[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Notices]
[Pages 61179-61181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24570]



[[Page 61179]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46521; File No. SR-NASD-2002-33]


Self Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the National Association of Securities Dealers, Inc., 
Relating to Fees for Nasdaq Data Entitlement Packages

September 20, 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 March 7, 2002, the National Association of Securities Dealers, Inc. 
(``NASD'') 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. On April 
25, 2002, Nasdaq filed Amendment No. 1 that entirely replaced the 
original rule filing.\3\ On July 29, 2002, Nasdaq filed Amendment No. 2 
that entirely replaced the original rule filing and Amendment No. 1.\4\ 
On August 23, 2002, Nasdaq filed Amendment No. 3 that entirely replaced 
the original rule filing and Amendment Nos. 1 and 2.\5\ On September 
13, 2002, the Nasdaq submitted Amendment No. 4 that entirely replaced 
the original rule filing and Amendment Nos. 1, 2, and 3.\6\ 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 Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated April 25, 2002.
    \4\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated July 26, 2002.
    \5\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated August 22, 2002.
    \6\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated September 13, 2002.
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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 7010. Following approval by the 
Commission, the proposed rule change will become effective upon notice 
to vendors 30 days after the Nasdaq Order Display Facility, hereafter 
referred to as ``SuperMontage,'' begins operation.\7\ Below is the text 
of the proposed rule change (including footnotes). Proposed new 
language is in italics; proposed deletions are in brackets.\8\
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    \7\ It is presently expected that SuperMontage will begin 
operation on October 14, 2002.
    \8\ The Commission notes that it made typographical changes to 
the rule text. Nasdaq has committed to submitting an amendment 
reflecting those changes. Telephone conversation between Eleni 
Constantine, Associate General Counsel, Office of General Counsel, 
Nasdaq and Susie Cho, Special Counsel, Division, Commission, 
September 16, 2002.
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* * * * *

Rule 7010. Charges for Services and Equipment.

(q) Nasdaq Data Entitlement Packages

    (1) DepthView and PowerView
    The DepthView entitlement package contains all information 
disseminated through the Nasdaq Aggregated Depth at Price (ADAP) data 
feed: The five best price levels in Nasdaq on both the bid and offer 
side of the market. Each price level is dynamically updated and 
displays the aggregate size of ``displayed'' trading interest, 
attributable and non-attributable, at each price level. The Nasdaq 
PowerView entitlement package consists of DepthView and the Nasdaq 
Quotation Dissemination Service (NQDS) feed.
    (A)(i) Except as provided in (1)(A)(ii) below, for DepthView, there 
will be a $50.00 monthly charge to be paid for each controlled 
device.\9\
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    \9\ A controlled device is any device that a distributor of the 
Nasdaq Data Entitlement Package(s) permits to: (a) Access the 
information in the Nasdaq Data Entitlement Package(s); or (b) 
communicate with the distributor so as to cause the distributor to 
access the information in the Nasdaq Data Entitlement Package. If a 
controlled device is part of an electronic network between computers 
used for investment, trading or order routing activities, the burden 
will be on the distributor to demonstrate that the particular 
controlled device should not have to pay for an entitlement. For 
example, in some display systems the distributor gives the end user 
a choice to see the data or not--a user that chooses not to see it 
would not be charged. Similarly, in a non-display system, users of 
controlled devices may have a choice of basic or advanced 
computerized trading or order routing services, where only the 
advanced version uses the information. Customers of the basic 
service would be excluded from the entitlement requirement.
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    (ii) the charge to be paid by a non-professional \10\ subscriber 
for each controlled device shall be $25.00 per month.
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    \10\ A ``non-professional'' is a natural person who is neither: 
(a) Registered or 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; (b) engaged as an 
``investment advisor'' as that term is defined in Section 201(11) of 
the Investment Advisors Act of 1940 (whether or not registered or 
qualified under that Act); nor (c) employed by a bank or other 
organization exempt from registration under federal or state 
securities law to perform functions that would require registration 
or qualification if such functions were performed for an 
organization not so exempt.
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    (B)(i) Except as provided in paragraph (1)(B)(ii) below, for 
PowerView, there will be a $75.00 monthly charge to be paid for each 
controlled device.\11\
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    \11\ So long as NQDS is subject to the Nasdaq Unlisted Trading 
Privileges (UTP) Plan, the revenues garnered from use of PowerView 
that are directly attributable to the sale of NQDS under the 
currently approved pricing for NQDS will be shared pursuant to the 
UTP Plan.
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    (ii) the charge to be paid by a non-professional \12\ subscriber 
for each 2 controlled device will be $29.00 per month.\13\
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    \12\ See footnote 10 (definition of non-professional).
    \13\ See footnote 11 (sharing of revenue pursuant to the UTP 
Plan).
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    (C) Distributors \14\ of ADAP data (either through DepthView or 
PowerView) shall pay a charge of $1,000.00 per month.
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    \14\ A distributor of a Nasdaq data feed is any firm that 
receives a Nasdaq data feed directly from Nasdaq or indirectly 
through another vendor and then distributes it either internally or 
externally. All distributors must execute a Nasdaq distributor 
agreement. Nasdaq itself is a vendor of its data feed(s) and will 
execute a Nasdaq distributor agreement and pay the distributor 
charge.
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    (2) TotalView
    The NQDS Prime data feed (hereinafter referred to as ``Prime'') 
consists of the individual Nasdaq SuperMontage participant orders and 
quotes that make up the top five price levels in the SuperMontage 
System. The TotalView entitlement package includes the information 
disseminated through the Prime data feed in addition to the data 
contained in the PowerView entitlement package.
    (A) Distributors of TotalView data shall pay a charge of $7,500.00 
per month.
    (B) For TotalView, there will be a charge of $150.00 per month per 
controlled device.\15\
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    \15\ So long as NQDS is subject to the Nasdaq UTP Plan, the 
revenues from TotalView that are directly attributable to the sale 
of NQDS under the currently approved pricing for NQDS will be shared 
pursuant to the UTP Plan.
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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.

[[Page 61180]]

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

1. Purpose
The Data Feeds
    Nasdaq believes that it has consistently supported the broadest, 
most effective dissemination of market information to public investors. 
In its multiple rule filings regarding SuperMontage,\16\ Nasdaq 
described new data feed products that it represents will vastly expand 
the ability of market participants to see and show trading interest: 
The Nasdaq Prime data feed, which will be available through a Nasdaq 
entitlement package called ``TotalView,'' and the Aggregate Depth at 
Price (``ADAP'') data feed, available through ``DepthView'', 
``PowerView'', and ``TotalView''.\17\ As the SuperMontage rule filings 
and the SEC approvals set out in detail, TotalView will provide, on a 
real-time basis: (1) All individual attributable quote/order 
information at the five best price levels displayed by the Nasdaq 
SuperMontage system; (2) the aggregate size of all unattributed quotes 
or orders at each of the top five price levels, on both sides of the 
market, that are in the SuperMontage system; (3) the aggregate 
attributable and unattributable quote and orders at each of the top 
five price levels, on both sides of the market, that are in the 
SuperMontage system; (4) the quote and order data found in the Nasdaq 
Quotation Dissemination Service (``NQDS'') \18\ data feed, including 
the best attributed quotation from each Nasdaq participant, and (5) the 
Nasdaq Inside Price. By using TotalView, vendors will be able to 
integrate the expanded quote and order information that is provided in 
the Nasdaq Prime feed with the other Nasdaq data in the TotalView 
package.
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    \16\ These rule filings were approved by the Commission in 
Securities Exchange Act Release No. 43863 (January 19, 2001), 66 FR 
8020 (January 26, 2001) and Securities Exchange Act Release No. 
45790 (April 19, 2002), 67 FR 21007 (April 29, 2002).
    \17\ To the extent Nasdaq acts as a vendor, Nasdaq must comply 
with the requirements of the vendor display rule. 17 CFR 240.11Ac1-
2. Vendors purchasing data feeds from Nasdaq are likewise 
responsible for their compliance with the vendor display rule.
    \18\ The NQDS data feed currently consists of: (1) Real-time 
quotes for each Market Maker and Electronic Communication Network 
(ECN) in NASDAQ National Market and SmallCap issues; (2) real-time 
best bid or offer (``BBO'') quotes for each regional UTP exchange 
that quotes in NASDAQ-listed issues; and (3) real-time National BBO 
quote appendages for NASDAQ National Market and SmallCap issues. 
Telephone conversation between Eleni Constantine, Associate General 
Counsel, Office of General Counsel, Nasdaq and Susie Cho, Special 
Counsel, Division, Commission, September 19, 2002.
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    Subject to the requirements of the vendor display rule,\19\ 
subscribers who do not need all the information in TotalView can 
purchase certain portions separately. DepthView will provide the 
aggregated size at each of the top five price levels, both on the bid 
and the ask, within the Nasdaq SuperMontage system. Nasdaq plans to 
promote DepthView broadly as the window into Nasdaq SuperMontage for 
the trading, investment, and broker communities. DepthView also 
provides valuable insight into how large an order can be executed 
immediately within SuperMontage with little or no price impact. Nasdaq 
believes that the deeper view afforded by the aggregate figures 
provided by DepthView promote market transparency and allow for more 
informed choice for the investor. PowerView includes both DepthView and 
the data available in the NQDS data feed,\20\ including the best-
attributed quotation from each Nasdaq participant in each Nasdaq 
National Market and Small Cap Market stock.
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    \19\ 17 CFR 240.11Ac1-2.
    \20\ See note 19, supra.
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    Nasdaq is not offering the first two elements of TotalView 
separately. This is because the key portions of the third and fourth 
elements of TotalView can be derived from the first two by 
sophisticated subscribers. In Nasdaq's view, allowing the production of 
derivative feeds in this uncontrolled manner creates financial risk 
because there is no sure way Nasdaq would be able to detect whether 
aggregate data came from Nasdaq or was calculated by the vendor. An 
incremental package that only offered the portions of TotalView that 
are not available through PowerView would include only market 
participants' inferior quotes, at price levels two through five. (Best 
quotes, including all of price level one, would already be available 
through Power View.) There is no point in offering such an entitlement 
separately, since viewing this information on a standalone basis would 
distort subscribers' view of the market.
Equitable Allocation of Fees
Controlled Device
    As noted in footnote 9, the appropriate entitlement charge must be 
paid for each ``controlled device'' that has the capacity either to 
access or utilize a particular data feed, whether the controlled device 
displays the data, ``receives'' it, or has the ability to utilize it 
even though the data remains ``on'' another device. As noted, 
controlled devices that are part of a network receiving a particular 
data feed will be required to pay the entitlement charge unless the 
distributor demonstrates to Nasdaq that the particular controlled 
device in fact has no capacity to access or utilize the data feed 
(because the system agreement precludes it, for example).
TotalView
    As noted, TotalView will provide the individual market participants 
that make up the depth of SuperMontage at each of the top five price 
levels. TotalView, because it will be significantly more bandwidth 
intensive than any Nasdaq data entitlement to date, and because of a 
distinct value it provides to the Nasdaq trading community, is expected 
to be a niche product for specialized traders. Because of its 
specialized nature, unique value and high bandwidth requirements, 
TotalView has been priced to capture that value from a limited number 
of customers. Accordingly, Nasdaq is not providing a non-professional 
fee for TotalView at this time.
    Nasdaq represents that it has designed the distributor charges for 
TotalView to encourage transparency and display of the SuperMontage 
data. First, Nasdaq has kept the base distributor charge as low as 
possible to promote the widespread adoption of the data feed by market 
data vendors. Second, by charging the same entitlement charge to all 
controlled devices that are connected to a system that receives the 
Prime data, whether or not they choose to display the data, Nasdaq 
hopes to encourage firms that provide non-display services to choose 
also to display the data to their customers, since doing so will not 
cost them any more than not doing so. The pricing rule is intended to 
create a rebuttable presumption that a controlled device has access to 
Prime if it is connected to a network that receives Prime data; 
however, the contract terms will provide a mechanism for vendors to 
rebut this presumption by providing Nasdaq a system description that 
states which customers do and do not have access.
DepthView and PowerView
    Nasdaq anticipates its users will receive a high value from the 
depth-of-market information in DepthView, as stated above. Moreover, 
DepthView requires more processing capacity to calculate its five 
aggregated price levels on each side, so its price should be 
commensurate with the processing required to generate the ADAP data 
feed. Also, the price was chosen after consideration of the prices 
other major

[[Page 61181]]

exchanges charge for aggregated order data.\21\
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    \21\ For example, NYSE's Open Order Book, which was approved by 
the SEC in December 2001, has a monthly charge of $5,000.00 for 
access and $50.00 per display. See Securities Exchange Act Release 
No. 45138 (December 7, 2001), 66 FR 64895 (December 14, 2001).
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    Nasdaq anticipates that offering a significantly discounted non-
professional rate for DepthView and PowerView will provide an 
opportunity for many investors to take advantage of the transparency 
offered by these new feeds.
Redistribution
    There will be no restrictions regarding redistribution of the data 
in TotalView, DepthView, or PowerView to qualified vendors and broker-
dealers that have entered into distributor agreements with Nasdaq. As 
is current practice, the display requirements that Nasdaq chooses to 
place on these data feeds will be covered under the Distributor 
Agreements we enter into with distributors of Nasdaq data, rather than 
being subject to rule. The display requirements will be minimal and are 
not expected specifically to preclude vendors from blending this data 
with data from other sources to create an integrated feed. However, 
Nasdaq plans to require vendors specifically to identify the data from 
the feeds as data coming from Nasdaq, so as to distinguish it from data 
that they may get from other sources. The specific display requirements 
are available on NasdaqTrader.com.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\22\ in general and with 
Section 15A(b)(5) of the Act,\23\ in particular, 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.
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    \22\ 15 U.S.C. 78o-3.
    \23\ 15 U.S.C. 78o-3(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 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 did not solicit or receive 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, 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 at 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-2002-33 and should be submitted by October 18, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24570 Filed 9-26-02; 8:45 am]
BILLING CODE 8010-01-U