[Federal Register Volume 67, Number 95 (Thursday, May 16, 2002)]
[Notices]
[Pages 34965-34968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12206]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45906; File No. SR-NASD-2002-44]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Members' Fees for the Nasdaq National Market 
Execution System (SuperMontage)

May 10, 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 March 
28, 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. 
Nasdaq filed Amendment No. 1 on April 8, 2002.\1\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ The terms on Amendment No. 1 are incorporated in this 
notice. The Commission deems the abrogation period to expire 60 days 
after the amendment was filed.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    This is a proposed rule change to establish prices for the future 
Nasdaq National Market Execution System (the ``NNMS''), commonly 
referred to as ``SuperMontage.'' \2\ Pursuant to Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
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 immediately upon 
filing. Nasdaq will implement the rule change within 30 days after 
successful completion of SuperMontage user acceptance testing. Because 
Nasdaq anticipates that the transition from the current SuperSOES, 
SOES, and SelectNet environment to SuperMontage will occur over the 
course of several weeks, with stocks moving from one system to the 
other in stages, Nasdaq will continue to charge its filed prices for 
SuperSOES, SOES, SelectNet, and quotation updates for stocks that have 
not transitioned, while charging the new SuperMontage prices for stocks 
that have transitioned.
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    \2\ In current NASD rules, the term ``Nasdaq National Market 
Execution System'' refers to the transaction execution system 
commonly known as ``SuperSOES,'' but in the rules approved for 
SuperMontage, the same term refers to SuperMontage. As the 
SuperMontage system is introduced, the SuperMontage rules will 
replace current rules governing SuperSOES, SOES, and SelectNet.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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    The text of the proposed rule change is set forth below. Proposed 
new language is in italics; proposed deletions are in brackets.
* * * * *

7010. System Services

    (a)-(h) No change.
    [(i) Transaction Execution Services]
    [(1) SelectNet Service]
    [The following charges shall apply to the use of SelectNet:]

 
 
 
[Transaction Charge for Execution Resulting from Broadcast    [$2.50/side]
 Message].

[[Page 34966]]

 
[Order Entry Charge]........................................  [$0.10 per order entry (entering party only)]
[Directed Non-Liability Order Execution Charge].............  [$0.90 per order execution (entering party only)]
[Directed Liability Order Execution Charge].................  [$0.90 per order execution for the first 25,000
                                                               orders executed monthly (entering party only)]
                                                              [$0.60 per order execution for the next 25,000
                                                               orders executed monthly (entering party only)]
                                                              [$0.10 per order execution for the next 200,000
                                                               orders executed monthly (entering party only)]
                                                              [$0.00 per order execution for all remaining
                                                               orders executed monthly]
[Cancellation Fee]..........................................  [$.25/ per order cancelled (canceling party only)]
 

    [(2) Nasdaq National Market Execution System (SuperSOES)]
    [The following charges shall apply to the use of the Nasdaq 
National Market Execution System:]

 
 
 
[Order Entry Charge]........................................  [$0.10 per order entry (entering party only)]
[Per Share Charge]..........................................  [$0.001 per share executed for all fully or
                                                               partially executed orders (entering party only)]
[Cancellation Fee]..........................................  [$0.25 per order cancelled (canceling party only)]
 

    [For a pilot period commencing on November 1, 2001 and lasting 
until October 31, 2002, the per share charge will be $0.002 per share 
executed for all fully or partially executed orders (entering party 
only).]
    [(3) Small Order Execution System (SOES)]
    [The following charges shall apply to the use of the Small Order 
Execution System:]

 
 
 
[Order Execution Charge]....................................  [$0.50 per order execution for the first 150,000
                                                               orders executed monthly (entering party only)]
                                                              [$0.30 per order execution for all remaining
                                                               orders executed monthly (entering party only)]
[Cancellation Fee]..........................................  [$0.25 per order cancelled (canceling party only)]
 

    [(4) Liquidity provider rebate]
    [For a pilot period commencing on November 1, 2001 and lasting 
until October 31, 2002:]
    [(A) NASD members that do not charge an access fee to market 
participants accessing their quotations through the Nasdaq National 
Market Execution System will receive a rebate of $0.001 per share when 
their quotation is executed against by a Nasdaq National Market 
Execution System order.]
    [(B) NASD members will receive a rebate of $0.001 per share when 
they send a Nasdaq National Market Execution System order that executes 
against the quotation of a market participant that charges an access 
fee to market participants accessing its quotations through the Nasdaq 
National Market Execution System.]
    [(5) Quotation Updates]
    [(A) Except as provided in subparagraph (B), for a pilot period 
commencing on February 1, 2002 and lasting until October 31, 2002, a 
fee of $0.01 per quotation update will be charged to NASD members that 
post quotations in the Nasdaq quotation montage. A ``quotation update'' 
includes any change to the price or size of a displayed quotation or 
reserve size.]
    [B) A quotation update fee will not be charged for a change in the 
displayed quotation or reserve size that is performed automatically by 
the Nasdaq National Market Execution System (``NNMS'') when an 
execution against the quotation occurs (other than a change performed 
by the ``Autoquote Refresh'' functionality of the NNMS, for which a fee 
will be assessed).]
    (i) Nasdaq National Market Execution System (SuperMontage)
    The following charges shall apply to the use of the Nasdaq National 
Market Execution System (commonly known as SuperMontage) by members:

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                      Order Entry
 
Non-Directed Orders (excluding Preferenced Orders)....  No charge
Preferenced Orders:
    Preferenced Orders that access a Quote/Order of     No charge
     the member that entered the Preferenced Order).
Other Preferenced Orders..............................  $0.02 per order entry
Directed Orders.......................................  $0.10 per order entry
 
                    Order Execution
 
Non-Directed or Preferenced Order that accesses the
 Quote/Order of a market participant that does not
 charge an access fee to market participants accessing
 its Quotes/Orders through the NNMS:
    Charge to member entering order...................  $0.002 per share executed
    Credit to member providing liquidity..............  $0.001 per share executed
Non-Directed or Preferenced Order that accesses the     $0.001 per share executed
 Quote/Order of a market participant that charges an
 access fee to market participants accessing its
 Quotes/Orders through the NNMS.
Directed Order........................................  $0.0025 per share executed
Non-Directed or Preferenced Order entered by a member   No charge
 that accesses a Quote/Order of such member.
 
                  Order Cancellation
 
Non-Directed Orders (excluding Preferenced Orders)....  $0.01 per order cancelled
Preferenced Orders....................................  $0.01 per order cancelled
Directed Orders.......................................  $0.10 per order cancelled
 
   Entry and Maintenance of Quotes/Orders by NASDAQ
              Quoting Market Participants
 
Initial entry of Quote/Order..........................  No charge

[[Page 34967]]

 
Change of Quote/Order due to order execution through    No charge
 SuperMontage.
Cancel/replace of Quote/Order to increase size........  No charge
Cancel/replace of Quote/Order to change price.........  $0.01
Cancel/replace of Quote/Order to decrease size          $0.01
 manually.
Cancellation of Quote/Order...........................  $0.01
Cancellation of Quote/Order due to order purge or       $0.0075
 timeout.
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    (j)-(q) No change.
* * * * *

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 January 19, 2001, the Commission issued an order to approve a 
proposed rule change to establish SuperMontage, Nasdaq's new 
proprietary system for quote display and transaction execution.\5\ 
Nasdaq plans to commence operation of SuperMontage during the third 
quarter of 2002. In this filing, Nasdaq is establishing the prices to 
be charged to members for the use of SuperMontage.
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    \5\ See Securities Exchange Act Release No. 43863 (Jan. 19, 
2001), 66 FR 8020 (Jan. 26, 2001) (SR-NASD-99-53).
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    Nasdaq represents that it has designed the pricing structure for 
SuperMontage with the goal of ensuring that the system offers market 
participants a deep pool of liquidity and rapid order execution. 
Accordingly, the entry of Non-Directed Orders (excluding Preferenced 
Orders), the initial entry of a Quote/Order at a given price level, the 
cancel/replace of a Quote/Order to increase its size, and the change of 
a Quote/Order due to an execution through SuperMontage will all be 
free. Members will be charged $0.02 per order entry for Preferenced 
Orders and $0.10 per order entry for Directed Orders. A fee of $0.01 
will be charged for each Non-Directed or Preferenced Order that is 
cancelled, and a charge of $0.10 will be assessed for the cancellation 
of a Directed Order.
    As is the case in SuperSOES, order execution charges are assessed 
on a per share basis, with a credit being provided to members that 
provide liquidity and do not charge an access fee. Specifically, Nasdaq 
will charge $0.002 per share for the execution (in full or in part) of 
a Non-Directed or Preferenced Order that accesses the Quote/Order of a 
market participant that does not charge an access fee to market 
participants accessing its Quotes/Orders through SuperMontage, and will 
provide a $0.001 per share credit to a member that provides the 
liquidity for an execution and does not charge an access fee. Nasdaq 
represents that the purpose of the credit is to enhance competition 
between electronic communications networks (``ECNs''), which are 
permitted to charge fees for accessing their quotations, and market 
makers, which generally are prohibited from doing so.\6\ According to 
Nasdaq, the credit is not available to members that charge access fees 
for accessing their quotes through SuperMontage, because such market 
participants are already compensated for providing liquidity if their 
quote is executed against and an access fee is paid. Moreover, Nasdaq 
will charge only $0.001 per share for the execution (in full or in 
part) of a Non-Directed or Preferenced Order that accesses the Quote/
Order of a market participant that charges an access fee, in order to 
offset, at least to some extent, the access fee.
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    \6\ Compare Letter from Richard R. Lindsay, Director, Division 
of Market Regulation (``Division''), Commission, to Charles R. Hood, 
Senior Vice President and General Counsel, Instinet Corporation 
(Jan. 17, 1997) (acknowledging ECN access fee of up to $0.015 per 
share) with Letter from Robert L.D. Colby, Deputy Director, 
Division, Commission, to M. Joseph Messina, Vice President, M.H. 
Meyerson & Co., Inc. (May 5, 1998) (interpreting SEC Rule 11Ac1-1 to 
prohibit market makers from charging fees for access to their public 
quotes).
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    The execution charge for a Directed Order is $0.0025 per share. 
Finally, there will be no order entry or order execution charge for a 
Non-Directed or Preferenced Order that is executed against a Quote/
Order of the member that entered the Non-Directed or Preferenced Order 
(i.e., there will be no order entry or order execution charge for 
orders that are ``internalized'' through SuperMontage).
    The current quotation update charge will be replaced by charges for 
the cancel/replace and cancellation of Quotes/Orders. Specifically, a 
fee of $0.01 will be assessed for a cancel/replace of a Quote/Order to 
change its price or to decrease its size manually. As noted above, a 
change to a Quote/Order that results from an order execution through 
SuperMontage, as well as a cancel/replace that increases the size of a 
Quote/Order, are free. A fee of $0.01 will also be charged for the 
cancellation of a Quote/Order, unless the cancellation occurs 
automatically as the result of an order purge or timeout performed by 
SuperMontage, in which case the fee will only be $0.0075.
    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 fees 
to be implemented by this filing are generally similar in structure and 
magnitude to Nasdaq's fees for its current quotation and execution 
systems. Moreover, in several instances, prices in SuperMontage are 
significantly lower than comparable prices in the current Nasdaq 
market. For example, the basic charge for order entry is eliminated in 
most cases, the charge for order cancellation is reduced from $0.25 to 
$0.01 for Non-Directed and Preferenced Orders and to $0.10 for Directed 
Orders, and the current quotation update charge is eliminated for 
Quotes/Orders that add liquidity.
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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.

[[Page 34968]]

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-2002-44 and should be submitted by June 6, 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. 02-12206 Filed 5-15-02; 8:45 am]
BILLING CODE 8010-01-P