[Federal Register Volume 68, Number 64 (Thursday, April 3, 2003)]
[Notices]
[Pages 16332-16334]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47592; File No. SR-NASD-2003-03]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc. To Waive Fees Assessed Under NASD Rule 7010(s) for New Subscribers 
to Nasdaq PostData

March 28, 2003.

I. Introduction

    On January 9, 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''), 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 waive for two months the fees assessed under 
NASD Rule 7010(s) for each new subscriber to Nasdaq PostData. The 
proposed rule change was published for notice and comment in the 
Federal Register on January 27, 2003.\3\ The Commission received one 
comment on the proposal.\4\ On March 20, 2003, Nasdaq responded to the 
comment letter.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 47209 (January 17, 
2003), 68 FR 3911.
    \4\ See February 7, 2003 letter from Joseph L. Magill, Managing 
Director AutEx, Thomson Financial Banking and Brokerage 
(``Thomson''), to Jonathan G. Katz, Secretary, Commission, and 
attachments (``Thomson Letter''). The Thomson Letter includes as an 
attachment a January 10, 2003 letter, also from Joseph L. Magill to 
Jonathan G. Katz, commenting on SR-NASD-2002-184, a proposed rule 
change the NASD filed and later withdrew. Because the issues Thomson 
raised in its January 10, 2003 letter are also raised in the instant 
proposed rule change, Thomson submitted its January 10, 2003 letter 
as an attachment to its February 7, 2003 letter as a comment to SR-
NASD-2003-03. When citing to page numbers of the Thomson Letter in 
this order, the Commission is referencing the page numbers of 
Thomson's January 10, 2003 letter.
    \5\ See March 19, 2003 letter from Jeffrey S. Davis, Nasdaq, to 
Alden S. Adkins, Associate Director, Division of Market Regulation, 
Commission (``Nasdaq Letter'').

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[[Page 16333]]

II. Summary of Comments

    While the instant proposed rule change is limited to the question 
of a two-month waiver of fees associated with PostData for new 
subscribers, the commenter's concerns are broader in scope. The 
following is an overview of the concerns the commenter raised.

[sbull] Nasdaq Has Failed To Evaluate Its Fee Structure

    The commenter believes that Nasdaq is able to effectively present 
an analysis of the PostData fees, despite Nasdaq's assertion to the 
contrary, by calculating the cost of operating, enhancing, and 
marketing the product.\6\ Additionally, the commenter notes that the 
fees for PostData are imposed on a per-user basis, which may provide 
relevant price data, as well as some basis for estimating the 
anticipated average number of paying users per firm.\7\
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    \6\ Thomson Letter at 8.
    \7\ Id.
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[sbull] Cost of Enhancements to PostData

    The commenter disagrees with Nasdaq's position that enhancements to 
PostData do not entail any additional fees.\8\ The commenter believes 
that Nasdaq, by adding material enhancements to PostData ``whose costs 
are not defrayed by the fees charged for the service'' may be a burden 
on competition.\9\ The commenter raises the question of whether such a 
revenue shortfall is being offset by fees generated by the self-
regulatory organization's regulatory activities.\10\

[sbull] PostData Wholesale Fees Are Improper
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    \8\ Id.
    \9\ Id. at 9.
    \10\ Id.
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    The commenter believes that Nasdaq's wholesale fees must ``reflect 
only those costs that the SRO would incur if it just collected 
information and passed it on to private vendors.''\11\ Citing NASD v. 
SEC,\12\ the commenter believes that Nasdaq's fee structure cannot 
mandate that vendors pay costs related to Nasdaq's own commercial 
service, such as costs relating to formatting PostData reports and any 
operating and overhead costs attributed to the retail version of 
PostData.\13\
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    \11\ Id.
    \12\ 801 F.2d at 1419.
    \13\ Thomson Letter at 9-10.
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III. Nasdaq's Response to Comments

    Nasdaq says that the commenter has not alleged that Nasdaq's 
PostData product is an undue burden on competition, and that the 
inference that one should draw from the commenter's failure to allege 
such harm is that PostData has been neither a burden on competition, 
nor a burden on the commenter's business.\14\
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    \14\ Nasdaq Letter at 1-2. The Commission notes, however, that 
the commenter, in arguing that Nasdaq could not have materially 
enhanced PostData without incurring any additional fees, states that 
adding enhancements without charging additional fees to defray the 
costs ``can place a significant burden on competition. * * *'' 
Thomson Letter at 8-9.
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    In response to the commenter's claim that Nasdaq should evaluate 
its fee structure, Nasdaq states that its fee structure is proper, and 
that the proposal ``clearly identifies the costs attributable to market 
data vendors and the separate, incremental costs that are attributable 
to direct subscribers.\15\ Regarding the fees themselves, Nasdaq 
believes that the fees at their current levels ``equitably allocate 
Nasdaq's costs for offering PostData to members and non-members.'' \16\
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    \15\ Id. at 2.
    \16\ Id.
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    Nasdaq acknowledges that it has expanded the amount of market data 
available through PostData since approval of its original pilot 
program. However, Nasdaq does not believe that raising the PostData 
fees is proper because the new data ``does not materially affect the 
costs that Nasdaq is permitted to include in the PostData fees, such as 
the maintenance, operation or marketing of PostData, or the operation 
of the web security infrastructure.'' \17\
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    \17\ Id. at 3.
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    Finally, Nasdaq asks the Commission to reject the commenter's 
argument that the wholesale fees associated with PostData are improper, 
because the Commission found in its approval order for the original 
PostData pilot program that the fees ``are equitably allocated among 
members and non-members, and that the price differential between retail 
and wholesale fees offer market data vendors the opportunity to compete 
effectively'' with Nasdaq.\18\
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    \18\ Id.
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IV. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, the 
comment letter, and Nasdaq's response to 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 \19\ and, in particular, the 
requirements of sections 15A(b)(5) and (6) of the Act.\20\ Section 
15A(b)(5) \21\ requires the equitable allocation of reasonable dues, 
fees and other charges among members and issuers and other persons 
using any facility or system that a national securities association 
operates or controls. Section 15A(b)(6) \22\ requires that the rules of 
a national securities association be designed to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers. The Commission finds 
that the proposal is consistent with both of these sections of the Act.
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    \19\ 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).
    \20\ 15 U.S.C. 78o-3(b)(5) and (6).
    \21\ 15 U.S.C. 78o-3(b)(5).
    \22\ 15 U.S.C. 78o-3(b)(6).
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    Specifically, the Commission, in its original approval of the 
PostData pilot,\23\ found that the fees that Nasdaq would charge for 
both the retail and the wholesale distribution of PostData are 
equitably allocated among members and non-members. In the instant 
proposed rule change, Nasdaq has not changed the differential between 
the retail and wholesale fees permanently--instead, Nasdaq seeks only 
to offer a waiver of those fees for two months for new subscribers to 
encourage such persons to use the service. The waiver will apply to 
subscribers that deal directly with Nasdaq (retail subscribers), as 
well as subscribers who are vendors (wholesale subscribers). If 
subscribers do take on this opportunity and like the service, they will 
pay for the service at the approved rates. The Commission believes, 
therefore, that such a waiver is reasonable.
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    \23\ See Securities Exchange Act Release No. 45270 (January 11, 
2002), 67 FR 2712 (January 18, 2002) (SR-NASD-99-12).
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    Furthermore, the Commission believes the information contained in 
PostData may help to foster cooperation and coordination with persons 
engaged in facilitating transactions in securities, by providing 
consistent, reliable, and verified market data to market participants 
who choose to subscribe to the service or purchase the information from 
market data vendors. The Commission believes that investors will 
benefit by the timely dissemination of this reliable market data.\24\ 
The Commission believes that the two month fee waiver places no undue 
burden on competition, and in fact, may

[[Page 16334]]

foster competition, as market data vendors obtain verified data from 
PostData, provide enhancements to the data, and in turn, sell the 
enhanced data to retail customers.\25\
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    \24\ In this regard, the Commission reminds Nasdaq of its 
representation that Nasdaq generally will provide the PostData 
information to vendors approximately five minutes before it posts 
the information on the web site for direct end-users.
    \25\ The Commission notes that PostData relates to enhanced data 
that is not integral to the ability of a broker-dealer or customer 
to trade. Cf. NASD v. SEC, footnote 12, supra.
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    The Commission expects that Nasdaq will continue to examine the 
fees and fee structure of PostData, and will take whatever steps are 
necessary to ensure that the fees remain consistent with the mandate 
established in section 15A(b)(5) of the Act,\26\ so that the fees 
associated with PostData remain equitable. The Commission also expects 
that Nasdaq will provide the Commission with the information the 
Commission requested in its original approval order of the PostData 
pilot \27\ as soon as practicable.
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    \26\ 15 U.S.C. 78o-3(b)(5).
    \27\ See footnote 23, supra.
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V. Conclusion

    It is therefore Ordered, pursuant to section 19(b)(2) of the Act 
\28\, that the proposed rule change (SR-NASD-2003-03) be, and it hereby 
is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-8106 Filed 4-2-03; 8:45 am]
BILLING CODE 8010-01-P