[Federal Register Volume 67, Number 47 (Monday, March 11, 2002)]
[Notices]
[Pages 10962-10964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45285A; 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 SystemTM; Correction

March 5,2002.
    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. 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.
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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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    On December 17, 2001, Nasdaq filed Amendment No. 1 to the proposed 
rule change.\4\ Amendment No. 1 corrects the numbering of the footnotes 
in the narrative portion of the filing and changes the text of the fee 
schedule to provide that revenue sharing amounts will be paid on a 
monthly basis. The changes made by Amendment No. 1 were inadvertently 
omitted from the notice regarding filing and immediate effectiveness of 
the proposed rule change that the Commission published on January 24, 
2002.\5\ Accordingly, the Commission is publishing this corrected 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \4\ See letter from Peter R. Geraghty, Associate General 
Counsel, Nasdaq, to John Polise, Senior Special Counsel, Division of 
Market Regulation (``Division''), Commission, dated December 17, 
2001.
    \5\ See Securities Exchange Act Release No. 45285 (January 
15,2002), 67 FR 3521.
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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, as 
amended. Proposed new language is in italics.

7010. System Services

    (a)-(q) No changes.
    (r) Nasdaq Application of the Primex Auction SystemTM
    The following charges shall apply to the use of the Nasdaq 
Application of the Primex Auction System:
    (1) Transaction Charges:
    Execution Services --for all participants:
     Order entry--No fee
     Auction Response--per share, per execution--$5.00 
maximum).\*\ $.01
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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.
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    Matching Rights--Primex Auction Market Makers (PAMMs) only:
     50 Percent Match--No fee
     Two-Cent Match (per share, per retained order--$2.50 
Maximum).\**\ $.0025
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    \**\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.
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    Revenue Sharing--PAMMs only
     Each order executed:\***\--\1/3\ of transaction fee
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    \***\ Paid to a 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 monthly basis.
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    (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
* * * * *

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.\6\ 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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    \6\ 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, 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

[[Page 10963]]

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, \7\ 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 \8\ or the 50% Match Parameter \9\). PAMMs also are entitled 
to 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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    \7\ The requirements to be 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.
    \8\ 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 Two Cent Match 
parameter, and there is interest from the Crowd that can satisfy the 
order, the order entered with the Two Cent Match will be executed 
against such interest by the Crowd during its exposure, provided 
that such Crowd interest offers to provide price improvement greater 
than two cents superior to the best quote publicly displayed in the 
National Best Bid/Offer (``NBBO'') at the time such Crowd interest 
is available.
    \9\ Generally, 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.\10\ 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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    \10\ 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 monthly basis.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5) of the Act \11\ 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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    \11\ 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, as amended, has become effective upon 
filing pursuant to section 19(b)(3)(A) of the Act \12\ and paragraph 
(f)(2) of Rule 19b-4 thereunder \13\ in that it establishes the fee 
schedule for the use of a Nasdaq system.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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, 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 amended 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

[[Page 10964]]

number SR-NASD-2001-93 and should be submitted by April 1, 2002.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-5817 Filed 3-8-02; 8:45 am]
BILLING CODE 8010-01-P