[Federal Register Volume 67, Number 170 (Tuesday, September 3, 2002)]
[Notices]
[Pages 56333-56335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22343]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46419; File No. SR-NASD-2002-109]


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

August 27, 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 August 8, 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'' 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: (i) Modify the execution fees for Nasdaq 
InterMarket trades executed through the Intermarket Trading System 
(``ITS'') and Nasdaq's Computer Assisted Execution System (``CAES''); 
and (ii) establish a credit for the liquidity provider for executions 
via ITS and CAES.\3\ Nasdaq will implement the proposed rule change as 
quickly as practicable following approval. Below is the text of the 
proposed rule change. Proposed new language is in italics; proposed 
deletions are in brackets.
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    \3\ On June 13, 2002, the NASD, through its subsidiary, Nasdaq, 
filed a similar proposed rule change that was effective upon filing 
pursuant to Section 19(b)(3)(A) of the Act. 15 U.S.C. 78s(b)(3)(A). 
See Securities Exchange Act Release No. 46153 (July 1, 2002), 67 FR 
45164 (July 8, 2002) (SR-NASD-2002-68). The proposal was summarily 
abrogated by Commission order on July 2, 2002. See Securities 
Exchange Act Release No. 46159.
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* * * * *

7010. System Services

    (a)-(c) No change.
    (d) Computer Assisted Execution Service.
    The charges to be paid by members receiving the Computer Assisted 
Execution Service (CAES) shall consist of a fixed service charge and a 
per share transaction charge plus equipment-related charges.
(1) Service Charges
    $100 per month for each market maker terminal receiving CAES.
(2) Transaction Charges
    (A) [As of January 1, 1998, $0.50 per execution] $0.003 per share 
executed up to a maximum of $75 per execution shall be paid by an order 
entry firm or CAES market maker that enters an order into CAES that is 
executed in whole or in part, and $0.002 per share executed up to a 
maximum of $50 per execution shall be credited to the CAES market maker 
that executes such an order.[*]
    (B) [As of November 1, 1997, $1.00 per commitment] $0.002 per share 
executed up to a maximum of $75 per execution shall be paid by any 
member that sends a commitment through the ITS/CAES linkage to buy or 
sell a listed security that is executed in whole or in part, and $0.001 
per share executed up to a maximum of $35 per execution shall be 
credited to a member that executes such an order.[**]


[[Page 56334]]


[*As of September 1, 2000, a CAES market maker that receives and 
executes a CAES order or any part of a CAES order will not be 
required to pay a CAES transaction charge.]

[**As of September 1, 2000, a member that receives a commitment 
through the ITS/CAES linkage to buy or sell a security that is 
executed in whole or in part will not be required to pay a CAES 
transaction charge.]

    (e)-(r) 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

1. Purpose
    Nasdaq's InterMarket (``InterMarket'') is a quotation, 
communication, and execution system that allows NASD members to trade 
stocks listed on the New York Stock Exchange, Inc. (``NYSE'') and the 
American Stock Exchange LLC (``Amex'').\4\ The InterMarket competes 
with regional exchanges such as the Chicago Stock Exchange, Inc. 
(``CHX'') and the Cincinnati Stock Exchange, Inc. (``CSE'') for retail 
order flow in stocks listed on the NYSE and the Amex. The InterMarket 
is comprised of (1) CAES, a system that facilitates the execution of 
trades in listed securities between NASD members that participate in 
the InterMarket, and (2) ITS, a system that facilitates the execution 
of trades between NASD members and specialists on the floors of 
national securities exchanges that trade listed securities.\5\
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    \4\ Nasdaq's InterMarket formerly was referred to as Nasdaq's 
Third Market. See e.g., Securities Exchange Act Release No. 42907 
(June 7, 2000), 65 FR 37445 (June 14, 2000) (SR-NASD-00-32).
    \5\ See CAES/ITS User Guide, at 
www.intermarket.nasdaqtrader.com, for further details.
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    Nasdaq proposes to modify the fee structure of the InterMarket to 
encourage market participants to provide additional liquidity to 
support executions through the InterMarket and thereby enhance its 
competitiveness. Specifically, Nasdaq will replace the current CAES 
execution fee of $0.50 with a per share execution fee of $0.003, and 
will credit $0.002 per share to a member whenever it provides the 
liquidity to support an execution through CAES (i.e., sells in response 
to a buy order, or buys in response to a sell order). The maximum fee 
will be capped at $75 per execution, and the maximum credit will be 
capped at $50 per execution.
    Similarly, Nasdaq proposes that the current ITS execution fee of 
$1.00 will be replaced with a per share execution fee of $0.002, and a 
member that provides liquidity to support an ITS execution will receive 
a credit of $0.001 per share. There will be a maximum fee of $75 per 
execution, and a maximum credit of $35 per execution.
    The proposed fee structure is similar to the structure that has 
been in place for Nasdaq's SuperSOES system since November 2001 and 
that will be used for Nasdaq's SuperMontage system when it is launched 
in the third quarter of 2002.\6\
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    \6\ See Securities Exchange Act Release Nos. 44910 (October 5, 
2001), 66 FR 52167 (October 12, 2001) (SR-NASD-2001-67); and 45906 
(May 10, 2002), 67 FR 34965 (May 16, 2002) (SR-NASD-2002-44).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
section 15A(b)(5) of the Act,\7\ which requires that the rules of the 
NASD provide for the equitable allocation of reasonable dues, fees, 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 that the rules are not designed 
to permit unfair discrimination between customers, issuers, brokers or 
dealers. Nasdaq believes that the proposed transaction execution fees 
will be imposed equally on members that use the InterMarket to place 
orders, whereas the proposed credits will be available to all members 
that enhance the viability of the InterMarket by providing liquidity to 
support executions. Moreover, Nasdaq believes that the level of the 
fees and credits are reasonable because its revenues from a given level 
of transaction activity under the new fee structure will be lower than 
its revenues from the same level of transaction activity under the 
prior fee structure.
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    \7\ 15 U.S.C. 78o-3(b)(5).
    \8\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change will not result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Nasdaq has neither solicited nor 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 self-regulatory organization 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 No. SR-NASD-2002-109 in the caption above and should be 
submitted by September 24, 2002.


[[Page 56335]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22343 Filed 8-30-02; 8:45 am]
BILLING CODE 8010-01-P