[Federal Register Volume 67, Number 215 (Wednesday, November 6, 2002)]
[Notices]
[Pages 67678-67680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28133]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46744; File No. SR-NASD-2002-150]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. to Extend the Pilot Nasdaq Transaction 
Services Pricing Package

October 30, 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 October 18, 2002, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), 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 and II below, which items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to extend, through March 31, 2003, three components 
of the pilot Nasdaq Transaction Services pricing package currently in 
effect (``pricing pilot'').\3\ The components of the pricing pilot 
extended by this proposal include: (1) The $0.002 order execution fee 
for Nasdaq National Market Execution System (``NNMS'' or ``SuperSoes'') 
orders; (2) the $0.001 per share rebate for liquidity providers on 
SuperSoes executions; and (3) the $0.01 quote update fee. Without such 
an extension, these pricing standards would terminate on October 31, 
2002. The text of the proposed rule change is set forth below. Proposed 
new language is italicized; proposed deletions are in brackets.
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    \3\ The pricing pilot components to be extended by this proposal 
were established by Securities Exchange Act Release No. 44910 (Oct. 
5, 2001), 66 FR 52167 (Oct. 12, 2001) (SR-NASD-2001-67); No. 45342 
(Jan. 28, 2002), 67 FR 5019 (Feb. 1, 2002) (SR-NASD-2001-96); and 
No. 45379 (Jan. 31, 2002), 67 FR 5867 (Feb. 7, 2002) (SR-NASD-2001-
64 and SR-NASD-2001-68).
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* * * * *

7010. System Services

    (a)-(i)(1) No change.
    (i)(2) Nasdaq National Market Execution System (SuperSoes)
    The following charges shall apply to the use of the Nasdaq National 
Market Execution System:

Order Entry Charge--$0.10 per order entry (entering party only)
Per share Charge--$0.001 per share executed for all fully or partially 
executed orders (entering party only)
Cancellation Fee--$0.25 per order cancelled (canceling party only) \4\
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    \4\ Nasdaq corrected a typographical error that appeared in the 
proposed rule language. Telephone conversation between Teri Nelson 
Jacoby, Assistant General Counsel, Nasdaq and Susie Cho, Special 
Counsel, Division of Market Regulation, Commission, October 23, 
2002.

    For a pilot period commencing on November 1, 2001 and lasting until 
[October] March 31, 200[2]3, the per share charge will be $0.002 per 
share executed for all fully or partially executed orders (entering 
party only).
    (3) No change.
    (4) Liquidity Provider rebate
    For a pilot period commencing on November 1, 2001 and lasting until 
[October] March 31, 200[2]3:
    (A) No change.
    (B) No change.
    (5) Quotation Updates
    (A) Except as provided in subparagraph (B), for a pilot period 
commencing on February 1, 2002 and lasting until [October] March 31, 
200[2]3, a fee of $0.01 per quotation update will be charged to NASD 
members that post quotations in the Nasdaq quotation montage. A 
``quotation update'' includes any change to the price or size of a 
displayed quotation or reserve size.
    (B) 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, 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 proposes to extend to March 31, 2003, three components of 
the pricing pilot. The components of the

[[Page 67679]]

pricing pilot extended by this proposal include: (1) The $0.002 order 
execution fee for SuperSoes orders; (2) the $0.001 per share rebate for 
liquidity providers on SuperSoes executions; and (3) the $0.01 quote 
update fee. Without the extension, the pricing pilot will expire on 
October 31, 2002. Nasdaq represents that the pilot extension is needed 
in order to ensure pricing continuity throughout the rollout of 
SuperMontage,\5\ which will not be complete by October 31, 2002.
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    \5\ On January 19, 2001, the Commission issued an order to 
approve a proposed rule change to establish SuperMontage, Nasdaq's 
new proprietary system for quote display and transaction execution. 
See Securities Exchange Act Release No. 43863 (Jan. 19, 2001), 66 FR 
8020 (Jan. 26, 2001) (SR-NASD-99-53).
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    Beginning on October 5, 2001,\6\ Nasdaq instituted a pricing pilot 
program that increased the per share charge for the use of SuperSoes; 
and introduced a rebate to providers of liquidity in SuperSoes. Nasdaq 
represents that the program was introduced as part of Nasdaq's ongoing 
efforts to align the prices charged to market participants for using 
SuperSoes with the costs of providing services as well as the benefits 
provided to market participants. As a result of this program, the per 
share charge for orders entered and executed in SuperSoes increased 
from $0.001 per share to $0.002 per share.\7\ This increase was 
accompanied by the institution of a rebate designed to enhance market 
efficiency and fairness by offering incentives to market participants 
that provide liquidity through SuperSoes. Nasdaq represents that the 
rebate was also structured to address competitive disparities that 
existed between electronic communications networks that charge non-
subscribers fees for accessing their quotes, and market makers that are 
generally prohibited by the SEC from charging fees.
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    \6\ See Securities Exchange Act Release No. 44910 (Oct. 5, 
2001), 66 FR 52167 (Oct. 12, 2001) (SR-NASD-2001-67).
    \7\ The $0.002 per share charge for non-members became effective 
in February 2002. See Securities Exchange Act Release No. 45379 
(Jan. 31, 2002), 67 FR 5867 (Feb. 7, 2002) (SR-NASD-2001-64 and SR-
NASD-2001-68).
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    Beginning February 1, 2002,\8\ Nasdaq instituted a quotation update 
fee applicable to NASD members of $0.01 per quotation update. Nasdaq 
represents that the quotation update fee was introduced in recognition 
of the fact that the ability to post quotes in the Nasdaq quotation 
montage provides market participants with the valuable opportunity to 
advertise the liquidity that they offer. In addition, by not charging 
for quotation updates, Nasdaq was allowing its participants to quote 
inefficiently. Nasdaq believes that the quotation update fee 
discouraged the practice of posting an excessive number of quote 
updates that resulted in very few executed trades, while still 
encouraging market makers to provide liquidity through the rebate 
program introduced in October 2001.
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    \8\ See Securities Exchange Act Release No. 45342 (Jan. 28, 
2002), 67 FR 5019 (Feb. 1, 2002) (SR-NASD-2001-96).
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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,\9\ in general and with 
sections 15A(b)(5) and 15A(b)(6) of the Act.\10\ Section 15A(b)(5) 
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 of system which the 
NASD operates or controls. Section 15A(b)(6) requires rules that foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and that are not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers. Nasdaq 
believes that the proposed rule changes will ensure the fair and 
orderly operation of Nasdaq and the protection of investors by ensuring 
pricing continuity throughout the SuperMontage rollout.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(5) and (6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change will not result in 
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 has neither solicited nor received comments on 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) of the Act \11\ and Rule 19b-4(f)(6)\12\ thereunder because 
the proposal: (i) Does not significantly affect the protection of 
investors or the public interest; (ii) does not impose any significant 
burden on competition; and (iii) does not become operative prior to 30 
days after the date of filing or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest; provided that Nasdaq has given the Commission notice 
of its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change, 
or such short time as designated by the Commission. 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the five-day pre-
filing notice requirement and the 30-day operative delay. The 
Commission believes that the proposed rule change is consistent with 
the protection of investors and the public interest and therefore 
believes there is good cause to waive the five-day pre-filing notice 
requirement and to designate the proposal as immediately operative upon 
filing. The Commission notes that the proposal extends a current pilot 
program already in place. Acceleration of the operative date will allow 
the pilot to operate continuously through March 31, 2003. For these 
reasons, the Commission finds good cause to waive the five-day pre-
filing notice requirement and to designate that the proposal become 
operative immediately upon filing.\13\
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    \13\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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

[[Page 67680]]

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 Nasdaq. All 
submissions should refer to File No. SR-NASD-2002-150 and should be 
submitted by November 27, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-28133 Filed 11-5-02; 8:45 am]
BILLING CODE 8010-01-P