[Federal Register Volume 67, Number 250 (Monday, December 30, 2002)]
[Notices]
[Page 79676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32919]



[[Page 79676]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47077; File No. SR-NASD-2002-115]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc. Regarding an Amendment to Nasdaq's Transaction Credit Program for 
Exchange-Listed Securities to Allocate Credits to Liquidity Providers

December 20, 2002.
    On August 19, 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''), 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 modify Nasdaq's transaction credit program for 
exchange-listed securities \3\ to allocate credits to liquidity 
providers. The proposed rule change was published for notice and 
comment in the Federal Register on November 19, 2002.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Nasdaq's transaction credit program for exchange-listed 
securities was a pilot at the time Nasdaq filed the instant proposed 
rule change. The program is now permanent. See Securities Exchange 
Act Release No. 46938 (December 3, 2002), 67 FR 72993 (December 10, 
2002) (SR-NASD-2002-149) (approving proposal to make permanent 
Nasdaq's transaction credit pilot program for exchange-listed 
securities, and to increase the percentage of revenue available for 
distribution from 40% to 50%).
    \4\ See Securities Exchange Act Release No. 46806 (November 8, 
2002), 67 FR 69780.
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    The Commission received one comment on the proposed rule change.\5\ 
This order approves the proposed rule change.
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    \5\ See December 10, 2002 letter from Darla C. Stuckey, 
Corporate Secretary, New York Stock Exchange, Inc. (``NYSE'') to 
Jonathan G. Katz, Secretary, Commission (``NYSE Letter''). The NYSE 
Letter does not specifically address the instant proposed rule 
change, but instead expresses the NYSE's general opposition to 
market data revenue sharing programs. Therefore, the Commission has 
not included a detailed summary of comments in this order. The NYSE 
Letter is available at the Commission. The Commission did not ask 
Nasdaq to respond to the NYSE Letter.
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    As set forth in its July 2, 2002 Order of Summary Abrogation 
(``Abrogation Order''),\6\ the Commission will continue to examine the 
issues surrounding market data fees, the distribution of market data 
rebates, and the impact of market data revenue sharing programs on both 
the accuracy of market data and on the regulatory functions of self-
regulatory organizations. In the interim, the Commission believes it is 
reasonable to allow Nasdaq to amend its transaction credit program for 
exchange-listed securities to allocate credits to liquidity providers. 
To the extent that the Abrogation Order was prompted by evidence that 
entities were engaging in conduct with no economic benefit other than 
to capture market data fees, Nasdaq's proposal to allocate credits to 
liquidity providers may remove some of the incentives for engaging in 
such behavior.
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    \6\ Securities Exchange Act Release No. 46159 (July 2, 2002), 67 
FR 45775 (July 10, 2002) (File Nos. SR-NASD-2002-61, SR-NASD-2002-
68, SR-CSE-2002-06, and SR-PCX-2002-37) (Order of Summary 
Abrogation).
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    The Commission has reviewed carefully the proposed rule change and 
the comment letter, and finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association 
\7\ and, in particular, the requirements of Section 15A of the Act.\8\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(5) of the Act \9\ which requires the 
rules of a national securities association to 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.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(5).
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    The decision to allow Nasdaq to make these adjustments to its 
transaction credit program for exchange-listed securities, however, is 
narrowly drawn, and should not be construed as resolving the issues 
raised in the Abrogation Order, and does not suggest what, if any, 
future actions the Commission may take with regard to market data 
revenue sharing programs.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NASD-2002-115) be, and it 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-32919 Filed 12-27-02; 8:45 am]
BILLING CODE 8010-01-P