[Federal Register Volume 68, Number 31 (Friday, February 14, 2003)]
[Notices]
[Pages 7635-7638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3714]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47331; File No. SR-NASD-2003-09]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Fees Applicable to the NASD 
Alternative Display Facility

February 10, 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 30, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the NASD. 
NASD has designated the proposed rule change as one that establishes or 
changes a due, fee or other charge imposed by NASD pursuant to

[[Page 7636]]

paragraph (f)(2) of Rule 19b-4 under the Act,\3\ which renders the 
proposal effective upon receipt of this filing by 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\ 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 the NASD Rule 7000A Series to designate 
transaction and quotation related fees applicable to activities in the 
NASD's Alternative Display Facility (``ADF''). The text of the proposed 
rule change is set forth below. Proposed new language is in italics; 
proposed deletions are in brackets.
* * * * *

7000A. Charges for ADF Services and Equipment

7010A. System Services

    (a) Trade Reporting and Comparison [and Reporting] Service
    The following charges shall be paid by ADF participants for use of 
the Trade Reporting and Comparison [and Reporting] Service (TRACS):
    Transaction Related Charges:
    Comparison $0.014/side per 100 shares (minimum 400 shares; maximum 
7,500 shares)
    Automated Give-Up $0.029/side (if the associated publicly 
disseminated trade is not reported to the media through the ADF)
    Qualified Special Representative $0.029/side (if the associated 
publicly disseminated trade is not reported to the media through the 
ADF)
    Late Report--T+N $0.30/side unless the trade is executed outside 
normal ADF operating hours of 8:00 a.m. to 6:30 p.m. and the member's 
average publicly disseminated trades reported to the media through the 
ADF per day during the billing period is 150,000 or greater
    [Browse/query $0.28/query*]
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    [* Each TRACS query incurs the $0.28 fee; however, the first 
accept or decline processed for a transaction is free, to insure 
that no more than $0.28 is charged per comparison. Subsequent 
queries for more data on the same security will also be processed 
free. Any subsequent query on a different security will incur the 
$0.28 query charge.]
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    [Trade Reporting $.029/side (applicable only to reportable 
transaction not subject to trade comparison through TRACS) **]
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    [** The trade reporting service charge is applicable to those 
trades input into TRACS for reporting purposes only, such as NSCC 
Qualified Special Representative reports and reports of internalized 
transactions.]
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    Corrective Transaction Charge $0.25/ Break, Decline, Reversal 
transaction, paid by each party
(b) Quotation Updates
    The following quotation update charges will apply based on the 
average daily number of publicly disseminated trades reported to the 
media through the ADF during the billing period. [A member will be 
charged $0.01 per quotation update in the ADF quotation montage on 
those quotation updates that exceed three times the number of 
transactions reported to the ADF by the member.] A ``quotation update'' 
includes any change to the price or size of a displayed quotation. 
[This charge will be determined on a monthly basis.]

------------------------------------------------------------------------
                                                        Quotes update
   Average trades reported      Quotation update       provided at no
   through the ADF per day           charge                charge
------------------------------------------------------------------------
Less than 1.................  $.02 per quotation    None.
                               update.
Between 1 and 100,000.......  $.01 per quotation    5 quotation updates
                               update.               per trade.
Between 100,001 and 150,000.  $.01 per 10           10 quotation updates
                               quotation update.     per trade.
Greater than 150,000........  No Charge...........  N/A
------------------------------------------------------------------------

[(c) Volume Discounts on Transaction and Quotation Fees
    During the initial six months of operation of the ADF, except as 
provided in paragraph (d) below, transaction fees incurred pursuant to 
paragraph (a) above, except the browse/query fee, and quotation update 
fees incurred pursuant to paragraph (b) above will be discounted on the 
following incremental basis:]

------------------------------------------------------------------------
                              Chargeable quotation
      Trades per month          updates per month         Discount
------------------------------------------------------------------------
Up to 2,000.................  Up to 8,000.........  0%
2,001 to 4,000..............  8,001 to 15,000.....  10%
4,001 to 6,000..............  15,001 to 25,000....  25%
6,001 to 8,000..............  25,001 to 35,000....  35%
8,001 or greater............  35,001 or greater...  50%]
------------------------------------------------------------------------

[(d) Limited Period Without Transaction and Quotation Charges]
    [During the initial six months of operation of the ADF, members 
will not be charged for transaction fees incurred pursuant to paragraph 
(a) above and the quotation fees incurred pursuant to paragraph (b) 
above for up to a three-month period. The three-month ``no 
transaction'' fee period begins on the first day on which a member has 
incurred charges under paragraph (a) or paragraph (b) above, and will 
continue until the earlier of three months or the end of the six-month 
period.]
* * * * *

7040A. Installation, Removal, Relocation or Maintenance

    ADF subscribers shall pay a minimum charge of $5,000 for 
installation costs associated with connecting to the ADF. Upon 
installation, removal, relocation or maintenance of terminal and 
related equipment, or combination thereof, the subscriber shall pay 
charges incurred by NASD or its subsidiaries above the $5,000 minimum, 
on behalf of the subscriber for the work being performed by the 
maintenance organization retained by NASD or its subsidiaries. Upon 
payment of $5,000 under this provision, members will receive a credit 
of up to $5,000 to be used toward [their trade reporting and 
comparison] charges imposed under Rule 7010A(a) and (b).
* * * * *

[[Page 7637]]

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

    In its filing with the Commission, the 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. The 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 24, 2002, the Commission approved SR-NASD-2002-97,\4\ which 
authorizes NASD to operate the ADF on a pilot basis for nine months, 
pending the anticipated approval of SR-NASD-2001-90,\5\ which proposes 
to operate the ADF on a permanent basis. As described in detail in SR-
NASD-2001-90, the ADF is a quotation collection, trade comparison, and 
trade reporting facility developed by NASD in accordance with the 
Commission's SuperMontage Approval Order \6\ and in conjunction with 
Nasdaq's anticipated registration as a national securities exchange.\7\
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    \4\ Securities Exchange Act Release No. 46249 (July 24, 2002), 
67 FR 49822 (July 31, 2002).
    \5\ Securities Exchange Act Release No. 45991 (May 28, 2002), 67 
FR 39476 (June 7, 2002).
    \6\ Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001) (File No. SR-NASD-99-53).
    \7\ Securities Exchange Act Release No. 44396 (June 7, 2001), 66 
FR 31952 (June 13, 2001) (File No. 10-131).
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    For the duration of the pilot period, ADF will provide ADF market 
participants (market makers and ECNs) the ability to post quotations in 
Nasdaq securities and will provide all members that participate in the 
ADF the ability to view quotations and report transactions in Nasdaq 
securities to the Exclusive Securities Information Processor (``SIP'') 
for Nasdaq-listed issues for consolidation and dissemination of data to 
vendors and ADF market participants. The facility also will provide for 
trade comparison through the Trade Reporting and Comparison Service 
(``TRACS''). This mechanism operates similarly to the trade reporting 
functions of Nasdaq's Automated Confirmation Transactions Service 
(``ACT'').\8\
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    \8\ TRACS does not perform risk management services that are 
provided by Nasdaq's ACT.
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    In SR-NASD-2002-97, NASD proposed the Rule 7000A Series, which 
provides the fee structure applicable to quotation and transaction-
related activities through the ADF. Pursuant to that fee structure, 
NASD has not been charging ADF participants for transaction and 
quotation update fees (Rules 7010A(a) and (b), respectively) for a 
period of up to three months during the initial six months of operation 
of the ADF (from July 29, 2002 to January 29, 2003). Also during the 
first six-months of the ADF's operation, but subsequent to the three-
month ``no charge'' period, ADF participants are eligible for certain 
volume discounts to make the overall cost of trade reporting and 
quoting through the ADF more attractive to higher volume users.
    Given that the six-month ``no charge/volume discount'' fee 
structure is scheduled to end on January 29, 2003, NASD staff has been 
reviewing the ADF fee structure and now is proposing a new fee 
structure to commence on February 17, 2003. Specifically, NASD is 
proposing to eliminate trade reporting fees, browse/query and Automated 
Give-Up (``AGU'')/NSCC Qualified Special Representative (``QSR'') 
comparison charges (provided that the associated publicly disseminated 
trade is reported to the media through the ADF). With respect to ``as 
of'' trades, NASD is proposing to continue to charge $0.30/side unless 
the ``as of'' trade is executed outside normal ADF operating hours of 
8:00 a.m. to 6:30 p.m. and the member's daily average of publicly 
disseminated trades reported to the media through the ADF during the 
billing period is 150,000 or greater. NASD will continue to charge for 
corrective transactions. As a result, only the following TRACS-related 
fees will continue to apply: Comparison Fee of $0.014/side per 100 
shares (minimum 400 shares; maximum 7,500 shares); Late Report--T+N fee 
of $0.30/side under the circumstances noted above; and Corrective 
Transaction Charge \9\ of $0.25, paid by each party. AGU/QSR comparison 
charges of $0.029/side would apply only if the associated trade is not 
reported to the ADF.
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    \9\ NASD also is proposing to add ``Reversals'' to the types of 
corrective transactions under Rule 7010A(a). Reversals are trade 
corrections made T+N.
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    With respect to quotation activities, quotation update charges \10\ 
would vary depending on the number of publicly disseminated trades 
reported to the media through the ADF during normal ADF processing 
hours of 8:00 a.m. to 6:30 p.m. Specifically, quotation update charges 
would apply based on the average number of publicly disseminated trades 
reported to the media through the ADF per day during the billing 
period. If an ADF market participant's average trades reported to the 
media through the ADF per day during the billing period is less than 
one, the quotation charge applicable to that ADF market participant 
would be $.02 per quotation update. Similarly, if an ADF market 
participant's average trades reported to the media through the ADF per 
day is between one and 150,000, the quotation charge applicable to that 
ADF market participant would be $.01 per quotation update. Finally, if 
an ADF market participant's average trades reported to the media 
through the ADF per day during the billing period is greater than 
150,000, no quotation update charges would apply.
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    \10\ A ``quotation update'' includes any change to the price or 
size of a displayed quotation.
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    The proposed fee structure also would provide for a certain number 
of quotation updates at no charge based on the average number of 
publicly disseminated trades reported to the media through the ADF per 
day during the billing period. Specifically, if an ADF Market 
Participant averages between one and 100,000 trades reported through 
the ADF per day, the market participant would receive five free quotes 
per trade during that billing period. If a market participant averages 
between 100,001 and 150,000 trades reported to the media through the 
ADF per day, it would receive 10 free quotes per trade during that 
billing period.
    By imposing quotation fees based on the number of publicly 
disseminated trades reported to the media through the ADF, this fee 
structure will fairly impose costs on those members whose quotation 
activity creates system capacity demands, and therefore costs that are 
not covered by the revenue received from trades reported to the media 
through the ADF.
    Members currently are charged a minimum of $5,000 for installation 
costs associated with connecting to the ADF. The ADF, however, provides 
market participants with a credit of up to $5,000 toward their trade 
reporting and comparison charges. Given the revised fee structure, NASD 
is proposing to amend Rule 7040A to permit the $5,000 credit to be used 
toward any of the fees imposed under Rule 7010A(a) or (b), including 
quotation fees.
    Finally, for administrative ease, NASD also is proposing to extend 
the current ``no charge'' period until February 14, 2003 and have the 
fee changes described herein commence February 17, 2003. As a result, 
ADF participants will continue not to be

[[Page 7638]]

charged for transaction and quotation update fees under Rules 7010A(a) 
and (b), respectively until February 17, 2003.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that NASD rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. NASD believes that the proposed rule change will 
provide a cost effective and efficient mechanism to quote and report 
trades on the ADF. The proposed rule change also is consistent with 
Section 15A(b)(5) of the Act \12\ 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 that NASD 
operates or controls. NASD believes that this fee structure is a 
reasonable means for the NASD to recover the development costs of the 
ADF, as well as meet ongoing operating costs.
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    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The 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.

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

    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 \13\ and Rule 19b-4(f)(2) thereunder,\14\ which renders the 
proposal effective upon receipt of this filing by the Commission. 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.
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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 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 the filing will also be available for 
inspection and copying at the principal office of the NASD. All 
submissions should refer to the File No. SR-NASD-2003-09 and should be 
submitted by March 7, 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. 03-3714 Filed 2-13-03; 8:45 am]
BILLING CODE 8010-01-P