[Federal Register Volume 68, Number 17 (Monday, January 27, 2003)]
[Notices]
[Pages 3912-3915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1703]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47210; File No. SR-NASD-2003-02]


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 Period for Nasdaq PostData 
and the Fees Assessed Under NASD Rule 7010(s)

January 17, 2003.
    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 January 9, 2003, 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 (``Commission'') the proposed rule change as described in 
items I, II and III below, which items have been prepared by Nasdaq. 
Nasdaq filed the proposal pursuant to section 19(b)(3)(A) of the 
Act,\3\ and rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ 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).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The NASD provided the Commission with notice of its intent 
to file the proposed rule change on December 30, 2002. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). Nasdaq asked the 
Commission waive the 30-day operative delay.

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[[Page 3913]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to extend through February 28, 2003, the pilot 
period for Nasdaq PostData and the associated fees assessed under NASD 
rule 7010(s). In addition, Nasdaq proposes certain enhancements to 
PostData that will be available to direct and indirect users of 
PostData at no additional charge on a non-discriminatory basis. The 
text of the proposed rule change is below. Proposed additions are in 
italics; proposed deletions are in brackets.
Rule 7010 System Services.
    (a)-(r) No changes.
    (s) NasdaqTrader.com Volume and Issue Data Package Fee.
    The charge to be paid by the subscriber for each entitled user 
receiving the Nasdaq Volume and Issue Data Package via NasdaqTrader.com 
shall be $70 per month. The charge to be paid by market data vendors 
for this information shall be $35 per month for each end user receiving 
the information through the data vendor. The availability of this 
service through NasdaqTrader.com shall be limited to NASD members, 
Qualified Institutional Buyers[*] (as defined in rule 144A of the 
Securities Act of 1933) and data vendors. The Volume and Issue Data 
package includes:

(1) Daily Share Volume reports.
(2) Daily Issue Data.
(3) Monthly Volume Summaries.
(4) Buy Volume Report.
(5) Sell Volume Report.
(6) Crossed Volume Report.
(7) Consolidated Activity Volume Report.
[* For purposes of this rule, see definition of ``Qualified 
Institutional Buyer'' found in Section 144A of the Securities Act of 
1933.]
* * * * *

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 its proposal and discussed any 
comments it received regarding the proposal. 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
    On January 11, 2002, the Commission approved, as a 12-month pilot, 
the creation of Nasdaq PostData, a voluntary trading data distribution 
facility, accessible to NASD members, buy-side institutions and market 
data vendors through the NasdaqTrader.com Website.\6\ PostData was 
launched on March 18, 2002. Nasdaq hereby proposes to extend the pilot 
period for PostData through February 28, 2003. Nasdaq also proposes to 
enhance PostData as described below.
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    \6\ See Securities Exchange Act Release No. 45270 (January 11, 
2002), 67 FR 2712 (January 18, 2002)(SR-NASD-99-12).
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    Background. PostData originally consisted of three reports provided 
in a single package: (1) Daily Share Volume Report, which provides 
subscribers with T+1 daily share volume in each Nasdaq security, 
listing the volume by any NASD member firm that voluntarily permits the 
dissemination of this information; (2) Daily Issue Data, which contains 
a summary of the previous day's activity for every Nasdaq issue; and 
(3) Monthly Summaries, which provides monthly trading volume statistics 
for the top 50 market participants sorted by industry sector, security, 
or type of trading (e.g., block or total).
    On August 5, 2002, Nasdaq expanded the information made available 
to PostData subscribers to include four additional reports: Buy Volume 
Report, Sell Volume Report, Crossed Volume Report, and Consolidated 
Activity Volume Report.\7\ Each report offers information regarding 
total Nasdaq reported buy (or sell, or cross, or consolidated) volume 
in the security, as well as rankings of registered market maker based 
upon various aspects of their activity in Nasdaq. The reports also 
provide recipients with information about the number and character of 
each market maker's trades. Finally, the reports provide the 
information described above with respect to block volume, be it buy, 
sell, cross or consolidated interest.
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    \7\ See Securities Exchange Act Release No. 46316 (August 8, 
2002), 67 FR 52504 (August 12, 2002) (SR-NASD-2002-90).
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    Extension of the Pilot. Nasdaq proposes to extend the PostData 
pilot through February 28, 2003, subject only to the enhancements 
proposed below. The pilot has been effective, but adoption was slower 
than expected. For a variety of reasons, more time was required than 
originally anticipated to recruit sell-side firms to sign on to 
PostData to provide the critical mass of data necessary to have a 
product to sell to those subscribers (buy-side firms or institutional 
investors) interested in viewing the data. Nasdaq believes that 
adoption was slow because:
    [sbull] Volume is attributed to the firm that has the reporting 
obligation based on ACT rules. This is also the methodology for the 
monthly share volume reports offered on Nasdaq Web sites 
(NasdaqTrader.com and NasdaqOn-Line.com). Sell-side firms wanted to get 
credit for volume regardless of whether they were the reporting party 
or not in a trade.
    [sbull] In the time since PostData was initially developed, the 
industry has moved to more commission-based or agency (riskless 
principal) trading. Firms that conduct predominantly more riskless 
principal trading with other sell-side firms are not well represented 
in PostData because in riskless principal trading only one leg of the 
transaction (the transaction with sell-side firm or market maker) is 
reported in ACT and in many cases these firms are not the reporting 
party.
    [sbull] PostData's value and benefits were not well understood by 
firms, especially with firms' attention directed to other Nasdaq 
initiatives.
    Nasdaq addressed the first two issues by enhancing PostData in 
August 2002 to include volume attributed to both parties of a trade 
(reporting and the contra-party) and identification of the volume as 
being buy, sell or cross. These additional data sets addressed the 
issue of which party gets the volume credit and display some volume for 
firms that primarily engage in ``riskless principal'' trading. These 
enhancements resulted in seven additional sell-side firms participating 
in PostData by the end of August.
    Therefore, at this time, Nasdaq is unable to effectively study the 
fees assessed for PostData, as initially requested in the order 
approving PostData.\8\ As demonstrated below, growth in the PostData 
subscriber base was slower than anticipated. It was not until September 
2002 that the number of subscribing firms first exceeded 25. Currently, 
there are 33 subscribing firms paying for PostData, and of those, most 
are also firms that post their data. This sample is too small to draw 
any meaningful conclusions about the price of the product. In addition, 
there is no data with respect to indirect subscribers because to date 
there are no vendors

[[Page 3914]]

purchasing PostData for redistribution to their subscribers.
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    \8\ See footnote 6, supra.

            PostData Subscribers From March to December 2002
------------------------------------------------------------------------
                                                 Number of
                                                 sell-side    Number of
                     Month                         firms        firms
                                                  posting    subscribing
                                                 their data  to postdata
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March.........................................            3            9
April.........................................            5           12
May...........................................            7           14
June..........................................           10           15
July..........................................           12           17
August........................................           19           24
September.....................................           22           26
October.......................................           25           30
November......................................           28           31
December......................................           30           33
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    Nasdaq was able to start marketing PostData to potential 
subscribers such as buy-side firms and data vendors this past fall. It 
is from these marketing efforts that additional feedback was received 
such as whether more data can be provided. Nasdaq believes that these 
actions will increase the likelihood of attracting a meaningful number 
of subscribers sooner rather than later. It is difficult to predict 
when that will occur, but Nasdaq represents that it will update the 
staff regularly, and it will provide a full analysis of the fees as 
quickly as possible.
    Proposed Enhancements. Based on feedback provided by potential 
subscribers, Nasdaq proposes to make the following data elements 
available to PostData subscribers at no additional charge:
    [sbull] Daily share volume for all market participants per Nasdaq 
security on a T+10 basis including the ACT Reported, Buy, Sell, Crossed 
and Total Activity reports.
    [sbull] Daily share volume aggregates for all market participants 
per Nasdaq index on a T+10 basis including the ACT Reported, Buy, Sell, 
Crossed and Total Activity reports.
    Monthly share volume of all market participants on a per security 
basis has been available to Nasdaq broker-dealers for several years. 
Initially, the data was provided via computer diskettes sent to the 
head of Nasdaq trading at firms. Since October 1997, this data has been 
disseminated on the NasdaqTrader.com web site without charge. The 
monthly volume reports attribute volume to the reporting party of 
media-disseminated trades (trades reported to the ``tape''). Monthly 
data is available about 10 business days after the end of the previous 
month. The web site provides monthly, quarterly and year-to-date volume 
aggregates for up to 12 calendar months.
    Subscribers and potential subscribers to PostData have requested 
the ability to access share volume information in customized timeframes 
outside of the daily and monthly information that is made available in 
PostData and the public part of NasdaqTrader.com. For example, a 
customer may track their firm's share volume activity in securities 
that they begin to perform research analysis for, or have raised 
capital in a public offering. Most often, these events do not begin at 
the beginning of a month. Therefore, they would like to be able to 
request data from customized timeframes (e.g., February 15 to March 
15). The daily and monthly reports in PostData do not currently meet 
this customer base needs.
    Additionally, some market participants, primarily buy-side firms, 
have requested to view all market participant data on a T+1 basis and 
not just those sell-side firms that voluntarily choose to post their 
data. Other participants, primarily sell-side firms, have expressed 
concerns that T+1 data would reveal their trading positions. Those 
firms have not, however, expressed concern about revealing all market 
participants' volume information on a T+10 basis because the 10-day 
delay prevents the disclosure of meaningful information about firms' 
current positions. Therefore, the proposal appropriately balances the 
needs and concerns of each customer group and the public interest. As 
more time passes, the sensitivity of a specific day's volume of a 
market participant decreases. Ten business days is an appropriate 
timeframe when the daily volume information of all market participants 
can be made available either on a per security basis or by a Nasdaq 
index for example.
    Nasdaq proposes to make this information available to all PostData 
subscribers at no additional charge on a non-discriminatory basis. In 
its original proposal to create PostData, Nasdaq represented that it 
would make product enhancements available on an equal basis to all 
users of the proposed products, whether customers of Nasdaq or of a 
participating data vendor. Specifically, if Nasdaq offers a free 
product enhancement during the pilot program, it will be free to all 
direct and indirect users,\9\ and that such modifications to PostData 
during the pilot period would be limited to minor enhancements to the 
content of the package. Nasdaq believes that this rule proposal meets 
those requirements. In accordance with the conditions of approval of 
Nasdaq PostData, Nasdaq represents that the PostData modifications 
described in this proposed rule change will be made available at no 
charge to all vendors and direct subscribers of Nasdaq. Nasdaq also 
represents that it has made modification information available to 
market data vendors generally, but that no vendors are currently 
accepting the PostData data or redistributing that data to subscribers.
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    \9\ Nasdaq also represented that it would seek Commission 
approval of any fees to be assessed for such enhancements. Nasdaq 
notes that this rule filing is properly made immediately effective 
because Nasdaq is not proposing to assess an additional fee for the 
enhancements proposed herein.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5)\10\ and 15A(b)(6) of the Act.\11\ 
Section 15A(b)(5) requires the equitable allocation of reasonable dues, 
fees and other charges among members and other users of facilities 
operated or controlled by a national securities association. 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 this program involves 
a reasonable fee assessed only to users and other persons utilizing the 
system, and will provide useful information to all direct and indirect 
subscribers on a non-discriminatory basis.
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    \10\ 15 U.S.C. 78o-3(b)(5).
    \11\ 15 U.S.C. 78o-3(b)(6).
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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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Nasdaq neither solicited nor received written comments with respect 
to the proposed rule change.

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

    Because the foregoing proposed rule change does not:

[[Page 3915]]

    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \12\ and 
rule 19b-4(f)(6) thereunder.\13\ At any time within 60 days of the 
filing of the 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the 30-day operative 
delay. The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Acceleration of the operative date will allow Nasdaq to operate the 
PostData pilot program without interruption through February 28, 2003. 
For these reasons, the Commission designates the proposal to be 
effective and operative upon filing with the Commission.\14\
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    \14\ 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 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 the NASD. All 
submissions should refer to file number SR-NASD-2003-02 and should be 
submitted by February 18, 2003.

    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. 03-1703 Filed 1-24-03; 8:45 am]
BILLING CODE 8010-01-P