[Federal Register Volume 67, Number 226 (Friday, November 22, 2002)]
[Notices]
[Pages 70471-70473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29761]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46843; File No. SR-NASD-2002-33]


Self Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 5 to the Proposed Rule Change by the National Association 
of Securities Dealers, Inc., Relating to Fees for Nasdaq Data 
Entitlement Packages

November 18, 2002.

I. Introduction

    On March 7, 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 (``SEC'' 
or ``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and rule 19b-4 thereunder,\2\ a 
proposed rule change to establish fees for new Nasdaq market data 
products. On April 25, 2002, Nasdaq filed Amendment No. 1 that entirely 
replaced the original rule filing.\3\ On July 29, 2002, Nasdaq filed 
Amendment No. 2 that entirely replaced the original rule filing and 
Amendment No. 1.\4\ On August 23, 2002, Nasdaq filed Amendment No. 3 
that entirely replaced the original rule filing and Amendment Nos. 1 
and 2.\5\ On September 13, 2002, the Nasdaq submitted Amendment No. 4 
that entirely replaced the original rule filing and Amendment Nos. 1, 
2, and 3.\6\ The proposed rule change, as amended, was published for 
comment in the Federal Register on September 27, 2002.\7\ The 
Commission did not receive any comments on the proposed rule change. On 
October 3, 2002, Nasdaq filed Amendment No. 5 to the proposed rule 
change.\8\ This order approves the proposed rule change, as amended, 
and notices and grants accelerated approval to Amendment No. 5.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated April 25, 2002.
    \4\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated July 26, 2002.
    \5\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated August 22, 2002.
    \6\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated September 13, 2002.
    \7\ See Securities Exchange Act Release No. 46521 (September 20, 
2002), 67 FR 61179 (``notice'').
    \8\ See Letter from Mary M. Dunbar, Deputy General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division, 
Commission, dated October 3, 2002 (``Amendment No. 5''). In 
Amendment No. 5, Nasdaq corrected grammatical errors in the rule 
language text of the proposed rule change; amended a footnote to the 
rule language text to state that Nasdaq itself is a distributor of 
its data feed(s); and added a footnote to rule 7010(q)(2)(A) stating 
that Nasdaq is a distributor of its data feed(s) and will execute a 
Nasdaq distributor agreement and pay the distributor charge.
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II. Description of the Proposal

    Nasdaq proposes to amend NASD rule 7010 to establish fees for new 
Nasdaq data entitlement packages. In its rule filings regarding 
SuperMontage,\9\ Nasdaq described its new data feeds and products: the 
Nasdaq Prime data feed, which will provide the new data for a Nasdaq 
entitlement package called ``TotalView,'' and the Aggregate Depth at 
Price (``ADAP'') data feed, which will provide the new data entitlement 
packages called ``DepthView'' and ``PowerView''.\10\
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    \9\ These rule filings were approved by the Commission in 
Securities Exchange Act Release Nos. 43863 (January 19, 2001), 66 FR 
8020 (January 26, 2001) and 45790 (April 19, 2002), 67 FR 21007 
(April 29, 2002).
    \10\ As described further below, PowerView includes data from 
ADAP and the NQDS data feed.
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A. TotalView

    TotalView will provide, on a real-time basis: (1) All individual 
attributable quote/order information at the five best price levels 
displayed by the Nasdaq SuperMontage system; (2) the aggregate size of 
all unattributed quotes or orders at each of the top five price levels, 
on both sides of the market, that are in the SuperMontage system; (3) 
the aggregate attributable and unattributable quotes and orders at each 
of the top five price levels, on both sides of the market, that are in 
the SuperMontage system; (4) the quote and order data found in the 
Nasdaq Quotation Dissemination Service (``NQDS'')\11\ data feed, 
including the best attributed quotation from each Nasdaq participant, 
and (5) the Nasdaq Inside Price. Nasdaq proposes to charge distributors 
\12\ of TotalView $7500.00 per month. In addition, Nasdaq proposes to 
charge $150.00 per month per controlled device.\13\ According to 
Nasdaq, TotalView will use significantly more bandwidth than any Nasdaq 
data entitlement to date. In addition, Nasdaq believes that this data 
product is highly specialized and thus has not proposed a non-
professional fee at this time.
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    \11\ The NQDS data feed currently consists of: (1) Real-time 
quotes for each Market Maker and Electronic Communication Network 
(``ECN'') in NASDAQ National Market and SmallCap issues; (2) real-
time best bid or offer (``BBO'') quotes for each regional UTP 
exchange that quotes in NASDAQ-listed issues; and (3) real-time 
National BBO quote appendages for NASDAQ National Market and 
SmallCap issues. Telephone conversation between Eleni Constantine, 
Associate General Counsel, Office of General Counsel, Nasdaq and 
Susie Cho, Special Counsel, Division, Commission, September 19, 
2002.
    \12\ Nasdaq proposes that a ``distributor'' be defined as any 
firm that receives a Nasdaq data feed directly from Nasdaq or 
indirectly through another vendor and then distributes it either 
internally or externally. Further, Nasdaq proposes that all 
distributors execute a Nasdaq distributor agreement. Nasdaq itself 
is a distributor if its data feeds. Accordingly it must execute an 
agreement and pay the distributor fee.
    \13\ Nasdaq proposes that a ``controlled device'' be defined as 
any device that a distributor of the Nasdaq Data Entitlement 
Package(s) permits to: (a) Access the information in the Nasdaq Data 
Entitlement Package(s); or (b) communicate with the distributor so 
as to cause the distributor to access the information in the Nasdaq 
Data Entitlement Package. If a controlled device is part of an 
electronic network between computers used for investment, trading or 
order routing activities, the burden will be on the distributor to 
demonstrate that the particular controlled device should not have to 
pay for an entitlement. For example, in some display systems the 
distributor gives the end user a choice to see the data or not'a 
user that chooses not to see it would not be charged. Similarly, in 
a non-display system, users of controlled devices may have a choice 
of basic or advanced computerized trading or order routing services, 
where only the advanced version uses the information. Customers of 
the basic service would be excluded from the entitlement 
requirement.
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B. DepthView

    DepthView will provide the aggregated size at each of the top five 
price levels, both on the bid and the ask, within the Nasdaq 
SuperMontage system. Nasdaq proposes to charge $50.00 per month for 
each controlled device and $25.00 per month for each controlled device 
of a non-professional.\14\ According to Nasdaq,

[[Page 70472]]

DepthView requires more processing capacity to calculate its five 
aggregated price levels on each side of the market. Nasdaq represented 
that the price for DepthView was based on the increased processing 
capacity needed and a review of the prices charged by other major 
exchanges for aggregated order data.
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    \14\ Nasdaq proposes that a ``non-professional'' be defined as a 
natural person who is neither: (a) Registered or qualified in any 
capacity with the Commission, the Commodity Futures Trading 
Commission, any state securities agency, any securities exchange or 
association, or any commodities or futures contract market or 
association; (b) engaged as an ``investment advisor'' as that term 
is defined in section 201(11) of the Investment Advisors Act of 1940 
(whether or not registered or qualified under that Act); nor (c) 
employed by a bank or other organization exempt from registration 
under federal or state securities law to perform functions that 
would require registration or qualification if such functions were 
performed for an organization not so exempt.
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C. PowerView

    PowerView will include both the data available through DepthView 
and the data available in the NQDS data feed,\15\ including the best-
attributed quotation from each Nasdaq participant in each Nasdaq 
National Market and Small Cap Market stock. Nasdaq proposes to charge 
$75.00 per month per controlled device and $29.00 per month per 
controlled device of non-professionals.
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    \15\ See note 11, supra.
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III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association,\16\ and in particular, the requirements of section 
15A(b)(5) of the Act,\17\ which requires that the rules of an 
association provide for the equitable allocation of reasonable fees, 
dues and other charges among members and issuers and other persons 
using any facility or system which the association operates or 
controls. Specifically, the Commission believes that the NASD's 
proposed charges for these new data products are reasonable when 
compared to similar types of services provided by other markets.\18\ 
Further, Nasdaq has represented that these new data products will 
provide more market data than currently provided and will require 
significantly more bandwidth and systems capacity.
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    \16\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78o-3(b)(5).
    \18\ For example, the New York Stock Exchange's OpenBook service 
has a monthly charge of $5000.00 for receipt of the data feed and 
$50.00 for each end-user terminal. See Securities Exchange Act 
Release No. 45138 (December 7, 2001), 66 FR 64895 (December 14, 
2001).
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    Nasdaq has proposed lower fee charges for non-professionals for 
DepthView and PowerView. The Commission believes that should provide an 
opportunity for many investors to have access to the enhanced data 
provided by these services, which should help to increase transparency. 
Nasdaq represented that it may consider a non-professional fee for 
TotalView in the future.
    Nasdaq has proposed a new definition for controlled devices. With 
this new definition, Nasdaq will impose charges on all devices that 
have the capacity to either access or to utilize a particular data 
feed, whether the controlled device displays the data, ``receives'' the 
data, or has the ability to utilize the data even though the data 
remains on another device. A distributor is required to pay the 
controlled device fee for all such devices that are part of a network 
that receives a particular data feed. Nasdaq has proposed, however, 
that distributors that can demonstrate that a particular controlled 
device in fact has no capacity to access or use the data will not be 
charged the controlled device fee. The Commission believes that the 
proposed definition of controlled device is consistent with the 
requirements of the Act, which permits an association to impose 
reasonable fees on persons who are using a facility or system of such 
association.
    In its notice, Nasdaq represented that it will not impose any 
restrictions on redistribution of the data products to qualified 
vendors and broker-dealers that have entered into Distributor 
Agreements with Nasdaq. According to Nasdaq, its display requirements 
are covered by the Distributor Agreements. The Commission notes that 
this order only approves the fees proposed by Nasdaq for the data 
products and therefore, the Commission is not approving or disapproving 
the terms of Nasdaq's Distributor Agreements.
    Finally, the Commission notes that Nasdaq has acknowledged that 
persons who subscribe to receive the new data products, to the extent 
that they act as a vendor, must comply with the requirements of the 
Vendor Display rule.\19\ Specifically, the Vendor Display rule 
establishes minimum requirements governing the manner in which 
transaction, quotation, and other market information is displayed in 
certain exchange-listed and Nasdaq-listed securities (``subject 
securities''). Generally, under the rule, vendors that provide 
quotation information with respect to subject securities must provide a 
consolidated display of quotation information from all reporting market 
centers for that security. Because DepthView, PowerView, and TotalView 
do not, individually, satisfy the consolidated display requirement of 
the rule, vendors, including Nasdaq itself to the extent it acts as a 
vendor, will need to disseminate additional quotation information along 
with these data products to comply with the rule. In this connection, 
the Commission notes that Nasdaq has put statements to this effect on 
its website description of these services and it its subscription 
contracts.
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    \19\ 17 CFR 240.11Ac1-2. Vendors purchasing data feeds from 
Nasdaq are likewise responsible for their compliance with the Vendor 
Display rule. See also notice, supra note 7.
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    The Commission finds good cause for approving Amendment No. 5 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. Amendment No. 5 
merely provides technical corrections and clarification to the proposed 
rule text, which was reflected in the notice of the proposed rule 
change. The Commission, therefore, believes that granting accelerated 
approval of Amendment No. 5 is appropriate and consistent with section 
15A(b)(6) \20\ and section 19(b) \21\ of the Act.
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    \20\ 15 U.S.C. 78o-3(b)(6).
    \21\ 15 U.S.C. 78s(b).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 5, including whether it 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 at 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 No. SR-NASD-2002-33 and should be 
submitted by December 13, 2002.

V. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal, as amended, is consistent with the Act and the rules and 
regulations thereunder. It is therefore ordered, pursuant to section

[[Page 70473]]

19(b)(2) of the Act,\22\ that the proposed rule change (SR-NASD-2002-
33), as amended, be and hereby is approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29761 Filed 11-21-02; 8:45 am]
BILLING CODE 8010-01-P