[Federal Register Volume 67, Number 233 (Wednesday, December 4, 2002)]
[Notices]
[Pages 72254-72256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30678]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46917; File No. SR-NASD-2002-151]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. to Modify SuperMontage Transaction Execution 
Fees and Credits

November 26, 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 23, 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. 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 effective upon Commission receipt of this 
filing. 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify order execution charges and liquidity 
provider credits applicable to Non-Directed, Preferenced, and Directed 
Orders in Nasdaq's SuperMontage system. Nasdaq will implement the rule 
change on November 1, 2002. Because the transition from the current 
SuperSOES, SOES, and SelectNet environment to SuperMontage is occurring 
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 not transitioned, while charging the SuperMontage prices 
established through SR-NASD-2002-44,\5\ SR-NASD-2002-91,\6\ SR-NASD-
2002-135,\7\ and SR-NASD-2002-151 for stocks that have transitioned.
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    \5\ 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.
    \6\ Securities Exchange Act Release No. 46343 (August 13, 2002), 
67 FR 53822 (August 19, 2002) (SR-NASD-2002-91). SR-NASD-2002-91 
provides that the fees for the use of SuperMontage by a national 
securities exchange trading Nasdaq securities on an unlisted trading 
privileges basis (a ``UTP Exchange'') may be established by means of 
an agreement between Nasdaq and the UTP Exchange.
    \7\ Securities Exchange Act Release No. 46648 (October 11, 
2002), 67 FR 64439 (October 18, 2002) (SR-NASD-2002-135). SR-NASD-
2002-135 established maximum execution fees and credits for 
transactions in low-priced securities.
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    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].

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           No charge
 Preferenced Orders).
Preferenced Orders:
    Preferenced Orders that access a     No charge
     Quote/Order of the member that
     entered the Preferenced Order).
    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] $0.003 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           [$0.001] $0.002 per share
     liquidity.                           executed (but no more than
                                          [$37.50] $50 per trade for
                                          trades in securities executed
                                          at $1.00 or less per share)
Non-Directed or Preferenced Order that   $0.001 per share executed (but
 accesses the Quote/Order of a market     no more than [$37.50] $25 per
 participant that charges an access fee   trade for trades in securities
 to market participants accessing its     executed at $1.00 or less per
 Quotes/Orders through the NNMS.          share)
Directed Order.........................  [$0.0025] $0.003 per share
                                          executed
Non-Directed or Preferenced Order        No charge
 entered by a member that accesses a
 Quote/Order of such member.
 

[[Page 72255]]

 
           Order Cancellation
 
Non-Directed Orders (excluding           $0.01 per order cancelled
 Preferenced Orders).
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       No charge
 execution through SuperMontage.
Cancel/replace of Quote/Order to         No charge
 increase size.
Cancel/replace of Quote/Order to change  $0.01
 price.
Cancel/replace of Quote/Order to         $0.01
 decrease size manually.
Cancellation of Quote/Order............  $0.01
Cancellation of Quote/Order due to       $0.0075
 order purge or timeout.
 

    (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, 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 is proposing to increase the order execution charges and the 
liquidity provider credits applicable to the execution of Non-Directed, 
Preferenced, and Directed Orders in SuperMontage. Earlier this year, in 
anticipation of the launch of SuperMontage, Nasdaq established a price 
schedule that featured: (i) A $0.002 per share charge for the execution 
(in full or in part) of a 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 SuperMontage; (ii) a $0.001 per share charge for the execution 
(in full or in part) of a Non-Directed or Preferenced Order that 
accesses the Quote/Order of a market participant that charges an access 
fee; (iii) a $0.001 per share credit to a member that provides the 
liquidity for an execution and does not charge an access fee; and (iv) 
a $0.0025 per share charge for the execution of Directed Orders.
    Nasdaq believes that a liquidity provider credit, which was 
introduced in Nasdaq's SuperSoes system \8\ and was recently approved 
by the Commission for Nasdaq's InterMarket,\9\ serves to encourage 
market makers to display quotes and limit orders that set the inside 
market through Nasdaq, thereby enhancing the opportunities for 
favorable executions of market orders routed to Nasdaq. Nasdaq also 
believes that the credit serves to enhance competition between 
electronic communications networks (``ECNs''), which are permitted to 
charge fees for accessing their quotations, and market makers, which 
generally are prohibited from doing so.\10\ Accordingly, the credit is 
not available to members that charge fees for accessing their quotes 
through SuperMontage, because such market participants are already 
compensated for providing liquidity if their quote is executed against 
and an access fee is charged. Moreover, Nasdaq charges a lower fee for 
the execution of a Non-Directed or Preferenced Order that accesses the 
Quote/Order of a market participant that charges an access fee, in 
order to offset the access fee that the liquidity taker must pay.
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    \8\ Securities Exchange Act Release No. 44910 (October 5, 2001), 
66 FR 52167 (October 12, 2001) (SR-NASD-2001-67).
    \9\ Securities Exchange Act Release No. 46594 (October 3, 2002), 
67 FR 63485 (October 11, 2002) (SR-NASD-2002-109).
    \10\ Compare letter from Richard R. Lindsay, Director, Division 
of Market Regulation (``Division''), to Charles R. Hood, Senior Vice 
President and General Counsel, Instinet Corporation (January 17, 
1997) (acknowledging ECN access fee of up to $0.015 per share) with 
letter from Robert L.D. Colby, Deputy Director, Division, to M. 
Joseph Messina, Vice President, M.H. Meyerson & Co., Inc. (May 5, 
1998) (interpreting SEC Rule 11Ac1-1 to prohibit market makers from 
charging fees for access to their public quotes).
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    According to Nasdaq, ECNs are now generally charging $0.003 per 
share to liquidity takers while offering $0.002 per share to liquidity 
providers. As such, Nasdaq believes that it must increase both the 
order execution fee and the credit to liquidity providers in order to 
ensure that competition between Nasdaq and ECNs is based on market 
quality rather than price. Without a change in SuperMontage fees, 
Nasdaq believes that market participants will have a financial 
incentive to route limit orders to ECNs rather than posting them in 
SuperMontage. Accordingly, Nasdaq is increasing the execution fee for 
Non-Directed and Preferenced Orders that access the Quote/Order of a 
market participant that does not charge an access fee, as well as the 
execution fee for Directed Orders, to $0.003 per share, while 
increasing the credit paid to liquidity providers that do not charge an 
access fee to $0.002 per share. The execution fee for a Non-Directed or 
Preferenced Order that accesses the Quote/Order of an access-fee-
charging market participant remains $0.001. Finally, Nasdaq is 
adjusting the fee and credit caps established by SR-NASD-2002-135 for 
transactions in low-priced securities to ensure that the ratio between 
these caps remains equal to the ratio between underlying per share 
prices. Thus, the cap on the liquidity provider credit is being 
increased to $50, while the cap on the fee to access the Quote/Order of 
a market participant that charges an access fee is being lowered to 
$25.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\11\ in general, and with 
section 15A(b)(5) of the Act,\12\ 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 NASD operates or controls.
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(b)(5).
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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.

[[Page 72256]]

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 \13\ and rule 19b-4(f)(2) thereunder, 
because it establishes or changes a due, fee, or charge imposed by the 
self-regulatory organization.\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \14\ 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 will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-2002-151 and 
should be submitted by December 26, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-30678 Filed 12-3-02; 8:45 am]
BILLING CODE 8010-01-P