdaq continues to believe that Index Information should reach the 
largest possible audience. Accordingly, Nasdaq desires to maintain a 
flat monthly fee for Index Information and also to continue to allow 
market data vendors to distribute Index Information without the need 
for a contractual relationship. Nasdaq believes that changes in the 
Index Information and in the marketplace, however, require that Nasdaq 
raise the fee for Index Information to ensure that the costs of 
calculating, monitoring, and distributing Index Information is 
allocated fairly among all users.
    For instance, since 1992, Nasdaq has added substantially to the 
original group of indexes without raising the fee charged to vendors. 
Specifically, Nasdaq has added four indexes: the Nasdaq Computer Index 
in 1993, the Nasdaq Telecommunications Index in 1993, the Nasdaq 
Biotech Index in 1993, and the Nasdaq Canada Index in 2000. Also, in 
2001, at vendors' requests, Nasdaq expanded the data feed to include 
the Nasdaq Pre-Market Indicator and a new After Hours Indicator. Nasdaq 
believes Index Information is valuable to the approximately 125 market 
data vendors, institutions, and investors that purchase the 
information--far more valuable than even the proposed fee increase 
indicates.\5\ Purchasers can freely manipulate and display Index 
Information to attract subscribers and advertisers. Institutions often 
repackage the data and re-distribute it to their employees and 
customers as well as to the public. Retail investors also use Index 
Information directly, to monitor investments tied to the indexes and 
indirectly, to keep abreast, generally, of market conditions and 
trends.
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    \5\ Purchasers of Index Information include Bloomberg L.P., 
E*Trade Group, Inc., Merrill Lynch, Pierce, Fenner & Smith 
Incorporated, Microsoft Corporation, Reuters Ltd., and Yahoo!, Inc.
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    Today, Nasdaq uses significantly more resources to calculate and 
disseminate Index Information than it used nine years ago. Nasdaq's 
average daily trade volume has increased by over 1,800% since 1993. 
Every standard trade in a Nasdaq security triggers a recalculation of 
each Nasdaq index in which the issue is a component. Therefore, higher 
trade volumes require Nasdaq to make more calculations and to dedicate 
increased computer resources to Index Information. This increase has 
been magnified due to the addition of the four new Nasdaq indexes and 
two new indicators. As a result, index processing now utilizes a 
disproportionate level of Nasdaq's computer operations resources 
relative to the fees assessed.
    Nasdaq's indexes have gained in prominence since 1992. In 1992, 
Waters Information Services estimated that there were roughly 700,000 
market data users in the world. Today, purchasers of Index Information 
have a potential subscriber base of hundreds of millions of Internet/
web users that can access the data through this fee. The exchange trade 
fund (``ETF'') based on the Nasdaq 100 Index is the United States' most 
heavily traded ETF, averaging over 60 million daily share volume. In 
addition, futures contracts and options on the Nasdaq 100 Index trade 
on the Chicago Mercantile Exchange and Chicago Board Options Exchange. 
Nasdaq plans to introduce additional ETFs in the future, including one 
for the Nasdaq Biotech index. Supporting derivative products has 
required Nasdaq to increase the resources that it devotes to data 
quality, timeliness, and redundancy for the underlying indexes.
    The existence of trading products based on Nasdaq indexes has 
boosted investor interest in the underlying index information upon 
which these securities are based. Today, Index Information reaches a 
vast audience of individual investors. Nasdaq Index Information is 
distributed via print, broadcast, and Internet channels to millions of 
investors worldwide. Nasdaq's Index Information data feed has both 
triggered and answered the call for wider dissemination of increased 
market data that was expressed in the Final Report of the SEC Special 
Commission on Market Information.
    Finally, during the nine years since the Index Fee was first set at 
$500, as the audience for Nasdaq Index Information has grown, so too 
has the legal cost and risk associated with producing that information. 
Hundreds of investment products are based, in a variety of ways, upon 
Nasdaq Index Information, including open and closed-end mutual funds, 
ETFs, options,

[[Page 9491]]

futures, and derivatives. Nasdaq spends considerable money establishing 
relationships with issuers of such products, and monitoring their use 
of Nasdaq Index Information to ensure that it is used properly. Nasdaq 
faces significant legal exposure in this regard, as more investors have 
more money tied to the calculation of Nasdaq indexes. The escalating 
legal costs and risks associated with the Nasdaq Index Information must 
be properly allocated to the market data vendors who, simply by re-
distributing the Information, create risk for Nasdaq.
    Nasdaq believes that the Index Information Data Feed has been a 
successful method of providing beneficial information to customers in 
an efficient manner. However, Nasdaq also believes that the current fee 
structure does not reflect increases in the cost of offering the data 
to customers under the current flexible business arrangements or fairly 
share the revenue burden across Nasdaq's market data products. To 
retain the flat fee for Index Information as well as the flexible, non-
contractual arrangement vis a vis end-users of this information, Nasdaq 
needs to allocate more accurately the costs of producing Index 
Information to the users of Index Information. Accordingly, Nasdaq is 
proposing to raise the fee to $2,000 per month. Nasdaq submits that a 
four-fold increase in the Index Fee, the first such increase in nine 
years, is reasonable in light of the 1,800% growth of Nasdaq trading 
volume, the corresponding increase in processing demands, and the 
hundred-fold increase in the subscriber audience covered during that 
period.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5) \6\ and 15A(b)(6) \7\ of the Act. 
Section 15A(b)(5) requires the equitable allocation of reasonable fees 
and charges among members and other users of facilities operated or 
controlled by a national securities association. Section 15A(b)(6) 
requires rules that foster cooperation and coordination with persons 
engaged in facilitating transactions in securities and that are not 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers. Nasdaq believes that this service provides 
beneficial information to subscribers on a non-discriminatory basis and 
that this fee increase will enable Nasdaq to continue expanding the 
breadth and depth of information dissemination. Nasdaq believes that 
this rule proposal equitably allocates fees in light of the value of 
the information and the cost of providing it.
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    \6\ 15 U.S.C. 78o-3(b)(5).
    \7\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose 
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

    Nasdaq has not solicited or 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 NASD 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 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 file number SR-NASD-2001-86 and 
should be submitted by March 22, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-4876 Filed 2-28-02; 8:45 am]
BILLING CODE 8010-01-P