[Federal Register Volume 67, Number 190 (Tuesday, October 1, 2002)]
[Notices]
[Pages 61702-61705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24907]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46553; File No. SR-NASD-2002-122]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Correct Inaccurate Language in the Text of 
NASD Rules

September 25, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 61703]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 18, 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 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by Nasdaq. 
Nasdaq has designated this proposed rule change as one concerned solely 
with the administration of the self-regulatory organization under 
section 19(b)(3)(A)(iii) of the Act,\3\ and Rule 19b-4(f)(3) \4\ 
thereunder, which renders the proposal effective upon filing with the 
Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(3).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to correct several instances of inaccurate language 
in the text of NASD rules. Nasdaq will implement the proposed rule 
change immediately upon filing.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.

Rule 7010. System Services

(a)[(1)] Nasdaq Level 1 Service
    The charge to be paid by the subscriber for each terminal receiving 
Nasdaq Level 1 Service is $20 per month. This Service includes the 
following data:
    [(A)](1) inside bid/ask quotations calculated for securities listed 
in The Nasdaq Stock Market and securities quoted in the OTC Bulletin 
Board (OTCBB) service;
    [(B)](2) the individual quotations or indications of interest of 
broker/dealers utilizing the OTCBB service; and
    [(C)](3) last sale information on securities classified as 
designated securities in the Rule 4630, 4640, and 4650 Series and 
securities classified as over-the-counter equity securities in the Rule 
6600 Series.
[(2) Market Data Revenue Sharing]
    [(A) For a pilot period lasting until December 31, 2002, NASD 
members shall receive a market data revenue sharing credit. The total 
credit shall be calculated in accordance with the following formula:]
    [Credit = (0.90) x (Eligible Revenue) x (Member's Volume 
Percentage)]
    [(B) Definitions. The following definitions shall apply to this 
Rule:]
    [(i) ``Eligible Revenue'' shall mean the portion of the net 
distributable revenues that Nasdaq, through the NASD, is eligible to 
receive under the Nasdaq UTP Plan, that is attributed to the Nasdaq 
Level 1 Service for Eligible Securities.]
    [(ii) ``Eligible Securities'' shall mean all Nasdaq National Market 
securities and any other security that meets the definition of 
``Eligible Security'' in the Nasdaq UTP Plan.]
    [(iii) ``Member's Volume Percentage'' shall mean the average of:]
    [a. the percentage derived from dividing the total number of trades 
in Eligible Securities that the member reports in accordance with NASD 
trade reporting rules to the Automated Confirmation Transaction Service 
(``ACT'') by the total number of trades in Eligible Securities reported 
to ACT by NASD members, and]
    [b. the percentage derived from dividing the total number of shares 
represented by trades in Eligible Securities that the member reports in 
accordance with NASD trade reporting rules to ACT by the total number 
of shares represented by all trades in Eligible Securities reported to 
ACT by NASD members.]
    [(iv) ``Nasdaq UTP Plan'' shall mean the Joint Self-Regulatory Plan 
Governing the Collection, Consolidation and Dissemination of Quotation 
and Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privilege Basis.]
    (b)-(o) No change.
    (p) [NasdaqTrader.com Volume and Issue Data Package Fee]
    [The charge to be paid by the subscriber for each entitled user 
receiving the Nasdaq Volume and Issue Data Package via NasdaqTrader.com 
shall be $70 per month. The charge to be paid by market data vendors 
for this information shall be $35 per month for each end user receiving 
the information through the data vendor. The availability of this 
service through NasdaqTrader.com shall be limited to NASD members, 
Qualified Institutional Buyers* and data vendors. The Volume and Issue 
Data package includes:]
    [(1) Daily Share Volume reports]
    [(2) Daily Issue Data]
    [(3) Monthly Volume Summaries]
    [(4) Buy Volume Report]
    [(5) Sell Volume Report]
    [(6) Crossed Volume Report]
    [(7) Consolidated Activity Volume Report]
    [* For purposes of this service, see definition of ``Qualified 
Institutional Buyer'' found in Rule 144A of the Securities Act of 
1933.]
[(q)] Historical Research and Administrative Reports
    (1)-(4) No change.
    (q) Reserved.
    (r) No change.
    (s) NasdaqTrader.com Volume and Issue Data Package Fee
    The charge to be paid by the subscriber for each entitled user 
receiving the Nasdaq Volume and Issue Data Package via NasdaqTrader.com 
shall be $70 per month. The charge to be paid by market data vendors 
for this information shall be $35 per month for each end user receiving 
the information through the data vendor. The availability of this 
service through NasdaqTrader.com shall be limited to NASD members, 
Qualified Institutional Buyers* and data vendors. The Volume and Issue 
Data package includes:
    (1) Daily Share Volume reports
    (2) Daily Issue Data
    (3) Monthly Volume Summaries
    (4) Buy Volume Report
    (5) Sell Volume Report
    (6) Crossed Volume Report
    (7) Consolidated Activity Volume Report
    * For purposes of this service, see definition of ``Qualified 
Institutional Buyer'' found in Rule 144A of the Securities Act of 1933.
* * * * *

[7110. Regulatory Services.]

    [(a) Fee. NASD members will be assessed a monthly fee for the 
regulatory services provided in connection with the operation of The 
Nasdaq Stock Market during a pilot period lasting until December 31, 
2002. The fee shall be calculated at the beginning of each month using 
data concerning market activity during the prior month, in accordance 
with the following formula:]
[Regulatory Fee = ((Monthly Regulatory Charge) x (Member's Quote Share) 
x 0.4) + ((Monthly Regulatory Charge) x (Member's Position Share) x 
0.2) + ((Monthly Regulatory Charge) x (Member's ACT Record Share) x 
0.4)]

    [(b) Transitional Fee Reduction. The fee for regulatory services 
payable by a member in a given month shall be reduced by an amount 
calculated in accordance with the following formula (if such amount is 
positive):]

[Fee Reduction = (Aggregate Fee Reduction) x (Member's Share of Fee 
Reduction)]

    [(c) Definitions. The following definitions shall apply to this 
Rule:]

[[Page 61704]]

    [(1) ``Aggregate Fee Reduction'' shall mean the lesser of (i) the 
Aggregate Impact during a month or (ii) $416,667.]
    [(2) ``Aggregate Impact'' shall mean the sum of each Member's 
Impact that is positive.]
    [(3) ``Implicit Monthly Fee'' shall mean the product of (i) the 
Monthly Regulatory Charge with respect to a particular month and (ii) 
the Member's Volume Percentage (as defined in Rule 7010(a)(2)) during 
such month.]
    [(4) ``Market ACT Record Total'' shall mean the sum of each 
Member's ACT Record Total.]
    [(5) ``Member's ACT Record Share'' shall mean a percentage 
calculated by dividing the Member's ACT Record Total by the Market ACT 
Record Total.]
    [(6) ``Member's ACT Record Total'' shall mean the greater of (i) 
the number of all types of ACT records in which the member is the 
reporting party during the month, minus the number of ACT records 
reported for dissemination to the public in which the member is either 
the reporting party or the contra-party during the month, or (ii) the 
number of ACT records reported for dissemination to the public in which 
the member is the reporting party during the month.]
    [(7) ``Member's Impact'' shall mean the difference between the 
regulatory fee payable by the member under subsection (a) with respect 
to a particular month and the highest Implicit Monthly Fee for such 
member in any month between January 2002 and such month.]
    [(8) ``Member's Position Share'' shall mean a percentage calculated 
by dividing (i) the sum of the number of days during the month that the 
member posted a bid or offer under its name with respect to each 
Nasdaq-listed security by (ii) the sum of the number of days during the 
month that each member posted a bid or offer under its name with 
respect to each Nasdaq-listed security.]
    [(9) ``Member's Quote Share'' shall mean a percentage calculated by 
dividing the member's quotation activity in Nasdaq-listed securities 
during the month by the quotation activity of all members in Nasdaq-
listed securities during the month. Prior to the introduction of the 
version of the Nasdaq National Market Execution System (the ``NNMS'') 
commonly referred to as SuperMontage, quotation activity shall be 
measured by quotation updates. In the version of the NNMS commonly 
referred to as SuperMontage, quotation activity shall be measured by 
any entry, modification, cancellation, or cancel/replace of a member's 
best priced Quote/Order on the bid or the offer side of the market.]
    [(10) ``Member's Share of Fee Reduction'' shall mean a percentage 
calculated by dividing the Member's Impact by the Aggregate Impact.]
    [(11) ``Monthly Regulatory Charge'' shall mean sum of (i) the fee 
that Nasdaq pays to NASD Regulation, Inc. for regulatory services with 
respect to Nasdaq-listed securities for the month, and (ii) costs 
incurred by Nasdaq's MarketWatch Department for regulatory services 
with respect to Nasdaq-listed securities during the month.]
    [(12) ``Nasdaq-listed securities'' shall mean Nasdaq National 
Market securities and Nasdaq SmallCap Market securities.]
* * * * *

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

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of this rule filing is to correct several inaccuracies 
in the text of NASD rules. In February 2002, Nasdaq instituted a 
program for sharing market data revenue on Nasdaq-listed securities 
with market participants on a pilot basis.\5\ On May 3, 2002, Nasdaq 
submitted a proposed rule change to modify the pilot program for 
revenue sharing and to institute a direct fee for regulatory services 
provided in connection with the operation of The Nasdaq Stock 
Market.\6\ On July 2, 2002, the Commission summarily abrogated this 
filing \7\ under section 19(b)(3)(C) of the Act.\8\ Commission staff 
has advised Nasdaq, however, that a rule filing is necessary to remove 
rule language that was affected by the Commission's abrogation order. 
Accordingly, Nasdaq is deleting NASD Rules 7010(a)(2) and 7110 and 
redesignating NASD Rule 7010(a)(1) as Rule 7010(a).
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    \5\ Securities Exchange Act Release No. 45342 (Jan. 28, 2002); 
67 FR 5109 (Feb. 1, 2002) (SR-NASD-2001-96); Securities Exchange Act 
Release No. 45444 (Feb. 14, 2002); 67 FR 8051 (Feb. 21, 2002) (SR-
NASD-2002-17).
    \6\ Securities Exchange Act Release No. 45916 (May 10, 2002); 67 
FR 35167 (May 17, 2002) (SR-NASD-2002-61).
    \7\ Securities Exchange Act Release No. 46159 (July 2, 2002); 67 
FR 45775 (July 10, 2002) (SR-NASD-2002-61, SR-NASD-2002-68, SR-CSE-
2002-06, SR-PCX-2002-37).
    \8\ 15 U.S.C. 78s(b)(3)(C).
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    In SR-NASD-99-12, Nasdaq proposed a rule to establish a fee for the 
``NasdaqTrader.com Volume and Issue Data Package.'' \9\ In the filing, 
the rule was designated as Rule 7010(p). In SR-NASD-99-70, Nasdaq 
proposed a rule to establish fees for historical research and 
administrative reports.\10\ In the filing, the rule was designated as 
Rule 7010(q). However, SR-NASD-99-70 was approved by the Commission 
\11\ two years before SR-NASD-99-12 was approved.\12\ As a result, the 
rule adopted in SR-NASD-99-70 appeared in the NASD Manual as Rule 
7010(p) and was referenced as such in a subsequent filing to amend the 
rule.\13\ Accordingly, Nasdaq is amending the designation of this rule 
to conform it to the manner in which it appears in the NASD Manual.
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    \9\ Securities Exchange Act Release No. 41244 (Apr. 1, 1999); 64 
FR 17429 (Apr. 9, 1999) (SR-NASD-99-12).
    \10\ Securities Exchange Act Release No. 42207 (Dec. 8, 1999), 
64 FR 69811 (Dec. 14, 1999) (SR-NASD-99-70).
    \11\ Securities Exchange Act Release No. 42341 (Jan. 14, 2000); 
65 FR 3513 (Jan. 21, 2000) (SR-NASD-99-70).
    \12\ Securities Exchange Act Release No. 45270 (Jan. 11, 2002); 
67 FR 2712 (Jan. 18, 2002) (SR-NASD-99-12).
    \13\ Securities Exchange Act Release No. 44940 (Oct. 16, 2001); 
66 FR 53462 (Oct. 22, 2001) (SR-NASD-2001-59); Securities Exchange 
Act Release No. 45102 (Nov. 26, 2001); 66 FR 59830 (Nov. 30, 2001) 
(SR-NASD-2001-59).
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    In SR-NASD-2002-33, Nasdaq proposed a rule to establish fees for 
``Nasdaq Data Entitlement Packages.'' \14\ In the filing, the proposed 
rule was also designated as Rule 7010(q).\15\ Nasdaq is reserving this 
designation for the rule proposed in SR-NASD-2002-33. In addition, in 
SR-NASD-2001-93, Nasdaq adopted a fee schedule for the Primex Auction 
System, designated as Rule 7010(r).\16\ Accordingly, Nasdaq is

[[Page 61705]]

redesignating the rule adopted in SR-NASD-99-12 as Rule 7010(s).
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    \14\ SR-NASD-2002-33 (Amendment No. 4 filed Sept. 13, 2002).
    \15\ In addition, prior to the approval of SR-NASD-99-12, Nasdaq 
adopted a fee schedule for the Nasdaq ReSource SM 
Service, which was also designated as Rule 7010(q). Securities 
Exchange Act Release No. 44303 (May 14, 2001), 66 FR 27712 (May 18, 
2001) (SR-NASD-2001-30). However, this fee schedule was deleted by a 
subsequent filing. Securities Exchange Act Release No. 45444 (Feb. 
14, 2002), 67 FR 8051 (Feb. 21, 2002) (SR-NASD-2002-17).
    \16\ Securities Exchange Act Release No. 45285 (Jan. 15, 2002); 
67 FR 3521 (Jan. 24, 2002) (SR-NASD-2001-93).
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2. Statutory Basis

    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act.\17\
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    \17\ 15 U.S.C. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has become effective pursuant to section 
19(b)(3)(A)(iii) of the Act \18\ and Rule 19b-4(f)(3) \19\ thereunder, 
in that the foregoing proposed rule change is concerned solely with the 
administration of the self-regulatory organization.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(3).
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    At any time within 60 days of this filing, the Commission may 
summarily abrogate this proposal if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 number SR-NASD-2002-122 and should be 
submitted by October 22, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24907 Filed 9-30-02; 8:45 am]
BILLING CODE 8010-01-P