[Federal Register Volume 68, Number 58 (Wednesday, March 26, 2003)]
[Notices]
[Pages 14730-14732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7114]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47530; File No. SR-NASD-2003-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Modify SuperMontage Fees for NNMS Order 
Entry Firms

March 19, 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 3, 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 has 
designated this proposal as one establishing or changing a due, fee or 
other charge imposed by the self-regulatory organization under section 
19(b)(3)(A)(ii) of the Act \3\ and rule 19b-4(f)(2) thereunder,\4\ 
which renders the rule effective upon Commission receipt of this 
filing. 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify the fees paid by NNMS Order Entry Firms 
(``OE Firms'') for certain order executions through Nasdaq's 
SuperMontage system. Nasdaq will implement the rule change on the later 
of: (i) April 1, 2003; or (ii) the date on which Nasdaq implements a 
change to its SuperMontage system that inhibits automatic matching of 
OE Firms' orders, as described in SR-NASD-2002-173.\5\
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    \5\ See Securities Exchange Act Release No. 47301 (January 31, 
2003), 68 FR 6236 (February 6, 2003) (SR-NASD-2002-173).
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    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

Rule 7010. System Services

    (a) -(h) No change.
    (i) Nasdaq National Market Execution System (SuperMontage)
    The following charges shall apply to the use of the Nasdaq National 
Market Execution System (commonly known as SuperMontage) by members:

[[Page 14731]]



              Order Entry
Non-Directed Orders (excluding           No charge.
 Preferenced Orders).
Preferenced Orders:
    Preferenced Orders that access a     No charge.
     Quote/Order of the member that
     entered the Preferenced Order.
    Other Preferenced Orders...........  $0.02 per order entry.
Directed Orders........................  $0.10 per order entry.
            Order Execution
Non-Directed or Preferenced Order that
 accesses the Quote/Order of a market
 participant that does not charge an
 access fee to market participants
 accessing its Quotes/Orders through
 the NNMS:
    Charge to member entering order....  $0.003 per share executed (but
                                          no more than $120 per trade
                                          for trades in securities
                                          executed at $1.00 or less per
                                          share).
    Credit to member providing           $0.002 per share executed (but
     liquidity.                           no more than $80 per trade for
                                          trades in securities executed
                                          at $1.00 or less per share).
Non-Directed or Preferenced Order that   $0.001 per share executed (but
 accesses the Quote/Order of a market     no more than $40 per trade for
 participant that charges an access fee   trades in securities executed
 to market participants accessing its     at $1.00 or less per share).
 Quotes/Orders through the NNMS.
Directed Order.........................  $0.003 per share executed.
Non-Directed or Preferenced Order        No charge.
 entered by a [member] Nasdaq Quoting
 Market Participant that accesses [a]
 its own Quote/Order [of such member].
Non-Directed Order entered by an NNMS    $0.001 per share executed (but
 Order Entry Firm that accesses its own   no more than $40 per trade for
 Quote/Order.                             trades in securities executed
                                          at $1.00 or less per share).
           Order Cancellation
Non-Directed and Preferenced Orders....  No charge.
Directed Orders........................  $0.10 per order cancelled.
(j)-(s) No change.
 
                              * * * * * * *
 

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 31, 2003, the Commission approved a proposed rule change 
to allow, on a 90-day pilot basis commencing February 10, 2003, OE 
Firms to enter non-marketable limit orders into SuperMontage using the 
SIZE Market Participant Identifier (``SIZE'').\6\ Since the inception 
of this pilot program, Nasdaq has applied its pre-existing SuperMontage 
fee schedule to market activity associated with orders entered into 
SIZE by OE Firms. As a result of Nasdaq's recent decision to eliminate 
all of the fees that had formerly applied to the cancellation and 
modification of orders entered into SIZE,\7\ OE Firms now have the 
opportunity to expose these orders to the market without charge.
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    \6\ Id. SIZE is the anonymous market participant identified 
(``MPID'') that represents the aggregate size of all Non-
Attributable Quotes and Orders entered by market participants in 
Nasdaq at a particular price level. Non-Attributable Quotes and 
Orders are not displayed in the Nasdaq Quotation Montage using the 
market participant's MPID. Instead, the SIZE MPID is displayed when 
the aggregate trading interest at a particular price level of such 
Non-Attributable Quotes and Orders falls within the number of levels 
(currently five) authorized for aggregation and display on either 
side of the market.
    \7\ See Securities Exchange Act Release No. 47300 (January 31, 
2003); 68 FR 6234 (February 6, 2003) (SR-NASD-2003-10). The entry of 
such orders has been free since the inception of the SuperMontage.
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    In addition, under the SuperMontage fee schedule, OE Firms that 
enter orders into SIZE are eligible to receive the $0.002 per share 
liquidity provider credit that market makers (and electronic 
communications networks (``ECNs'')) that do not charge access fees) 
receive when they provide liquidity to support order executions. Thus, 
when an order entered into SIZE by an OE Firm matches a non-directed 
order and an execution occurs, the market participant that entered the 
non-directed order will pay $0.003 per share executed \8\ and the OE 
Firm will receive a credit of $0.002 per share.\9\
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    \8\ Subject to a $120 per trade cap for trades in securities 
executed at $1.00 or less per share.
    \9\ Subject to an $80 per trade cap for trades in securities 
executed at $1.00 or less per share.
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    As described in the filing to implement the pilot program, OE Firms 
currently have their orders processed in a manner similar to that of 
Quoting Market Participants, in that SuperMontage first attempts to 
match an OE Firm's non-directed orders with orders in SIZE from the 
same OE Firm. As is true for Quoting Market Participants, moreover, 
Nasdaq has not assessed a charge (or provided a liquidity provider 
credit) when an OE Firm's non-directed order executes against the OE 
Firm's own order in SIZE. Upon the implementation of an upcoming 
modification to SuperMontage, however, non-directed orders entered by 
an OE Firm will execute solely based on the algorithm selected by the 
OE Firm (price/time, price/time with fee consideration, or price/
size).\10\ Accordingly, although it is possible that an OE Firm's non-
directed orders will be matched against its orders in SIZE, the system 
will no longer give an automatic preference to the OE Firm's orders in 
SIZE.
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    \10\ Nasdaq expects to implement this system change on March 17, 
2003.
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    In light of this System modification, Nasdaq is proposing that an 
OE Firm entering a non-directed order that accesses a limit order that 
the OE Firm itself has posted in SIZE will pay $0.001 per share 
executed (but no more than $40 per trade for trades in securities 
executed at $1.00 or less per share). The $0.001 per share fee is 
equivalent to the OE Firm paying the net of the $0.003 order execution 
fee that it would pay to access the Quote/Order of a market

[[Page 14732]]

maker and the $0.002 credit that it would receive if its order in SIZE 
had been accessed by another market participant.\11\
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    \11\ By contrast, when a market maker or ECN enters a non-
directed or preferenced order that accesses its own Quote/Order 
(i.e., its proprietary quote, or a limit order that it has entered 
into SIZE or posted under its own MPID), it pays no order execution 
fee (but also receives no credit as a liquidity provider). Nasdaq 
believes that this added discount is an appropriate mechanism to 
ensure that market participants who undertake the burdens of 
continuous liquidity provision are provided benefits commensurate 
with their activities. Nasdaq also believes that the discount serves 
to encourage market makers and ECNs to enter orders into 
SuperMontage and thereby expose them to the full market, rather than 
internalizing them through their own proprietary crossing systems.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\12\ including section 
15A(b)(5) of the Act,\13\ which requires that the rules of the NASD 
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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    \12\ 15 U.S.C. 78o-3.
    \13\ 15 U.S.C. 78o-3(5).
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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, 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.

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

    The foregoing rule change establishes or changes a due, fee, or 
other charge and, therefore, has become effective immediately pursuant 
to section 19(b)(3)(A)(ii) of the Act \14\ and rule 19b-4(f)(2) 
thereunder.\15\ At any time within 60 days of the filing of such 
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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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 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 proposed rule 
change 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-2003-30 and 
should be submitted by April 16, 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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7114 Filed 3-25-03; 8:45 am]
BILLING CODE 8010-01-P