[Federal Register Volume 67, Number 208 (Monday, October 28, 2002)]
[Notices]
[Pages 65819-65821]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27351]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46695; File No. SR-NASD-2002-120]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Modify Application of Additional Circuit/
SDP Charge Under Rule 7010(f) to NASD Members

October 21, 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 September 12, 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 Nasdaq has prepared. 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 \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the rule immediately 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)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify the conditions under which members pay 
the Additional Circuit/SDP Charge under NASD Rule 7010(f).\5\ As 
described in more detail in section II.A.1 below, for members that 
require circuit consolidation, Nasdaq proposes to implement the 
Additional Circuit/SDP Charge on a rolling basis as the circuit 
consolidation work is performed.
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    \5\ Nasdaq also submitted a proposed rule change to modify the 
conditions under which non-members of the NASD pay the Additional 
Circuit/SDP Charge. See SR-NASD-2002-121.
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    The text of the proposed rule change is below. Proposed new text is 
italicized and proposed deleted text is [bracketed].
* * * * *
    Rule 7010. System Services
    (a) `` (e) No change
    (f) Nasdaq WorkstationTM Service
    (1) No change.
    (2) The following charges shall apply to the receipt of Level 2 or 
Level 3 Nasdaq Service via equipment and communications linkages 
prescribed for the Nasdaq Workstation II Service:
    Service Charge $1,875/month per service delivery platform (``SDP'') 
from December 1, 2000 through February 28, 2001. $2,035/month per SDP 
beginning March 1, 2001.
    Display Charge $525/month per presentation device (``PD'').
    Additional Circuit/SDP Charge $3,075 per month from December 1, 
2000 through February 28, 2001, and $3,235/month beginning March 1, 
2001*.
    A subscriber that accesses Nasdaq Workstation II Service via an 
application programming interface (``API'') shall be assessed the 
Service Charge for each of the subscriber's SDPs and shall be assessed 
the Display Charge for each of the subscriber's API linkages, including 
an NWII substitute or quote-update facility. API subscribers also shall 
be subject to the Additional Circuit/SDP Charge.
    (3) No change.
    *A subscriber shall be subject to the Additional Circuit/SDP Charge 
when the subscriber has not maximized capacity on its SDPs by placing 
eight PDs and/or API servers on an SDP and obtains an additional 
SDP(s); in such case, the subscriber shall be charged the Additional 
Circuit/SDP Charge (in lieu of the service charge) for each 
``underutilized'' SDP(s) (i.e., the difference between the number of 
SDPs a subscriber has and the number of SDPs the subscriber would need 
to support its PDs and/or API servers, assuming an eight-to-one ratio). 
A subscriber also shall be subject to the Additional Circuit/SDP Charge 
when the subscriber has not maximized capacity on its T1 circuits by 
placing [six] eighteen SDPs on a T1 circuit; in such case, the 
subscriber shall be charged the Additional Circuit/SDP Charge (in lieu 
of the service charge) for each ``underutilized'' SDP slot on the 
existing T1 circuit(s). Regardless of the SDP allocation across T1 
circuits, a subscriber will not be subject to the Additional Circuit/
SDP Charge if the subscriber does not exceed the minimum number of T1 
circuits needed to support its SDP, assuming [a six to one] an 
eighteen-to-one ratio.
    (g)-(r) No change.
* * * * *

[[Page 65820]]

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 had 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 Nasdaq Workstation II (``NWII'') service allows market 
participants to access Nasdaq and Nasdaq facilities through Nasdaq's 
Enterprise Wide Network II (``EWN II''). To use the NWII service, each 
subscriber location has at least one service delivery platform 
(``SDP'') that connects to Nasdaq by a dedicated T1 circuit pair. The 
SDP functions as the gateway from the subscriber's NWII ``presentation 
device'' (``PD'') \6\ or application programming interface (``API'') 
server \7\ to the EWN II. Each SDP is permitted to support up to eight 
PDs or API servers. In the past, each T1 circuit pair had been capable 
of supporting six SDPs. As the result of recent improvements in circuit 
efficiency, however, it is now possible to support eighteen SDPs on one 
T1 circuit pair. This marked increase in circuit capacity provides 
Nasdaq and its market participants with an opportunity to enhance the 
efficiency of the NWII service by reducing the number of circuits 
required to provide a given level of service.
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    \6\ A PD is an NWII workstation provided by Nasdaq that resides 
on the desktop of the end user.
    \7\ An API allows a firm to obtain NWII service using the firm's 
own workstation (e.g., a personal computer), server, and software 
systems to access, display, interface with, and operate the NWII 
service.
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    Under Nasdaq's current pricing structure for NWII, a subscriber 
generally pays $2,035 per SDP month, but is assessed an ``Additional 
Circuit/SDP Charge'' of $3,235 per month for unutilized SDP slots if it 
uses T1 circuits inefficiently.\8\ A subscriber does not pay the 
Additional Circuit/SDP Charge, however, if the subscriber does not 
exceed the minimum number of T1 circuits needed to support its SDPs, 
assuming a six-to-one ratio. This pricing structure encourages 
subscribers to maximize circuit capacity and is aimed at preventing the 
premature exhaustion of EWN II's capacity to support additional 
circuits. This in turn helps to ensure that the capacity of the EWN II 
can keep pace with the growth of trading volumes. In order to reflect 
the realities of technological change and to encourage firms to take 
full advantage of the resulting efficiencies, Nasdaq is modifying the 
requirement for full utilization of circuits from six SDPs per T1 
circuit to eighteen. As is currently the case, subscribers would not 
pay an Additional Circuit/SDP Charge for unused slots as long as the 
subscriber does not exceed the minimum number of T1 circuits needed to 
support its SDPs (based on an eighteen-to-one ratio).
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    \8\ The Additional Circuit/SDP Charge is also assessed, in lieu 
of the $2,035 per SDP per month Service Charge, if a subscriber 
exceeds the minimum number of SDPs needed to support its PDs and/or 
API servers (assuming an eight-to-one ratio). This aspect of the fee 
is not being changed.
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    Nasdaq believes that the increased efficiency of T1 circuits will 
allow Nasdaq and subscribers to discontinue the use of many T1 circuit 
pairs, and that this will, in turn, expand the available capacity of 
EWN II, thereby enhancing its ability to keep pace with future growth 
in trading volumes. In anticipation of this capacity expansion, during 
the past three months Nasdaq has tripled the EWN II bandwidth, from 
256kb to 768kb, without increasing costs to subscribers. Moreover, 
since subscribers will be able to use a T1 circuit pair to support more 
SDPs than has previously been the case, a subscriber can now expand its 
own capability as its needs grow without incurring the costs and delays 
associated with installation of an additional circuit pair.
    In order to allow subscribers with redundant circuits to take 
advantage of these added efficiencies, it will be necessary for Nasdaq 
to perform upgrades on subscribers' existing circuits, a process that 
can only be completed on a circuit-by-circuit basis. Accordingly, 
Nasdaq would implement the proposed Additional Circuit/SDP Charge on a 
rolling basis, as subscribers with redundant circuits are provided with 
the opportunity to have the circuit consolidation work performed. 
Subscribers would receive notice of the opportunity to eliminate 
unneeded circuits through direct personal contact from Nasdaq technical 
personnel. Until a subscriber's circuits have been upgraded, the 
subscriber would be charged the Additional Circuit/SDP Charge on the 
basis of a six-to-one ratio. Following the completion of the upgrade of 
a given subscriber, the eighteen-to-one ratio would apply. Similarly, 
if a subscriber chooses not to complete the upgrade, the subscriber 
would be charged according to the eighteen-to-one ratio, starting with 
the calendar month following its decision not to upgrade. Finally, for 
subscribers that do not require circuit consolidation, the eighteen-to-
one ratio would apply immediately. Thus, if a subscriber that is 
utilizing circuits efficiently adds a new circuit before fully 
utilizing the capacity of existing circuit(s), it would be assessed the 
Additional Circuit/SDP Charge.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\9\ including Section 
15A(b)(5) of the Act,\10\ 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. As is currently the 
case, the Additional Circuit/SDP Charge would be imposed upon 
subscribers that make inefficient use of T1 circuits and SDPs. The 
proposed rule change would not result in any change in the fees paid by 
subscribers that take advantage of the opportunity to eliminate 
underutilized T1 circuits. Moreover, Nasdaq believes that, by 
encouraging subscribers to maximize circuit capacity, the proposed rule 
change will help to ensure that the EWN II can keep pace with future 
growth of trading volumes.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change does not 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 neither solicited nor received written comments with respect 
to the proposed rule change.

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

[[Page 65821]]

19b-4(f)(2) thereunder \12\ because it establishes or changes a due, 
fee, or other charge. At any time within 60 days after the filing of 
this 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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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 also will be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-2002-120 and 
should be submitted by November 18, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-27351 Filed 10-25-02; 8:45 am]
BILLING CODE 8010-01-P