[Federal Register Volume 67, Number 101 (Friday, May 24, 2002)]
[Notices]
[Pages 36654-36659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13056]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45960; File No. SR-NASD-2002-63]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Proposed Fees for the Trade Reporting and Compliance Engine (TRACE) 
for Corporate Bonds

May 17, 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 May 6, 2002, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') 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 the NASD. The NASD submitted Amendment No. 1 to the proposed rule 
change on May 16, 2002.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Barabara Z. Sweeney, Senior Vice President 
and Corporate Secretary, NASD Regulation, to Katherine A. England, 
Assistant Director, Division of Market Regulation (``Division''), 
dated May 16, 2002.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is filing with the Commission a proposed structure for 
fees to be charged in connection with the NASD's creation of a 
corporate bond trade reporting and transaction dissemination facility. 
The facility is currently referred to as the Trade Reporting and 
Compliance Engine or ``TRACE.'' TRACE replaces Nasdaq's Fixed Income 
Pricing System (``FIPS''). The proposed rule change is in addition to 
the NASD's Rule 6200 Series for TRACE.\4\ The current text of NASD Rule 
7010 (k) Fixed Income Pricing System (FIPS) will be deleted in its 
entirety and replaced by the proposed new TRACE fees. Below is the text 
of the proposed rule change. Proposed new language is in italics, 
proposed deletions are in [brackets].
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    \4\ The Commission approved the Rule 6200 Series on January 23, 
2001. See SR-NASD-99-65 and Amendments No. 1 through 4 thereto, 
approved in Securities Exchange Act Release NO. 43873 (January 23, 
2001), 66 FR 811 (January 29, 2001) (``TRACE Approval Order''). On 
December 21, 2001, the NASD filed SR-NASD-2001-91 to establish July 
1, 2002 as the effective date of the Rule 6200 Series (see SR-NASD-
2001-91). On January 3, 2002, the Commission issued a notice that 
the proposed rule change had become effective on filing. Securities 
Exchange Act Release No. 45229 (January 3, 2002), 67 FR 1255 
(January 9, 2002). On April 3, 2002, the NASD filed SR-NASD-2002-46 
to make certain technical amendments to the new Rule 6200 Series.
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* * * * *

Rule 7010. System Services

[(k) Fixed Income Pricing System (FIPS)]
    [(1) The following charges shall apply to the operation of Full 
Function and Limited Function FIPS terminals. Charges for Full Function 
and Limited Function FIPS terminals will also

[[Page 36655]]

include equipment related charges as detailed in Rule 7020.
    (A) Full Function FIPS terminals:
    $1,000/month for the first terminal plus $350/month for each 
additional terminal.
    Full Function FIPS terminals provide access to the full range of 
quotation and trade reporting capabilities of FIPS through dedicated 
communication circuits.
    (B) Limited Function FIPS terminals:
    $300/month for each terminal plus dial-up communication charges 
assessed based on actual costs incurred.
    Limited Function FIPS terminals provide access to the full range of 
quotation and trade reporting capabilities of FIPS through a dial-up 
service.]
    [(2) For each transaction in a high-yield security that is 
reportable to the Association pursuant to Rule 6240 of the FIPS Rules, 
there shall be a $1 charge assessed against the member responsible for 
reporting the transaction under paragraphs (a)(3) or (b)(3) thereof.]
    [(3) There shall be a $50 monthly charge assessed against members 
using the FIPS service desk. Pursuant to Rule 6240(a)(2)(B), members 
that do not have access to a FIPS terminal and average five or fewer 
trades per day in high yield securities, inclusive of FIPS securities, 
during the previous calendar quarter may utilize the FIPS service desk 
to report trades in high yield bonds effected in the over-the-counter 
market.]
    [(4) Bond Quotation Data Service (BQDS)
(A) Full BQDS
    The charge to be paid by the subscriber for each interrogation or 
display device receiving Full BQDS information is $50 per month. Full 
BQDS information includes the bids and offers of all FIPS participants 
registered in each FIPS security, the inside bid/ask quotation for each 
FIPS security, and hourly summary transaction information on FIPS 
securities.
(B) Limited BQDS
    The charge to be paid by the subscriber for each interrogation or 
display device receiving Limited BQDS information is $5 per month. 
Limited BQDS information includes the inside bid/ask quotation for each 
FIPS security and hourly summary transaction information of FIPS 
securities.]

Rule 7010(k) Trade Reporting and Compliance Engine (TRACE) \5\
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    \5\ In an unrelated filing with the Commission, the NASD filed 
notice of proposed rule changes relating to the separation of Nasdaq 
from the NASD and the establishment of the NASD Alternative Display 
Facility. Such filing proposes to modify certain NASD rules to 
effectuate this separation. The Rule 7000 Series is proposed to be 
modified as part of that rule filing. Such filing may require that 
subsection (k) referenced herein be renumbered to be consistent with 
the modifications proposed therein. See SR-NASD-2991-90 filed on 
December 7, 2001; see also, SR-NASD-2002-28 filed on February 20, 
2002.
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    The following charges shall be paid by participants for the use of 
the Trade Reporting and Compliance Engine (``TRACE''):

------------------------------------------------------------------------
                                   Transaction
         System fees             reporting fees       Market data fees
------------------------------------------------------------------------
Web Browser Access: $85/      Trades up to and      BTDS Professional
 month for 1 user ID; $75/     including $0 to       Display--$60/month
 month for 2-9 user IDs; $70/  $200,000 par value--  per terminal.
 month for 2-10+ user IDs.     $0.50/trade; Trades
                               up to and including
                               $201,000 to
                               $999,999 par value--
                               $0.0025 times the
                               number of bonds
                               traded/trade;
                               Trades of
                               $1,000,000 par
                               value or more--
                               $2.50/trade.
CTCI--$25/month/line........  Cancel/Correct--$3/   BTDS Internal Usage
                               trade.                Authorization--$500/
                                                     month per
                                                     organization.
Third Party--$25/month......  ``As of'' Trade Late- BTDS External Usage
                               -$3/trade.            Authorization--
                                                     $1,000/month per
                                                     organization.
PDN Adminsitrative--$100/     Browse & Query--      BTDS Non-
 month/line.                   $0.05 after first     Professional
                               page.                 Display--$1/month
                                                     per terminal.
                                                    Daily List Fax--$15/
                                                     month per fax
                                                     number/addressee.
------------------------------------------------------------------------

    (1) System Related Fees. There are three methods by which a member 
may report corporate bond transactions that are reportable to the 
Association pursuant to the Rule 6200 Series. A member may choose among 
the following methods to report data to the Association: (a) a TRACE 
web browser (either over the Internet or a secure private data network 
(``PDN'')); (b) a Computer-to-Computer Interface (``CTCI'') (either one 
dedicated solely to TRACE or a multi-purpose line); or (c) a third-
party reporting intermediary. Fees will be charged based on the 
reporting methodology selected by the member.

(A) Web Browser Access

    The charge to be paid by a member that elects to report TRACE data 
to the Association via a TRACE web browser shall be as follows: for the 
first user ID registered, a charge of $85 per month; for the next two 
through nine user IDs registered, a charge of $75 per month, per such 
additional user ID; and for ten or more user IDs registered, a charge 
of $70 per month, per user ID from two to ten or more. In addition, a 
member that elects to report TRACE data to the Association via a web 
browser over a secure PDN rather than over the Internet shall pay an 
additional administrative charge of $100 per month, per line.\6\
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    \6\ Charges that may be imposed by third parties, such as 
network providers, are not included in these fees.
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(B) Computer-to-Computer Interface Access

    The charge to be paid by a member that elects to report TRACE data 
to the Association via a CTCI line shall be $25 per month, per line, 
regardless of whether the line is or is not dedicated exclusively for 
TRACE.\7\
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    \7\ Charges that may be imposed by third parties, such as CTCI 
line providers, are not included in these fees.
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(C) Third Party Access--Indirect Reporting

    A member may elect to report TRACE data indirectly to the 
Association via third-party reporting intermediaries, such as vendors, 
service bureaus, clearing firms, or the National Securities Clearing 
Corporation (``NSCC''). The charge to be paid by a member shall be $25 
per month, per firm. Nothing in this Rule shall prevent such third-
party intermediaries from charging additional fees for their services.

(2) Transaction Reporting Fees

    For each transaction in corporate bonds that is reportable to the 
Association pursuant to the Rule 6200

[[Page 36656]]

Series, the following charges shall be assessed against the member 
responsible for reporting the transaction:

(A) Trade Reporting Fee

    A member shall be charged a Trade Reporting Fee based upon a 
sliding scale ranging from $0.50 to $2.50 per transaction based on the 
size of the reported transaction. Trades up to and including $200,000 
par value will be charged a $0.50 fee per trade; trades between 
$201,000 par value and $999,000 par value will be charged a fee of 
$0.0025 multiplied by the number of bonds traded ; and trades of 
$1,000,000 par value or more will be charged a fee of $2.50 per trade.

(B) Cancel or Correct Trade Fee

    A member shall be charged a Cancel or Correct Trade Fee of $3.00 
per canceled or corrected transaction. To provide firms with time to 
adjust to the new reporting system, the Cancel or Correct Trade Fee 
will not be charged until the later of October 1, 2002 or 90 days after 
the effective date of TRACE.

(C) ``As of'' Trade Late Fee

    A member shall be charged an ``As of'' Trade Late Fee of $3.00 per 
transaction for those transactions that are not timely reported ``As 
of'' as required by these rules. To provide firms with time to adjust 
to the new reporting system, the ``As of'' Trade Late Fee will not be 
charged until the later of October 1, 2002 or 90 days after the 
effective date of TRACE.

(D) Browse and Query Fee

    Members may review their own previously reported transaction data 
through a Browse and Query function. A member shall be charged $0.05 
for each returned page of the query beyond the first page.

(3) Market Data Fees

    Professionals and non-professionals may subscribe to receive real-
time TRACE data disseminated by the Association in one or more of the 
following ways for the charges specified. Members, vendors and other 
redistributors shall be required to execute appropriate agreements with 
the Association.
    (A) Professional Fees. Professionals may subscribe for the 
following:
    (i) Bond Trade Dissemination Service (``BTDS'') Professional 
Display Fee of $60 per month, per terminal charge for each 
interrogation or display device receiving real-time TRACE transaction 
data.
    (ii) BTDS Internal Usage Authorization Fee of $500 per month, per 
organization charge for internal dissemination of real-time TRACE 
transaction data used in one or more of the following ways: internal 
operational and processing systems, internal monitoring and 
surveillance systems, internal price validation, internal portfolio 
valuation services, internal analytical programs leading to purchase/
sale or other trading decisions, and other related activities.\8\
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    \8\ Under this service, real-time TRACE transaction data may not 
be used in any interrogation display devices, any systems that 
permit end users to determine individual transaction pricing in 
real-time, or disseminated to any external source.
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    (iii) BTDS External Usage Authorization Fee of $1,000 per month, 
per organization charge for dissemination of real-time TRACE 
transaction data used in one or more of the following ways: repackaging 
of market data for delivery and dissemination outside the organization, 
such as indices or other derivative products.\9\
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    \9\ Under this service, real-time TRACE transaction data may not 
be used in any interrogation display devices or any systems that 
permit end users to determine individual transaction pricing in 
real-time.
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(A) Non-Professional Fees

    The charge to be paid by a non-professional for each terminal 
receiving all or any portion of real-time TRACE transaction data 
disseminated through TRACE shall be $1.00 per month, per terminal.

(B) Non-Professional Defined

    A ``non-professional'' is a natural person who is neither:
    (i) registered nor qualified in any capacity with the Commission, 
the Commodity Futures Trading Commission, any state securities agency, 
any securities exchange or association, or any commodities or futures 
contract market or association; or
    (ii) engaged as an ``investment adviser'' as that term is defined 
in Section 201(11) of the Investment Advisers Act of 1940 (whether or 
not registered or qualified under that Act);
    (iii) employed by a bank, insurance company or other organization 
exempt from registration under federal or state securities laws to 
perform functions that would require registration or qualification if 
such functions were performed for an organization not so exempt; nor
    (iv) engaged in, or has the intention to engage in, any 
redistribution of all or any portion of the information disseminated 
through TRACE.

(4) Daily List Fax Service

    Each subscriber for the Association's Daily List Fax Service shall 
be charged $15 per month, per fax number/addressee.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD 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. NASD 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
    The NASD proposed, and the Commission approved, in a separate 
filing with the Commission, the adoption of the new Rule 6200 Series 
relating to the creation of TRACE and the elimination of Nasdaq's FIPS 
high yield reporting system.\10\ In this filing, the NASD is proposing 
to establish fees for participants and users of the TRACE facility and 
to rescind the FIPS fees.
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    \10\ See supra note 4.
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Background
    In 1998, the SEC, in recognition of the relative lack of 
transparency in the corporate debt market, called upon the NASD to do 
the following: (1) Adopt rules requiring NASD members to report all 
transactions in corporate bonds to the NASD and to develop systems to 
receive and distribute transaction prices on an immediate basis; (2) 
create a database of transactions in corporate bonds to enable 
regulators to take a proactive role in supervising the corporate debt 
market; and (3) create a surveillance program, in conjunction with the 
development of a database to better detect fraud and foster investor 
confidence in the fairness of the corporate bond market.
    Since the SEC mandate, the NASD has developed TRACE, which is a 
reporting facility developed by the NASD that, among other things, 
accommodates reporting and dissemination of transaction reports in 
TRACE-eligible

[[Page 36657]]

securities.\11\ The NASD represents that, after extensive consultation 
with industry professionals, it filed SR-NASD-99-65 \12\, and 
amendments thereto to implement the TRACE system.
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    \11\ The term ``TRACE-eligible security'' is defined in Rule 
6210(a) of the TRACE rules.
    \12\ See Securities Exchange Act Release No. 43616; File No. SR-
NASD-99-65.
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    Participation in TRACE is mandatory for all NASD members that 
transact business in eligible corporate debt securities. Market 
participants have specified obligations for the use of the TRACE system 
when entering, or correcting trade details on TRACE. Under proposed 
rule 6230(a), SR-NASD-2002-46, participants are obligated to report 
transaction information within one hour and fifteen minutes after trade 
execution. The participant may use, among other means, a web browser 
(either over the Internet or a private data network (``PDN'')), 
Computer-to-Computer Interface (``CTCI''), or a third-party 
intermediary.\13\
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    \13\ See SR-NASD-2002-46. In such filing, the NASD has proposed 
to increase the reporting time from 1 hour to 1 hour and 15 minutes.
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    The NASD represents that the purpose of the proposed rule change is 
to establish a TRACE fee structure. The NASD represents that 
developmental costs of TRACE, to date, are approximately $7.2 million. 
In addition, the NASD represents that total operating costs for the 
TRACE system are estimated to be approximately $6 million annually. The 
NASD represents that the proposed fees are intended to help the NASD 
recover the development costs of the new system, fund ongoing 
operational costs, and fund the regulatory activities necessary for 
surveillance of the market, all with a view towards making TRACE 
financially self-sustaining.
    The proposed fees are divided into three general categories: (1) 
System fees paid by member firms based on the method chosen by the 
member to report corporate bond transactions to the NASD (members will 
have several options on how to report trades and the fees will vary 
accordingly); (2) transaction reporting fees paid by members to file 
trade reports and cancel or correct trade reports; and (3) market data 
fees paid by members and non-members that use or distribute the data 
collected through the TRACE system and disseminated by the NASD.
    System Fees. The NASD states that TRACE offers participants 
multiple options to comply with the transaction reporting requirements. 
The NASD proposes to charge fees to members who use the TRACE system 
based on the method the member selects to input transaction information 
to the NASD. Under the proposed rules, members will have three means by 
which to input transaction information directly to the NASD: (1) A web 
browser through the Internet, which will be useful primarily for low-
volume firms; (2) a web browser using a PDN; or (3) a CTCI, which the 
Association anticipates will be used primarily by high volume firms. 
Members may also choose to report transactions indirectly to the NASD 
through third parties, such as vendors, service bureaus, clearing 
firms, or the NSCC, which will in turn report to the NASD through one 
of the approved methods described above.
    Members may report transaction information manually through a web 
browser using their own Internet provider.\14\ Members using a web 
browser will be charged a monthly access fee as follows: for the first 
user ID registered, a charge of $85 per month; for the next two through 
nine user IDs registered, a charge of $75 per month, per such 
additional user ID; and for ten or more user IDs registered, a charge 
of $70 per month, per user ID from two to ten or more. Members 
reporting through a web browser may elect to report transaction 
information through a PDN that is owned and operated by Nasdaq's 
designated network provider, which is currently WorldCom, Inc. Members 
choosing to report transaction information directly to the NASD using a 
PDN will be charged a $100 per line administration fee per month by the 
NASD. Members should be aware that this fee does not include fees that 
will be charged by Nasdaq for services provided by its designated 
network provider that will be billed directly by Nasdaq.
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    \14\ The cost of the Internet service is not included in NASD's 
fee. A member must obtain Internet access independently.
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    Members also may report transaction data through the CTCI operated 
by Nasdaq for most of its transaction reporting facilities. Nasdaq 
currently leases dedicated lines from WorldCom, Inc. and provides 
direct connection from a member firm to the NASD. The NASD monthly 
charge for reporting through a CTCI is $25 per month, per line, whether 
or not such line is used exclusively for TRACE, and does not include 
Nasdaq charges for its designated network provider.
    The NASD believes the fees set forth above are reasonably related 
to the costs of developing the new facility and to meeting the 
estimated operating expenses of the TRACE system. The NASD represents 
that the fees are also designed to fund the regulatory activities 
necessary to survey the market. In addition, the NASD believes the 
proposed fees are non-discriminatory because members may select the 
technology link that best suits their particular needs. Further, the 
NASD states that the proposed fees are consistent with similar fees 
that are being charged by other transaction reporting facilities.
    Transaction Reporting Fees. Members will be charged fees to file 
transaction reports and cancel or correct transaction reports. The NASD 
proposes to charge a trade reporting fee using a sliding scale, based 
upon the size of the transaction reported, in an effort to distribute 
the fees more equitably between retail oriented firms and 
institutionally oriented firms. A member shall be charged a Trade 
Reporting Fee on a sliding scale ranging from $0.50 to $2.50 per trade 
based on the size of the reported transaction. For trades up to and 
including $200,000 par value, members will be charged a fee of $0.50 
per trade; for trades between $201,000 par value and $999,000 par 
value, members will be charged a fee of $0.0025 multiplied by the 
number of bonds traded; and for trades of $1,000,000 par value or more, 
members will be charged a fee of $2.50 per trade.
    The NASD proposes to charge a cancel or correct trade fee of $3.00 
per trade. The NASD also proposes to charge an ``As of'' trade late fee 
of $3.00 per trade. Under proposed rule 6230(a)(2), SR-NASD-2002-46, a 
transaction that is executed after the close of the market must be 
reported within the first 1 hour and 15 minutes after the open of the 
market on the following business day to be reported on time ``As of.'' 
\15\ A member shall be charged an ``As of'' trade late fee of $3.00 per 
transaction for those transactions reported beyond such time frame. To 
provide firms time to adjust to the new reporting system, the cancel or 
correct trade fee and ``As of'' trade late fee will not be charged 
until the later of October 1, 2002 or 90 days after the effective date 
of TRACE. In addition, NASD proposes a browse and query fee of $0.05 
for each returned page of query beyond the first page. This feature 
will allow members to review their own previously reported data.
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    \15\ As noted previously, the NASD has proposed generally to 
amend the reporting period from 1 hour to 1 hour and 15 minutes, and 
this period would apply to transctions executed after the close of 
the market and reported the next morning.
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    In order to standardize corporate bond reporting obligations and 
minimize industry technology burdens, NASD has

[[Page 36658]]

proposed (as part of the TRACE filing with the Commission) the 
elimination of the separate FIPS system and its related rules and 
costs. The TRACE trade reporting fee will replace the flat fee of $1.00 
per trade currently charged to report corporate bonds through FIPS. The 
NASD believes the proposed TRACE trade reporting fee structure, which 
replaces the FIPS flat fee structure with a sliding scale, is 
reasonable and more equitably distributes the fees between retail-
oriented firms and institutional-oriented firms. The NASD represents 
that the fees are designed to help the NASD recover its development 
costs, estimated operating costs, and the costs of related regulatory 
activities. In addition, the cancel or correct trade fee and the ``As 
of'' trade late fee are proposed to encourage the correct reporting of 
transaction data, as well as to cover the additional costs incurred by 
the NASD to correct the historical record and notify members and the 
vendor community. The NASD notes these fees are consistent with those 
charged by other self-regulatory organizations for reporting 
requirements.
    Market Data Fees. The NASD represents that it is committed to 
delivering real-time market data from the TRACE system to market 
participants in the broadest and most efficient manner possible. NASD 
proposes to charge market professionals who subscribe to receive real-
time market data as follows: (i) BTDS Professional Display Fee of $60 
per month, per terminal charge for each interrogation or display device 
receiving real-time TRACE transaction data; (ii) BTDS Internal Usage 
Authorization Fee of $500 per month, per organization charge for 
internal dissemination of real-time TRACE transaction data used in one 
or more of the following ways: internal operational and processing 
systems, internal monitoring and surveillance systems, internal price 
validation, internal portfolio valuation services, internal analytical 
programs leading to purchase/sale or other trading decisions, and other 
related activities; \16\ (iii) BTDS External Usage Authorization Fee of 
$1,000 per month, per organization charge for dissemination of real-
time TRACE transaction data used in one or more of the following ways: 
repackaging of market data for delivery and dissemination outside the 
organization, such as indices or other derivative products.\17\ Non-
professionals that subscribe to receive real-time TRACE transaction 
data will be charged $1.00 per month, per terminal. In addition, the 
NASD proposes a fee of $15.00 per month, per subscriber for the daily 
list fax service that will contain all of the daily additions, 
deletions, modifications to the list of TRACE-eligible securities.
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    \16\ Under this service, real-time TRACE transaction data may 
not be used in any interrogation display devices, any systems that 
permit end users to determine individual transaction pricing in 
real-time, or disseminated to any external source.
    \17\ Under this service, real-time TRACE transaction data may 
not be used in any interrogation display devices or any systems that 
permit end users to determine individual transaction pricing in 
real-time.
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    The NASD believes that the proposed market data fees are 
reasonable. The NASD represents that the various fee levels of proposed 
market data fees are intended to provide market participants with the 
flexibility to select the usage level that best meets their needs. In 
determining the proposed market data fees, the NASD represents that its 
staff reviewed comparable industry fees for market data. The NASD 
states that the proposed market data fees are designed to allow the 
NASD to recover its developmental and operational costs of the TRACE 
system and the costs of related regulatory activities, while still 
allowing vendors to resell the data at competitive prices.
    Market participants and others who wish to receive real-time TRACE 
data directly from the NASD will be required to enter into appropriate 
agreements with the NASD. For example, a vendor or broker/dealer firm 
that wishes to distribute TRACE real-time data externally will be 
required to enter into a vendor agreement, which among other things 
will standardize display facilities and require the vendor to collect 
specified dissemination fees from its end users for remittance to the 
NASD. Vendors or broker/dealer firms that wish to receive real-time 
TRACE data directly from the NASD and subsequently disseminate real-
time TRACE data internally will also be required to execute agreements 
with the NASD, which among other things, will require firms to 
represent that the TRACE real-time data will not be disseminated 
externally.
    In determining the proposed fees the NASD represents that its staff 
reviewed the existing FIPS fees, Nasdaq fees, and other comparable 
industry fees. The NASD states that its staff also consulted with 
members of the industry. In addition, the NASD established the Bond 
Transaction Reporting Committee (``BTRC'') that has ten members, one-
half of whom are recommended by the NASD, and the other half of whom 
are recommended by The Bond Market Association. The NASD states that 
its staff presented the proposed TRACE fees to the BTRC for additional 
industry input, and modified certain aspects of the initial fee 
proposal in response to concerns raised by the BTRC. The NASD 
represents that, with such modifications, the BTRC voted to approve the 
proposed TRACE fees, subject to a commitment by the NASD staff to 
reassess the proposed TRACE fees after TRACE is effective.\18\ Such 
reassessment may result in certain fees being reduced or certain new 
fees being assessed based on the actual usage of the new system. The 
NASD represents that the BTRC recommended that the NASD staff review 
the TRACE fees based on actual TRACE data collected within the first 
six months of the system's operation and adjust the fees if actual 
revenues are substantially greater than projected.\19\
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    \18\ The NASD represents that the BTRC did not vote on or 
approve the Internal Usage Authorization Fee and the External Usage 
Authorization Fee because the committee did not have sufficient time 
prior to this filing to appropriately consider these fees.
    \19\ Generally, the staff believes that a reassessment of the 
proposed fee structure would not be valid unless it were based on at 
least 6 months of historical TRACE data (or full TRACE operatiosn 
and the related revenue stream and costs). However, with respect to 
certain fees, the Association may require additional historical 
data, or, conversely, may be able to reassess fees based on data 
collected over a shorter period. In addition, based on the data 
collected, the NASD may assess certain internal dissemination fees, 
including index fees, administration fees, or distributor fees.
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    The NASD represents that, as part of the initiative by the 
Commission to create price transparency in the corporate bond market, 
the NASD has worked diligently to develop the TRACE system. Overall, 
the NASD believes that the proposed fees are necessary to achieve a 
practical, market-driven system for processing and disseminating 
reliable and uniform corporate bond data. The NASD believes that the 
TRACE system will allow the NASD to take a proactive role in 
supervising the corporate bond market and promote investor confidence 
in the fairness of the corporate bond market generally.
    Based on the above, the NASD believes the proposed rule change is 
consistent with the provisions of Section 15A(b)(5) \20\ of the Act in 
that the proposal provides for the equitable allocation of reasonable 
dues, fees, and other charges among members and other persons using any 
facility or system which the association operates or controls.
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    \20\ 15 U.S.C. 78o-3(b)(5).
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the

[[Page 36659]]

provisions of Section 15A(b)(6) \21\ of the Act, which requires, among 
other things, that the Association's rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest. Based on a mandate by the SEC, the Association 
has developed a corporate bond reporting facility to create 
transparency in the debt market and allow for surveillance to better 
detect fraud and foster investor confidence in the fairness of the 
corporate bond market. In addition, the NASD believes that the proposed 
rule is consistent with Section 15A(b)(5) \22\ of the Act which 
requires that a national securities association have rules that provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members and issuers and other persons using any 
facility or system which the association operates or controls.\23\
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    \21\ 15 U.S.C. 78o-3(b)(6).
    \22\ 15 U.S.C. 78o-3(b)(5).
    \23\ The NASD represents that it has generally submitted 
proposed rule changes relating to member dues, fees and charges 
pursuant to Rule 19b-4(f)(2) of the Act and Section 19(b)(3)(A) 
thereunder which would make such a proposed rule change effective 
immediately upon filing with the Commission. However, because the 
TRACE system is new, the NASD is recommending that the Commission 
solicit comments on the proposed rule change.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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, as amended. Specifically, the 
NASD believes that the proposal allows for competition in the 
collection of trade reports, and limits the NASD's role to: (1) 
Collecting trade reports directly only from members that choose to 
report directly to the NASD; (2) consolidating trade reports for 
regulatory purposes; and (3) disseminating the consolidated data to 
broker-dealers and those interested in reselling the data but not 
competing in the market for resale of these data. The NASD notes that 
the proposed fees which the NASD is seeking to impose for performing 
these functions are subject to Commission review and approval under the 
standards set forth for these purposes under Sections 11A and 15A of 
the Exchange 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 \24\
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    \24\ The NASD proposes to make the proposed rule change 
effective on the same date that the NASD Rule 6200 Series relating 
to TRACE is made effective and FIPS is eliminated.
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    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 Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, as amended, or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, 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, 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 such 
filing will also be available for inspection and copying at the 
principal office of the NASD. All submissions should refer to File No. 
SR-NASD-2002-63 and should be submitted by June 14, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-13056 Filed 5-23-02; 8:45 am]
BILLING CODE 8010-01-P