[Federal Register Volume 67, Number 202 (Friday, October 18, 2002)]
[Notices]
[Pages 64437-64439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26516]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46632; File No. SR-NASD-2002-96]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the National Association of Securities Dealers, Inc. Relating to 
Computer-to-Computer Interface Fees

October 9, 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 July 17, 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'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. On September 
27, 2002, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ 
Amendment No. 1 requested that the proposed rule change be considered 
filed pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-
4(f)(6) thereunder,\5\ which renders a proposed rule change effective 
upon filing with the Commission.\6\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Mary M. Dunbar, Vice President and Deputy 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated September 27, 2002 (``Amendment No. 1''). The proposal was 
originally filed for notice and comment under Section 19(b)(2) of 
the Act. In Amendment No. 1, NASD revised its proposal to stipulate 
that all subscribers would receive a credit of $625 per month per 
.25 computer-to-computer circuit between February 1, 2002 and the 
date that circuits were terminated. Amendment No. 1 also clarified 
how the credits would be provided to subscribers.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ For purposes of calculating the 30-day delayed operative 
date and the 60-day abrogation period, the Commission considers the 
proposed rule change to have been filed on September 27, 2002, when 
Amendment No. 1 was filed.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend Rule 7010 to implement a retroactive 
reduction in the fees assessed on NASD members and non-members that 
used x.25 Computer-to-Computer Interface (``CTCI'') lines after January 
31, 2002. Nasdaq will implement the proposed rule change 30 days after 
the date of 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

* * * * *
(f) Nasdaq WorkstationTM Service
* * * * *
    (3) The following charges shall apply for each CTCI subscriber*:

------------------------------------------------------------------------
                Options                               Price
------------------------------------------------------------------------
Option 1: Dual 56kb lines (one for       $1275/month.
 redundancy) and single hub and router.
Option 2: Dual 56kb lines (one for       $1600/month.
 redundancy), dual hubs (one for
 redundancy), and dual routers (one for
 redundancy).

[[Page 64438]]

 
Option 3: Dual T1 lines (one for         $8000/month.
 redundancy), dual hubs (one for
 redundancy), and dual routers (one for
 redundancy). Includes base bandwidth
 of 128kb.
Option 1, 2, or 3 with Message Queue     Fee for Option 1, 2, or 3
 software enhancement.                    (including any Bandwidth
                                          Enhancement Fee) plus 20%.
Disaster Recovery Option: Single 56kb    $975/month.
 line with single hub and router. (For
 remote disaster recovery sites only).
Bandwidth Enhancement Fee (for T1        $4000/month per 64kb increase
 subscribers only).                       above 128kb T1 base.
Installation Fee.......................  $2000 per site for dual hubs
                                          and routers.
                                         $1000 per site for single hub
                                          and router.
Relocation Fee (for the movement of TCP/ $1700 per relocation.
 IP--capable lines within a single
 location).
------------------------------------------------------------------------

    * As reflected in SR-NASD-00-80 and SR-NASD-00-81, Nasdaq began 
replacing x.25 CTCI circuits [are being replaced] with TCP/IP CTCI 
circuits in January 2001. Pursuant to SR-NASD-2001-87 and SR-NASD-
2001-88, the fee for x.25 CTCI circuits--which [has] had remained 
$200 per month per circuit--[is] was increased to $1,275 per month 
per circuit from February 1, 2002 until the date of the termination 
of such circuits. Pursuant to SR-NASD-2002-96, users of x.25 CTCI 
circuits will receive a credit of $625 per month per circuit from 
February 1, 2002 until the date of circuit termination.
* * * * *

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
    Nasdaq's CTCI network is a point-to-point dedicated circuit 
connection from the premises of brokerages and service providers to 
Nasdaq's Trumbull, Connecticut processing facilities. Through CTCI, 
firms are able to enter trade reports into Nasdaq's Automated 
Confirmation Transaction Service and orders into Nasdaq's transaction 
execution systems.
    In response to numerous requests from market participants that 
Nasdaq upgrade the speed and reliability of its CTCI data transmission 
environment, Nasdaq began the process in January 2001 of ``sunsetting'' 
its CTCI x.25/bisynch network in favor of a new network that provides 
greater capacity and a more efficient transmission protocol. The new 
CTCI network operates over the Enterprise Wide Network II (``EWN II'') 
and provides connectivity over more powerful 56kb and T1 data lines. In 
addition, the new CTCI network uses the industry-standard Transmission 
Control Protocol/Internet Protocol (``TCP/IP''), a transmission 
protocol that is robust, efficient, and well known among the technical 
community.
    In December 2001, Nasdaq filed proposed rule changes to increase 
the monthly charge for x.25 CTCI circuits that remained in use from 
$200 to $1,275 per circuit per month, from February 1, 2002 until the 
date of circuit termination.\7\ The fee increase was designed to 
provide users that had failed to convert from x.25 CTCI circuits to 
TCP/IP circuits with a financial incentive to complete conversions in a 
timely fashion and to pass through the increasing per circuit costs of 
the obsolete x.25 CTCI network to firms that had failed to transition. 
In May 2002, Nasdaq completed the process of ``sunsetting'' all x.25 
CTCI circuits: All members and non-members that access Nasdaq through 
CTCI have now been transitioned to TCP/IP lines.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 45264 (January 10, 
2002), 67 FR 2942 (January 22, 2002) (SR-NASD-2001-87) (notice of 
filing and immediate effectiveness of proposal related to CTCI fees 
assessed on members); Securities Exchange Act Release No. 45411 
(February 6, 2002), 67 FR 6776 (February 13, 2002) (SR-NASD-2001-88) 
(order approving proposal to increase CTCI fees assessed on non-
members). As indicated, the fee increase for members was effective 
immediately upon filing, and the increase for non-members was 
approved by the Commission.
---------------------------------------------------------------------------

    During the process of transitioning from x.25 CTCI to TCP/IP, 
several member firms approached Nasdaq to request that it support the 
use of Message Queue Series (``MQ Series'') software over the TCP/IP 
lines. MQ Series is a commercially available messaging product that 
provides firms with the ability to integrate disparate systems over a 
common application programming interface (``API'') messaging 
infrastructure. There are over twenty operating systems that are 
supported by MQ Series, including Windows, Solaris, Mac OS, and Linux. 
Firms that use MQ Series are able to establish networks with less 
effort, skill, and resources, thereby achieving a seamless 
interconnection of disparate communications systems, and can make use 
of a comprehensive family of APIs designed to make coding for any 
messaging task straightforward. Because it believed that offering MQ 
Series would be a significant benefit to firms that use TCP/IP lines, 
Nasdaq agreed to work with a pilot group of five member firms to test 
lines that use the software before making it available to all members 
and non-members.
    Unfortunately, Nasdaq experienced numerous delays in scheduling 
time to establish and test the lines using MQ Series, largely as a 
result of the need to devote resources to restoring primary CTCI 
service to firms following the September 11 terrorist attacks. As a 
result, Nasdaq could not make the TCP/IP lines that it had promised to 
the pilot firms available in a timely fashion, and these firms 
continued to use x.25 CTCI lines after the higher prices established by 
SR-NASD-2001-87 went into effect. TCP/IP lines using MQ Series began to 
go into production for the pilot firms during the period from April to 
May 2002. As of June 2002, Nasdaq began making lines using MQ Series 
available to all users of TCP/IP CTCI lines.\8\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 46111 (June 25, 
2002), 67 FR 44490 (July 2, 2002) (SR-NASD-2002-82) (notice of 
filing and immediate effectiveness of proposal to establish fees 
assessed on members for TCP/IP lines using MQ Series software); 
Securities Exchange Act Release No. 46112 (June 25, 2002), 67 FR 
44488 (July 2, 2002) (SR-NASD-2002-83) (notice of filing of proposal 
to establish fees assessed on non-members for TCP/IP lines using MQ 
Series software); Securities Exchange Act Release No. 46356 (Aug. 
15, 2002), 67 FR 54249 (Aug. 21, 2002) (SR-NASD-2002-83) (order 
approving proposal to establish fees assessed on non-members for 
TCIP/IP lines using MQ Series software).

---------------------------------------------------------------------------

[[Page 64439]]

    Nasdaq believes that the pilot firms' agreement to provide valuable 
support to Nasdaq's effort in establishing infrastructure, testing, and 
support processes for TCP/IP lines using MQ Series will benefit all 
other firms that choose to make use of this software enhancement. 
Moreover, the fact that these firms continued to use x.25 CTCI lines 
after January 31, 2002 was attributable to delays on Nasdaq's part. 
Accordingly, Nasdaq believes that the pilot firms should receive a 
reduction in the charges assessed for x.25 CTCI after January 31, 2002. 
In accordance with guidance received from Commission staff, however, 
Nasdaq will provide a fee reduction not only to the MQ pilot firms, but 
also to all other members and non-members that used x.25 CTCI after 
January 31, 2002. The fee reduction will be provided by means of a 
credit that will appear on the bills mailed to subscribers in November 
2002 (and/or a direct payment, to the extent that the amount of the 
credit exceeds the amount of charges).\9\
---------------------------------------------------------------------------

    \9\ Telephone conversation between John Yetter, Assistant 
General Counsel, Nasdaq, and Jennifer Colihan, Special Counsel, 
Division, Commission, October 9, 2002.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\10\ including Section 
15A(b)(5) of the Act,\11\ 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,\12\ which requires rules that are not designed to permit 
unfair discrimination between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(5).
    \12\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A)\13\ of the Act and 
Rule 19b-4(f)(6) thereunder.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.\15\
---------------------------------------------------------------------------

    \15\ For purposes of calculating the 30-day delayed operative 
date and the 60-day abrogation period, the Commission considers the 
proposed rule change to have been filed on September 27, 2002, when 
Amendment No. 1 was filed.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the amended 
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 
number SR-NASD-2002-96 and should be submitted by November 8, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26516 Filed 10-17-02; 8:45 am]
BILLING CODE 8010-01-P