[Federal Register Volume 67, Number 202 (Friday, October 18, 2002)]
[Notices]
[Pages 64439-64441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26626]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46648; File No. SR-NASD-2002-135]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Establish Maximum Execution Fees and 
Liquidity Provider Rebates for SuperMontage Transactions in Low-Priced 
Securities

October 11, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 2, 2002, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), through its subsidiary, 
The Nasdaq Stock Market, Inc. (``Nasdaq''), submitted to the Securities 
and Exchange Commission (the ``Commission'') the proposed rule change 
as described in Items I, II, and III below, which Items have been 
prepared by the NASD. 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.
---------------------------------------------------------------------------

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

    Nasdaq proposes to establish caps on the SuperMontage order 
execution charges and liquidity provider credits applicable to Non-
Directed and Preferenced Orders for securities that are priced at $1.00 
or less per share. Nasdaq will begin implementation of the rule change 
in conjunction with the initiation of trading on SuperMontage 
(currently scheduled for October 14, 2002). Because the transition from 
the current SuperSOES, SOES, and SelectNet environment to SuperMontage 
will occur over the course of several weeks, with stocks moving from 
one system to the other in stages, Nasdaq will continue to charge its 
filed prices for SuperSOES, SOES, SelectNet, and quotation updates for 
stocks that have

[[Page 64440]]

not transitioned, while charging the SuperMontage prices established 
through SR-NASD-2002-44,\3\ SR-NASD-2002-91,\4\ and SR-NASD-2002-135 
for stocks that have transitioned. Nasdaq has designated this proposal 
as one establishing or changing a due, fee, or other charge imposed by 
the self-regulatory organization under Section 19(b)(3)(A)(ii) of the 
Act,\5\ which renders the rule effective upon the Commission's receipt 
of this filing.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 45906 (May 10, 
2002), 67 FR 34965 (May 16, 2002) (SR-NASD-2002-44). SR-NASD-2002-44 
established a fee scheduled for members' use of SuperMontage.
    \4\ See Securities Exchange Act Release No. 46343 (August 13, 
2002), 67 FR 53822 (August 19, 2002) (SR-NASD-2002-91). SR-NASD-
2002-91 provided that the fees for the use of SuperMontage by a 
national securities exchange trading Nasdaq securities on an 
unlisted trading privileges basis (``UTP Exchange'') may be 
established by means of an agreement between Nasdaq and the UTP 
Exchange.
    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    The text of the proposed rule change appears below. New text is in 
italics.
Rule 7010. System Services
    (a)-(h) No change.
(i) Nasdaq National Market Execution System (SuperMontage)
    The following charges shall apply to the use of the Nasdaq National 
Market Execution System (commonly known as SuperMontage) by members:
Order Entry
    Non-Directed Orders (excluding
    Preferenced Orders)--No charge.
    Preferenced Orders:
    Preferenced Orders that access a Quote/Order of the member that 
entered the Preferenced Order)--No charge.
    Other Preferenced Orders--$0.02 per order entry.
    Directed Orders--$0.10 per order entry.
Order Execution
    Non-Directed or Preferenced Order that accesses the Quote/Order of 
a market participant that does not charge an access fee to market 
participants accessing its Quotes/Orders through the NNMS:
    Charge to member entering order--$0.002 per share executed (but no 
more than $75 per trade for trades in securities executed at $1.00 or 
less per share).
    Credit to member providing liquidity--$0.001 per share executed 
(but no more than $37.50 per trade for trades in securities executed at 
$1.00 or less per share).
    Non-Directed or Preferenced Order that accesses the Quote/Order of 
a market participant that charges an access fee to market participants 
accessing its Quotes/Orders through the NNMS--$0.001 per share executed 
(but no more than $37.50 per trade for trades in securities executed at 
$1.00 or less per share).
    Directed Order--$0.0025 per share executed.
    Non-Directed or Preferenced Order entered by a member that accesses 
a Quote/Order of such member--No charge.
Order Cancellation
    Non-Directed Orders (excluding Preferenced Orders)--$0.01 per order 
cancelled.
    Preferenced Orders--$0.01 per order cancelled.
    Directed Orders--$0.10 per order cancelled.
Entry and Maintenance of Quotes/Orders by Nasdaq Quoting Market 
Participants
    Initial entry of Quote/Order--No charge.
    Change of Quote/Order due to order execution through SuperMontage--
No charge.
    Cancel/replace of Quote/Order to increase size--No charge.
    Cancel/replace of Quote/Order to change price--$0.01.
    Cancel/replace of Quote/Order to decrease size manually--$0.01.
    Cancellation of Quote/Order--$0.01.
    Cancellation of Quote/Order due to order purge or timeout--$0.0075.
    (j)-(s) 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, the 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
    Earlier this year, Nasdaq filed a proposed rule change to control 
trading costs for low-priced securities traded through its SuperSOES 
transaction execution system.\6\ Specifically, SR-NASD-2002-106 
established a maximum SuperSOES execution fee of $75 per trade and a 
liquidity provider rebate cap of $37.50 per trade for securities 
trading at $1.00 or less per share. Nasdaq is now proposing to 
establish substantively identical limits for Non-Directed and 
Preferenced Orders executed through SuperMontage.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 46456 (September 3, 
2002), 67 FR 57470 (September 10, 2002) (SR-NASD-2002-106). SR-NASD-
2002-106 was effective upon filing. Nasdaq also filed with the 
Commission a proposed rule change to apply the fee and rebate limits 
established by SR-NASD-2002-106 retroactively, as of July 1, 2002. 
See SR-NASD-2002-107 (August 5, 2002).
---------------------------------------------------------------------------

    Under the fee schedule established for SuperMontage by SR-NASD-
2002-44, a member that enters a Non-Directed or Preferenced Order will 
pay $0.002 per share executed if the order is executed against the 
Quote/Order of a market participant that does not charge an access fee, 
and the liquidity provider will receive a $0.001 credit. By contrast, 
the member will pay $0.001 per share if the order is executed against 
the Quote/Order of a market participant that charges an access fee, and 
the liquidity provider will not receive a credit.\7\
---------------------------------------------------------------------------

    \7\ Nasdaq represents that the fee structure is economically 
identical to the current SuperSOES fee structure, under which a 
member pays $0.002 per share executed but receives a $0.001 rebate 
if its order executes against the quotation of a market participant 
that charges an access fee, and liquidity providers that do not 
charge an access fee receive a $0.001 rebate.
---------------------------------------------------------------------------

    Nasdaq represents that recent market activity has caused the prices 
of many Nasdaq securities to fluctuate, and in some cases lose 
significant value. As the prices of these securities decline, market 
participants generally need to purchase or sell an increasing number of 
total shares to participate actively in the market for these issues. 
This increase in the size of individual transactions, when combined 
with an unlimited per share fee and credit structure, will raise 
execution costs to market participants and result in disproportionate 
credits to liquidity providers.
    In response, Nasdaq will establish caps on the order execution fees 
and liquidity provider credits for Non-Directed and Preferenced Orders 
that execute at prices of $1.00 or less. The maximum fee for such an 
order will be $75 if the order is executed against the Quote/Order of a 
market participant that does not charge an access fee, and $37.50 if 
the order is executed against the Quote/Order of a market participant 
that charges an access fee. Similarly, the maximum credit to a 
liquidity provider

[[Page 64441]]

for a transaction in a low-priced security would be $37.50.\8\
---------------------------------------------------------------------------

    \8\ Nasdaq represents that the caps are economically identical 
to the caps currently applicable to SuperSOES, under which a member 
could pay up to $75 per trade but could receive a rebate of up to 
$37.50 if its order executes against the quotation of a market 
participant that charges an access fee, while a liquidity provider 
that does not charge an access fee could receive a rebate of up to 
$37.50.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\9\ in general, and with 
Section 15A(b)(5) of the Act,\10\ in particular, in that it provides 
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 association operates or controls.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \11\ and Rule 19b-4(f)(2) \12\ thereunder 
because it establishes or changes a due, fee, or charge imposed by the 
self-regulatory organization. At any time within 60 days of the filing 
of such proposed rule change, the Commission may summarily abrogate 
such 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 the filing will also be 
available for inspection and copying at the principal office of the 
Association. All submissions should refer to File No. SR-NASD-2002-135 
and should be submitted by November 8, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26626 Filed 10-17-02; 8:45 am]
BILLING CODE 8010-01-P