[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Notices]
[Pages 79205-79210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32734]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47056; File No. SR-NASD-2002-176]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. and Renewal on Pilot Basis of NASD Rule 
7010(k) Relating to Fees for the Trade Reporting and Compliance Engine 
(TRACE)

December 19, 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 December 13, 2002, the National Association of Securities Dealers, 
Inc. (``NASD''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by NASD. 
NASD has designated the proposed rule change as ``establishing or 
changing a due, fee, or other charge'' under Section 19(b)(3)(A)(ii) of 
the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the 
proposal 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

    NASD is proposing to amend NASD Rule 7010(k) relating to fees for 
the Trade Reporting and Compliance Engine (``TRACE'') prior to the 
expiration of the pilot program for fees on December 28, 2002. NASD is 
proposing to extend the pilot program for TRACE fees to February 28, 
2003 and to modify the pilot effective January 1, 2003. As a result of 
the proposed rule change, the current fee structure would remain in 
effect to December 31, 2002. In addition, NASD is proposing technical 
revisions to Rule 7010(k) to replace references to

[[Page 79206]]

``the Association'' with ``NASD.'' Below is the text of the proposed 
rule change. Proposed new language is underlined; proposed deletions 
are in brackets.
* * * * *
7010. System Services

    (k) Trade Reporting and Compliance Engine (TRACE)
    (Rule 7010(k) shall expire on [December 28, 2002] February 28, 
2003, unless amended, extended, or permanently adopted by NASD pursuant 
to SEC approval at or before such date).
    The following charges shall be paid by participants for the use of 
the Trade Reporting and Compliance Engine (``TRACE''):

------------------------------------------------------------------------
                                     Transaction
          System fees               reporting fees     Market data fees
------------------------------------------------------------------------
From 07/01/02 to 12/31/02: Web   From 07/01/02 to 12/ BTDS Professional
 Browser Access: $85/month for    31/02: Trades up     Display--$60/
 1 user IDs; $75/month for 2-9    to and including     month per
 user IDs; $70/month for 2-10+    $200,000 par         terminal
 user IDs, except.                value--$0.50/
If less than 25 trades per        trade;
 month, in October, November,    Trades between
 or December 2002--$25/month      $201,000 and
 per user ID.                     $999,999 par
                                  value--$0.0025
                                  times the number
                                  of bonds traded/
                                  trade;
                                 Trades of
                                  $1,000,000 par
                                  value or more--
                                  $2.50/trade
From 01/01/03 to 02/28/03:       From 01/01/03 to 02/
 Level I Trade Report Only Web    28/03:
 Browser Access--$25/month per   Trades up to and
 user ID Level II Full Service    including $200,000
 Web Browser Access--$85/month    par value--$0.475/
 per user ID.                     trade;
                                 Trades between
                                  $201,000 and
                                  $999,999 par
                                  value--$0.002375
                                  times the number
                                  of bonds traded/
                                  trade;
                                 Trades of
                                  $1,000,000 par
                                  value or more--
                                  $2.375/trade
CTCI--$25/month/line...........  From 07/01/02 to 12/ BTDS Internal
                                  31/02: Cancel/       Usage
                                  Correct--$3/trade,   Authorization--$5
                                  except               00/month per
                                 For October 2002--    organziation
                                  $1.50/trade
                                 For November 2002--
                                  $2.25/trade
                                 From 01/01/03 to 02/
                                  28/03: Cancel/
                                  Correct--$1.50/
                                  trade
Third Party--$25/month.........  From 07/01/02 to 12/ BTDS External
                                  31/02: ``As of''     Usage
                                  Trade Late--$3/      Authorization--$1
                                  trade, except        ,000/month per
                                 For October 2002--    organization
                                  $1.50/trade
                                 For November 2002--
                                  $2.25/trade
                                 From 01/01/03 to 02/
                                  28/03: ``As of''
                                  Trade Late--$3/
                                  trade
From 07/01/02 to 12/31/02: PDN   Browse & Query--     BTDS Non-
 Administrative--$100/month/      $0.05 after first    Professional
 line.                            page                 Display--$1/month
As of 01/01/03: PDN service and                        per terminal
 corresponding fee eliminated.
                                 ...................  From 07/01/02 to
                                                       12/31/02: Daily
                                                       List Fax-- $15/
                                                       month per fax
                                                       number/addressee
                                                       As of 01/01/03:
                                                       Daily List Fax
                                                       service and
                                                       corresponding fee
                                                       eliminated
From 07/01/02 to 12/31/02: PDN   Browse & Query--     BTDS Non-
 Administrative--$100/month/      $0.05 after first    Professional
 line.                            page                 Display--$1/month
As of 01/01.03: PDN service and                        per terminal
 corresponding fee eliminated.
                                 ...................  From 07/01/02 to
                                                       12/31/02: Daily
                                                       List Fax-- $15/
                                                       month per fax
                                                       number/addressee
                                                      As of 01/01/03:
                                                       Daily List Fax
                                                       service and
                                                       corresponding fee
                                                       eliminated
------------------------------------------------------------------------

    (1) System Related Fees. There are three methods by which a member 
may report corporate bond transactions that are reportable to NASD 
pursuant to the Rule 6200 Series. A member may choose among the 
following methods to report data to NASD: (a) a TRACE web browser 
(either over the Internet or a secure private data network (``PDN'')); 
(b) a Computer-to-Computer Interface (``CTCI'') (either one dedicated 
solely to TRACE or a multi-purpose line); or (c) a third-party 
reporting intermediary. Fees will be charged based on the reporting 
methodology selected by the member.

(A) Web Browser Access

    (i) For the period commencing July 1, 2002 and ending December 31, 
2002, [T]the charge to be paid by a member that elects to report TRACE 
data to NASD via a TRACE web browser shall be as follows: for the first 
user ID registered, a charge of $85 per month; for the next two through 
nine user IDs registered, a charge of $75 per month, per such 
additional user ID; and for ten or more user IDs registered, a charge 
of $70 per month, per user ID from two to ten or more. If a member 
reports less than 25 trades per month to the TRACE system in October, 
November, or December 2002, the charge to be paid by a member for the 
TRACE web browser shall be $25, per such month, per user ID.
    (ii) For the period commencing January 1, 2003 and ending February 
28, 2003, the charge to be paid by a member that elects to report TRACE 
data to NASD via a TRACE web browser shall be as follows: $25 per 
month, per user ID for Level I Trade Report Only Web Browser Access and 
$85 per month, per user ID for Level II Full Service Web Browser 
Access.
    (iii) [In addition, a] A member that elects to report TRACE data to 
NASD [the Association] via a web browser over a secure PDN rather than 
over the Internet shall pay an additional administrative charge of $100 
per

[[Page 79207]]

month, per line.\5\ As of January 1, 2003, PDN service and the 
corresponding fee shall be eliminated.
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    \5\ Charges that may be imposed by third parties, such as 
network providers, are not included in these fees.
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(B) Computer-to-Computer Interface Access

    The charge to be paid by a member that elects to report TRACE data 
to NASD [the Association] via a CTCI line shall be $25 per month, per 
line, regardless of whether the line is or is not dedicated exclusively 
for TRACE.\6\
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    \6\ Charges that may be imposed by third parties, such as CTCI 
providers, are not included in these fees.
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(C) Third Party Access--Indirect Reporting

    A member may elect to report TRACE data indirectly to NASD [the 
Association] via third-party reporting intermediaries, such as vendors, 
service bureaus, clearing firms, or the National Securities Clearing 
Corporation (``NSCC''). The charge to be paid by a member shall be $25 
per month, per firm. Nothing in this Rule shall prevent such third-
party intermediaries from charging additional fees for their services.
    (2) Transaction Reporting Fees. For each transaction in corporate 
bonds that is reportable to NASD pursuant to the Rule 6200 Series, the 
following charges shall be assessed against the member responsible for 
reporting the transaction:

(A) Trade Reporting Fee

    (i) For the period commencing July 1, 2002 and ending December 31, 
2002, [A] a member shall be charged a Trade Reporting Fee based upon a 
sliding scale ranging from $0.50 to $2.50 per transaction based on the 
size of the reported transaction. Trades up to and including $200,000 
par value will be charged a $0.50 fee per trade; trades between 
$201,000 par value and $999,999 par value will be charged a fee of 
$0.0025 multiplied by the number of bonds traded per trade; and trades 
of $1,000,000 par value or more will be charged a fee of $2.50 per 
trade.
    (ii) For the period commencing January 1, 2003 and ending February 
28, 2003, a member shall be charged a Trade Reporting Fee based upon a 
sliding scale ranging from $0.475 to $2.375 per transaction based on 
the size of the reported transaction. Trades up to and including 
$200,000 par value will be charged a $0.475 fee per trade; trades 
between $201,000 par value and $999,999 par value will be charged a fee 
of $0.002375 multiplied by the number of bonds traded per trade; and 
trades of $1,000,000 par value or more will be charged a fee of $2.375 
per trade.

(B) Cancel or Correct Trade Fee

    For the period commencing July 1, 2002 and ending December 31, 
2002, [A] a member shall be charged a Cancel or Correct Trade Fee of 
$3.00 per canceled or corrected transaction. To provide firms with time 
to adjust to the new reporting system, the Cancel or Correct Trade Fee 
will not be charged until the later of October 1, 2002 or 90 days after 
the effective date of TRACE. For the month of October 2002, the Cancel 
or Correct Trade Fee shall be $1.50 per canceled or corrected 
transaction. For the month of November 2002, the Cancel or Correct 
Trade Fee shall be $2.25 per canceled or corrected transaction. For the 
period commencing January 1, 2003 and ending February 28, 2003, a 
member shall be charged a Cancel or Correct Trade Fee of $1.50 per 
canceled or corrected transaction.

(C) ``As of'' Trade Late Fee

    For the period commencing July 1, 2002 and ending December 31, 
2002, [A] a member shall be charged an ``As of'' Trade Late Fee of 
$3.00 per transaction for those transactions that are not timely 
reported ``As of'' as required by these rules. To provide firms with 
time to adjust to the new reporting system, the ``As of'' Trade Late 
Fee will not be charged until the later of October 1, 2002 or 90 days 
after the effective date of TRACE. For the month of October 2002, the 
``As of'' Trade Late Fee shall be $1.50 per such transaction. For the 
month of November 2002, the ``As of'' Trade Late Fee shall be $2.25 per 
such transaction. For the period commencing January 1, 2003 and ending 
February 28, 2003, a member shall be charged an ``As of'' Trade Late 
Fee of $3.00 per canceled or corrected transaction.

(D) Browse and Query Fee

    Members may review their own previously reported transaction data 
through a Browse and Query function. A member shall be charged $0.05 
for each returned page of the query beyond the first page.
    (3) Market Data Fees. Professionals and non-professionals may 
subscribe to receive real-time TRACE data disseminated by NASD [the 
Association] in one or more of the following ways for the charges 
specified. Members, vendors and other redistributors shall be required 
to execute appropriate agreements with NASD [the Association].

(A) Professional Fees

    Professionals may subscribe for the following:
    (i) Bond Trade Dissemination Service (``BTDS'') Professional 
Display Fee of $60 per month, per terminal charge for each 
interrogation or display device receiving real-time TRACE transaction 
data.
    (ii) BTDS Internal Usage Authorization Fee of $500 per month, per 
organization charge for internal dissemination of real-time TRACE 
transaction data used in one or more of the following ways: internal 
operational and processing systems, internal monitoring and 
surveillance systems, internal price validation, internal portfolio 
valuation services, internal analytical programs leading to purchase/
sale or other trading decisions, and other related activities.\7\
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    \7\ Under this service, real-time TRACE transaction data may not 
be used in any interrogation display devices, any systems that 
permit end users to determine individual transaction pricing in 
real-time, or disseminated to any external source.
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    (iii) BTDS External Usage Authorization Fee of $1,000 per month, 
per organization charge for dissemination of real-time TRACE 
transaction data used in one or more of the following ways: repackaging 
of market data for delivery and dissemination outside the organization, 
such as indices or other derivative products.\8\
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    \8\ Under this service, real-time TRACE transaction data may not 
be used in any interrogation display devices, any systems that 
permit end users to determine individual transaction pricing in 
real-time.
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(B) Non-Professional Fees

    The charge to be paid by a non-professional for each terminal 
receiving all or any portion of real-time TRACE transaction data 
disseminated through TRACE shall be $1.00 per month, per terminal.

(C) Non-Professional Defined

    A ``non-professional'' is a natural person who is neither:
    (i) registered nor 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; or
    (ii) engaged as an ``investment adviser'' as that term is defined 
in Section 202(a)(11) of the Investment Advisers Act of 1940 (whether 
or not registered or qualified under that Act);
    (iii) employed by a bank, insurance company or other organization 
exempt

[[Page 79208]]

from registration under federal or state securities laws to perform 
functions that would require registration or qualification if such 
functions were performed for an organization not so exempt; nor
    (iv) engaged in, or has the intention to engage in, any 
redistribution of all or any portion of the information disseminated 
through TRACE.
    (4) Daily List Fax Service. Each subscriber for NASD's [the 
Association's] Daily List Fax Service shall be charged $15 per month, 
per fax number/addressee. As of January 1, 2003, Daily List Fax service 
and the corresponding fee shall be eliminated.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD 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. NASD 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
    On July 1, 2002, the Trade Reporting and Compliance Engine (TRACE) 
became effective. On June 28, 2002, the Commission approved proposed 
NASD fees relating to the operation of the TRACE system (Rule 7010(k)) 
on a pilot basis for a six-month period expiring on December 28, 
2002.\9\ As part of that rule filing (Amendment No. 3 to SR-NASD-2002-
63), NASD committed to review and reassess the proposed TRACE fees as 
soon as practicable and within six months after the effective date of 
TRACE, based on such factors as actual volume, usage, costs, and 
revenues.
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    \9\ The Commission approved Rule 7010(k) relating to TRACE fees 
on June 28, 2002 on a six-month pilot basis. See Securities Exchange 
Act Release No. 46145 (June 28, 2002), 67 FR 44911 (July 5, 2002) 
(File No. SR-NASD-2002-63).
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    On November 15, 2002, NASD submitted a proposed rule change to the 
SEC to reduce certain TRACE fees for the fourth quarter of 2002 (i.e., 
the Web Browser Access Fee, the Cancel or Correct Fee, and the ``As 
of'' Trade Late Fee). These fees were reduced effective as of October 
1, 2002.\10\
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    \10\ See Securities Exchange Act Release No. 46893 (November 22, 
2002), 67 FR 72008 (December 3, 2002) (Notice of Filing and 
Immediate Effectiveness of SR-NASD-2002-167).
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    Review by NASD staff of the impact of the original fee structure 
indicates that a continuation of these fees in 2003 could potentially 
result in a significant financial burden to many firms. NASD is 
therefore proposing to extend the pilot program for TRACE fees to 
February 28, 2003 and to modify the pilot effective January 1, 2003. As 
a result of the proposed rule change, the current fee structure would 
remain in effect to December 31, 2002. NASD believes the proposed rule 
change will more equitably distribute the costs to participants of the 
TRACE system.
    The current TRACE fee structure is divided into three general 
categories: system related fees, transaction reporting fees, and market 
data fees. After carefully reviewing the data collected to date, NASD 
staff is proposing to revise the current fee structure for TRACE as 
described below.

Proposed Amendments to Web Browser Access Fees

    Under the TRACE rules, a member may report TRACE transaction data 
to NASD by one of three approved methods: (1) Web browser access; (2) 
direct computer-to-computer interface (``CTCI''); or (3) indirectly 
through third-parties, such as vendors, service bureaus, clearing 
firms, or the National Securities Clearing Corporation. Many small 
participants have registered to report TRACE transaction data to NASD 
through the web browser because the alternative methods are either not 
cost effective for them or not viable for their methods of processing 
data.
    Following the effective date of TRACE, NASD staff received 
complaints from certain small firms regarding the burden of paying the 
Web Browser Access Fee. These firms complained that the small number of 
TRACE transactions that they handle and, therefore, are required to 
report on a monthly basis are not in line with the $85 per month cost 
for one web browser.
    The current Web Browser Access Fee for each registered participant 
is: $85 per month for the first user ID; $75 per month for the second 
through ninth user ID; and $70 per month for the second through tenth 
or more user ID, if the participant registers ten or more user IDs. For 
the fourth quarter of 2002, the Web Browser Access Fee was reduced to 
$25 per month, per user ID for participants that reported less than 25 
transactions during the months of October, November, and December 2002. 
The current web browser permits the reporting of transactions into the 
TRACE system, and, through the use of a query feature, allows 
participants access to TRACE transactions and real-time TRACE market 
data. At the time this service was established (and the fees 
determined), NASD did not have the capability to separate the real-time 
market data access feature from the web browser. As a result, the 
current web browser access fees were largely established based on the 
cost of including the real-time market data access feature to 
participants that elected to report TRACE transactions through the web 
browser.
    Since that time, NASD staff has developed the capability to 
separate real-time market data access feature from the web browser. 
Commencing January 1, 2003, NASD is proposing that the Web Browser 
Access Fee be divided into two service levels--Level I with no access 
to real-time TRACE data, and Level II with access to real-time TRACE 
data.
    A participant who registers for Level II Full Service Web Browser 
Access will be able to report TRACE data to NASD over the Internet and 
to use a query feature to receive real-time TRACE transaction data. 
Level II Full Service Web Browser Access Fee will be $85 per month, per 
user ID and will replace the current graduated fee structure. A 
participant who registers for Level I Trade Report Only Web Browser 
Access will be able to report TRACE data to NASD over the Internet. 
Level I access will not allow a participant to receive real-time TRACE 
transaction data. The proposed fee for Level I Trade Report Only Web 
Browser Access is $25 per month, per user ID. A participant may 
subscribe for a combination of Level I and Level II service based on 
usage and need.
    The charge for the Level II Full Service Web Browser Access 
includes the cost of developing and providing real-time TRACE data 
access through the web browser. In addition, NASD is proposing to 
eliminate the multi-browser discount. While this may result in a small 
increase in costs for firms that use multiple copies of the browser 
with market data access, NASD staff believes the flat fee treats all 
firms equitably and may allow firms to achieve overall cost savings by 
subscribing to Level I Trade Report Only Web Browser Access, instead of 
Level II Full Service Web Browser Access, for those users who do not 
require real-time TRACE data access.

[[Page 79209]]

Proposed Amendments to Trade Reporting Fees

    The current Trade Reporting Fees are based on a sliding scale that 
ranges from $0.50 to $2.50 per transaction based on the size of the 
reported transaction. Trades up to and including $200,000 par value are 
charged a $0.50 fee per trade; trades between $201,000 par value and 
$999,999 par value are charged a fee of $0.0025 multiplied by the 
number of bonds traded; and trades of $1,000,000 par value or more are 
charged a fee of $2.50 per trade.
    Following the operation of TRACE, NASD staff has been collecting 
data on trade reporting fees incurred by participants. The revenues 
generated by this fee have been higher than originally forecasted. As a 
result, NASD is proposing that trade reporting fees be reduced by 5% 
for 2003. The Trade Reporting Fee will continue to be based on a 
sliding scale, but the range will be from $0.475 to $2.375 per 
transaction based on the size of the reported transaction. Trades up to 
and including $200,000 par value will be charged a $0.475 fee per 
trade; trades between $201,000 par value and $999,999 par value will be 
charged a fee of $0.002375 multiplied by the number of bonds traded, 
and trades of $1,000,000 par value or more will be charged a fee of 
$2.375 per trade.

Proposed Amendments to Cancel or Correct Fees

    Cancel, correct, and ``As of'' transactions are used by 
participants to modify original trade entries. While a certain level of 
corrective transactions will always be necessary, NASD staff believes 
it is very important that trades be entered into the system correctly 
the first time to ensure that data disseminated through the TRACE 
system is accurate and to allow investors to rely on the data stream 
they receive. Further, the volume of corrective transactions will 
increase NASD's technology costs.
    In the original fee proposal, NASD delayed the effectiveness of the 
Cancel or Correct Fee and the ``As of'' Late Fee to October 1, 2002. 
Based on NASD staff review of the data collected on such fees after the 
first three months of TRACE operation, on November 15, 2002, NASD 
submitted a proposed rule change to the SEC to phase in the 
implementation of the two fees during the last quarter of 2002 to allow 
participants greater time to adjust to the new system and focus on 
methods to reduce the likelihood of incurring such fees.\11\
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    \11\ Id.
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    The original charge for the Cancel or Correct Fee and the ``As of'' 
Late Fee was $3.00 for each such reported trade. For the month of 
October 2002, the Cancel or Correct Fee and the ``As of'' Late Fee 
charge assessed to each participant were reduced from $3.00 per trade 
to $1.50 per trade (a 50% discount), and for the month of November 
2002, the Cancel or Correct Fee and the ``As of'' Late Fee were reduced 
from $3.00 per trade to $2.25 per trade (a 25% discount).
    Based on further NASD staff analysis, the number of cancel and 
correct transactions submitted continues to be high. NASD staff has 
been contacting participants to review their systems and reporting 
methodologies to reduce erroneous reporting by participants. NASD staff 
still believes that over time the number of corrective transactions 
submitted to the system will decline. However, NASD believes that fees 
for corrective transactions are necessary to discourage erroneous 
reporting and to improve the integrity of disseminated data. Therefore, 
NASD is proposing that the Cancel or Correct Fee be reduced from $3.00 
to $1.50 effective January 1, 2003. The ``As of'' Trade Late Fee will 
remain at $3.00 per trade.

Proposed Amendment to Eliminate PDN Administrative Fee

    In the original fee proposal, NASD had provided users the option of 
reporting TRACE data through the web browser over a secure private data 
network rather than over the Internet. The cost of this additional 
service is $100 per month, per line. No users have subscribed to this 
service and, as a result, NASD is proposing that this service and the 
corresponding fee be eliminated effective January 1, 2003.

Proposed Amendment to Eliminate Daily List Fax Service

    In the original fee proposal, NASD had provided for a daily list 
fax service that would provide subscribers with daily additions, 
deletions, and modifications to the list of TRACE-eligible securities. 
The charge for this service is $15 per month, per fax number/addressee. 
To date, one user has subscribed for this service and it is not cost 
effective for NASD to continue providing the service. As a result, NASD 
is proposing that this service and the corresponding fee be eliminated 
effective January 1, 2003.

Extension and/or Renewal of Pilot Program for TRACE Fees

    NASD is proposing to extend and/or renew the pilot program for 
TRACE fees that is scheduled to expire on December 28, 2002 to expire 
on February 28, 2003. Further, NASD expects to submit a rule filing to 
the SEC prior to the February 28, 2003 expiration date seeking approval 
of a permanent fee structure for TRACE. NASD believes that the proposed 
fee structure for TRACE is reasonable, however, NASD is committed to an 
ongoing review and reassessment of TRACE fees during 2003. Based on 
data collected during 2003, NASD expects to recommend additional 
changes to the TRACE fee structure to ensure that the TRACE fees are 
reasonable.
    NASD will continue to review and reassess the impact of the overall 
TRACE fee structure over time to ensure that the fees are reasonable 
and equitable for participants in the TRACE system.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\12\ which requires, among 
other things, that NASD's rules 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 NASD operates or 
controls. NASD is proposing to extend the pilot program for TRACE fees 
to February 28, 2003 and to modify the pilot effective January 1, 2003. 
As a result of the proposed rule change, the current fee structure 
would remain in effect to December 31, 2002. NASD believes that such 
proposed rule change will more equitably allocate fees to NASD members 
during the early stages of implementing TRACE.
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    \12\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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.

[[Page 79210]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change is effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \13\ and Rule 19b-4(f)(2) thereunder,\14\ 
because the proposal is ``establishing or changing a due, fee, or other 
charge.'' The rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(2) thereunder, and will be 
operational immediately as of the dates described in the proposed rule 
change. The proposed rule change to replace references to ``the 
Association'' with ``NASD'' is effective immediately pursuant to 
Section 19(b)(3)(A)(iii),\15\ as it is concerned solely with the 
administration of the self-regulatory organization.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR Sec.  240.19b-4(f)(2).
    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
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    At any time within 60 days of this filing, the Commission may 
summarily abrogate this proposal 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 NASD. All submissions 
should refer to file number SR-NASD-2002-176 and should be submitted by 
January 17, 2003.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-32734 Filed 12-26-02; 8:45 am]
BILLING CODE 8010-01-P