[Federal Register Volume 68, Number 54 (Thursday, March 20, 2003)]
[Notices]
[Pages 13745-13747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6657]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47503; File No. SR-NASD-2003-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Extend for One Month the Pilot Period for 
Nasdaq PostData and the Associated Fees Assessed Under NASD Rule 
7010(s)

March 14, 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 March 7, 2003, 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 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\ Nasdaq asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. 17 CFR 240.19b-
4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to reestablish and extend through March 31, 2003, the 
pilot period for Nasdaq PostData and the associated fees assessed under 
NASD rule 7010(s). Nasdaq also proposes to make this proposed rule 
change effective retroactive to March 1, 2003, to avoid a lapse of the 
previous pilot due to Nasdaq's failure to file for an

[[Page 13746]]

extension before the previous pilot program expired. Nasdaq is making 
no substantive changes to the pilot program, other than to reestablish 
and extend its operation through March 31, 2003. The text of the 
proposed rule change is available at Nasdaq and at the Commission.

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
    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 Web site.\6\ On January 17, 
2003, Nasdaq extended that pilot through February 28, 2003.\7\ Nasdaq 
hereby proposes to reestablish the pilot, and extend its operation 
through March 31, 2003. Nasdaq proposes to make the proposed rule 
change effective retroactive to March 1, 2003, to avoid a lapse of the 
previous pilot due to Nasdaq's failure to file for an extension before 
the pilot expired.
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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).
    \7\ See Securities Exchange Act Release No. 47210 (January 17, 
2003), 68 FR 3912 (January 27, 2003)(SR-NASD-2003-02).
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    Background. PostData consists of three reports provided in a single 
package: (1) Daily Share Volume Report, which provide 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 provide monthly trading volume statistics for the top 
50 market participants sorted by industry sector, security, or type of 
trading (e.g. block or total). PostData was launched on March 18, 2002.
    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.\8\ 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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    \8\ See Securities Exchange Act Release No. 46316 (August 6, 
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 March 31, 2003. 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 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 on other Nasdaq 
initiatives.
    Nasdaq addressed the first two issues by enhancing PostData in 
August of 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.\9\ Growth in the PostData subscriber base was 
initially 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 purchasing PostData for redistribution to their 
subscribers.
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    \9\ See Securities Exchange Act Release No. 45270 (January 11, 
2002), 67 FR 2712 (January 18, 2002)(SR-NASD-99-12).
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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.
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) \11\ of the Act. 
Section 15A(b)(5) requires the equitable allocation of reasonable fees 
and 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

[[Page 13747]]

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

    Written comments were neither solicited nor received 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:
    (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 asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. The Commission 
believes waiving the five-day pre-filing notice requirement and the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Such waivers will allow the pilot to operate 
without interruption through March 31, 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-2003-35 and should be 
submitted by April 10, 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. 03-6657 Filed 3-19-03; 8:45 am]
BILLING CODE 8010-01-P