[Federal Register Volume 68, Number 68 (Wednesday, April 9, 2003)]
[Notices]
[Pages 17418-17420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8632]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47621; File No. SR-NASD-2003-56]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the National Association of Securities Dealers, Inc. Regarding Fees for 
the Reporting of SuperMontage Transactions Through the Automated 
Confirmation Transaction Service (``ACT'')

April 2, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 24, 2003, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), submitted to 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. On March 27, 
2003, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ 
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 \4\ and rule 19b-4(f)(2) 
thereunder.\5\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John M. Yetter, Assistant General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated March 26, 2003 (``Amendment No. 
1''). In Amendment No. 1, Nasdaq amended its proposal to state that, 
for purposes of determining eligibility for the fee waiver, if a 
market participant has more than one market participant identifier 
(``MPID'') associated with the same Central Registration Depository 
(``CRD'') number, the activity associated with all of those MPIDs 
will be aggregated; however, activity associated with MPIDs assigned 
to subsidiaries or other affiliates of the market participant that 
have a different CRD number will not be aggregated. See SR-NASD-
2003-17 (permitting market makers and ECNs to receive a second 
identifier). For purposes of determining the effective date of the 
filing and calculating the 60-day abrogation period, the Commission 
considers the period to commence on March 27, 2003, the date that 
Nasdaq filed Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 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

    Nasdaq proposes to waive certain fees for the reporting of 
SuperMontage transactions associated with the use of the ACT.\6\ Nasdaq 
proposes to implement the proposed rule change on April 1, 2003.
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    \6\ Nasdaq represents that this filing applies to usage of ACT 
by NASD members. The usage of ACT by non-members is governed by NASD 
Rule 6120.
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    Below is the text of the proposed rule change, as amended.\7\ 
Proposed new language is italicized; proposed deleted language is 
[bracketed].
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    \7\ The proposed rule text is marked to show changes from the 
language of the NASD Rule 7010 as amended by SR-NASD-2003-51 (filed 
March 24, 2003). That proposed rule change, which was effective 
immediately upon filing, introduced volume discounts for reporting 
most non-SuperMontage transactions in Nasdaq National Market and 
SmallCap Market securities.
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* * * * *
7000. CHARGES FOR SERVICES AND EQUIPMENT
7010. System Services
    (a)-(f) No change.
    (g) Automated Confirmation Transaction Service
    (1) The following charges shall be paid by the participant for use 
of the Automated Confirmation Transaction Service (ACT):
    Transaction Related Charges:

Reporting of transactions through        $0.029/side (subject to waiver
 SuperMontage (or any other transaction   under paragraph (2) below).
 execution system that makes use of
 SuperMontage's functionality to report
 transactions).
Reporting of all other transactions in
 Nasdaq National Market and SmallCap
 Market securities not subject to
 comparison through ACT (``Covered
 Transactions'')
    Average daily volume of media        Fee per side for reports of
     transaction reports for Covered      Covered Transactions to which
     Transactions during the month in     such participant is a party:
     which a participant is the
     reporting party:
0 to 10,000............................  $0.029.
10,001 to 50,000.......................  $0.029 for a number of reports
                                          equal to 10,000 times the
                                          number of trading days in the
                                          month $0.015 for all remaining
                                          reports.
More than 50,000.......................  $0.029 for a number of reports
                                          equal to 10,000 times the
                                          number of trading days in the
                                          month $0.015 for a number of
                                          reports equal to 40,000 times
                                          the number of trading days in
                                          the month $0.00 for all
                                          remaining reports.
Reporting of all other transactions not  $0.029/side.
 subject to comparison through ACT.
Comparison.............................  $0.0144/side per 100 shares
                                          (minimum 400 shares; maximum
                                          7,500 shares).
Late Report--T+N.......................  $0.288/side.
Browse/query...........................  $0.288/query\*\.
Terminal fee...........................  $57.00/month (ACT only
                                          terminals).

[[Page 17419]]

 
CTCI fee...............................  $575.00/month.
WebLink ACT............................  $300/month (full functionality)
                                          or $150/month (up to an
                                          average of twenty transactions
                                          per day each month) \**\.
Risk Management Charges................  $0.035/side and $17.25/month
                                          per correspondent firm
                                          (maximum $10,000/month per
                                          correspondent firm).
Corrective Transaction Charge..........  $0.25/Cancel, Error, Inhibit,
                                          Kill, or ``No'' portion of No/
                                          Was transaction, paid by
                                          reporting side; $0.25/Break,
                                          Decline transaction, paid by
                                          each party.
ACT Workstation........................  $525/logon/month \***\.
 

    (2) The $0.029 fee for reporting of transactions executed through 
SuperMontage (and other transaction execution systems that make use of 
SuperMontage's functionality to report transactions) will be waived for 
an ACT participant during any month in which the participant: (i) 
executed an average daily volume of 10,000 or more transactions through 
SuperMontage or any other transaction execution system using 
SuperMontage's functionality to report transactions; (ii) reported to 
ACT at least 98% of the internalized transactions in Nasdaq National 
Market and SmallCap Market securities executed by the participant 
during the month; and (iii) posted in SuperMontage at least 70% of the 
bids, offers, and non-marketable limit orders in Nasdaq National Market 
and SmallCap Market securities communicated by the participant to any 
market center. Nasdaq may request that a participant provide data 
supporting the participant's certification that it is eligible for the 
foregoing waiver, and will deem a participant that fails to provide 
such data upon request to be ineligible for the waiver. If a 
participant has more than one market participant identifier (``MPID'') 
associated with the Central Registration Depository (``CRD'') number 
under which it conducts business, eligibility will be determined by 
aggregating activity associated with all of its MPIDs (but not activity 
associated with MPIDs assigned to subsidiaries or other affiliates with 
a different CRD number).
    The term ``internalized transaction'' refers to a transaction in 
which a customer order received by the participant is executed against 
another customer order received by the participant, or against the 
account of the participant as principal, but that is not facilitated or 
executed using a Nasdaq system or the system of any market center other 
than the participant. The term ``market center'' refers to any exchange 
market maker, OTC market maker, alternative trading system, national 
securities exchange, or national securities association.

    * Each ACT query incurs the $0.288 fee; however, the first 
accept or decline processed for a transaction is free, to insure 
that no more than $0.288 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 
$0.288 query charge.
    ** For the purposes of this service only, a transaction is 
defined as an original trade entry, either on trade date or as-of 
transactions per month.
    *** A firm that uses ACT risk management through one or more 
NWII terminals when the ACT Workstation is introduced will be 
eligible to evaluate the ACT Workstation for a free, three-month 
trial period, provided that the firm continues to pay charges 
associated with its NWII terminal(s) during that period.

    (h)-(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
    ACT is an automated trade reporting and reconciliation service that 
speeds the post-execution steps of price and volume reporting, 
comparison, and clearing of trades completed in Nasdaq, OTC Bulletin 
Board, and other over-the-counter securities. ACT handles transactions 
executed through Nasdaq's automated trading systems, as well as 
transactions negotiated over the telephone and internalized 
transactions. It also manages post-execution procedures for 
transactions in exchange-listed securities that are traded in the 
Nasdaq InterMarket.
    Nasdaq represents that, as part of an ongoing effort to reduce the 
costs incurred by market participants to use Nasdaq services, it 
proposes to waive the ACT fees for transactions that are executed 
through SuperMontage (or any other transaction execution system, such 
as Liquidity Tracker, that uses SuperMontage's functionality to report 
transactions). Currently, Nasdaq assesses a fee of $0.029 per side for 
the reporting of such transactions, which are reported to ACT 
automatically. Under the proposed rule change, as amended, however, 
this fee would be waived for a participant during a month in which the 
participant: (i) Executed an average daily volume of 10,000 or more 
transactions through SuperMontage (or any other system that uses 
SuperMontage functionality to report trades); (ii) reported to ACT at 
least 98% of the internalized transactions \8\ in Nasdaq National 
Market and SmallCap market securities executed by the participant 
during the month; and (iii) posted in SuperMontage at least 70% of the 
bids, offers, and non-marketable limit orders in Nasdaq National Market 
and SmallCap Market securities communicated by the participant to any 
market center.\9\ A participant seeking to qualify for the fee waiver 
would certify its eligibility, and Nasdaq could request that the 
participant provide data to support its certification. If a participant 
has more than one MPID associated with the CRD number under which it 
conducts business, eligibility will be determined by aggregating 
activity associated with all of its MPIDs (but not activity associated 
with MPIDs assigned to subsidiaries or other affiliates with a 
different CRD number).
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    \8\ The Nasdaq proposal defines ``internalized transactions'' as 
a transaction in which a customer order received by the participant 
is executed against another customer order received by the 
participant, or against the account of the participant as principal, 
but that is not facilitated or executed using a Nasdaq system or the 
system of any market center other than the participant.
    \9\ The Nasdaq proposal defines ``market center'' as any 
exchange market maker, OTC market maker, alternative trading system, 
national securities exchange, or national securities association.
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    Nasdaq represents that it is currently facing competition from 
market centers that are willing to offer market participants free trade 
reporting services,\10\ and from one market center

[[Page 17420]]

that is effectively sharing market data revenue associated with 
transactions in Nasdaq-listed securities by ``mutualizing'' revenues 
with certain of its members,\11\ notwithstanding the Commission's Order 
of Summary Abrogation (the ``Order'') regarding market data revenue 
sharing programs.\12\ Because Nasdaq is not permitted to share market 
information revenues from Nasdaq-listed securities, and because it has 
too many market participants to effect a ``mutualization'' ploy, Nasdaq 
believes that it is placed in a fundamentally unfair competitive 
position. Nasdaq is proposing wide-ranging price reductions across 
multiple services,\13\ but Nasdaq represents that it incurs substantial 
costs in order to operate ACT and to support its regulatory function. 
Nasdaq believes that the only way for it to compete with an exchange 
that can single out firms to ``mutualize'' with is to provide preferred 
pricing to its members that continue to support Nasdaq with their 
orders. Accordingly, Nasdaq believes that it is reasonable to offer 
free reporting of SuperMontage trades to a firm only if the firm's use 
of ACT and SuperMontage during a particular month is sufficiently 
consistent to allow Nasdaq to conclude that the lost revenue will be 
partially offset by other ACT revenue and transaction execution 
revenue.
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    \10\ See, e.g., Securities Exchange Act Release No. 47331 
(February 10, 2003), 68 FR 7635 (February 14, 2003) (File No. SR-
NASD-2003-09) (eliminating trade reporting fees associated with the 
NASD's Alternative Display Facility).
    \11\ Securities Exchange Act Release No. 46688 (October 18, 
2002), 67 FR 65816 (October 28, 2002) (SR-CSE-2002-14) (describing 
the Cincinnati Stock Exchange's market data revenue sharing program 
for Nasdaq securities).
    \12\ Securities Exchange Act Release No. 46159 (July 2, 2002), 
67 FR 45775 (July 10, 2002).
    \13\ See File Nos. SR-NASD-2003-51 (filed March 24, 2003) 
(reporting of non-SuperMontage trades); SR-NASD-2003-53 (filed March 
24, 2003) and SR-NASD-2003-54 (filed March 24, 2003) (Nasdaq Testing 
Facility); SR-NASD-2003-47 (filed March 21, 2003) and SR-NASD-2003-
48 (filed March 21, 2003) (NWII logons); SR-NASD-2003-43 (filed 
March 20, 2003) and SR-NASD-2003-46 (filed March 20, 2003) 
(computer-to-computer interface pricing); see also Securities 
Exchange Act Release No. 47300 (January 31, 2003), 68 FR 6234 
(February 6, 2003) (SR-NASD-2003-10) (quotation update fees).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of section 15A of the Act,\14\ in 
general and with section 15A(b)(5) of the Act,\15\ in particular, 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 which the NASD operates or controls. Nasdaq believes 
that the proposal, as amended, will allow a reduction in the overall 
level of ACT fees paid by market participants while ensuring that each 
participant pays an equitable share of the costs associated with ACT.
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    \14\ 15 U.S.C. 78o-3.
    \15\ 15 U.S.C. 78o-3(b)(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 and 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

    The foregoing rule change, as amended, has become effective upon 
March 27, 2003, the date of filing of Amendment No. 1 to the proposed 
rule change, pursuant to section 19(b)(3)(A)(ii) of the Act \16\ and 
subparagraph (f)(2) of rule 19b-4 thereunder,\17\ because it 
establishes or changes a due, fee, or other charge imposed by the self-
regulatory organization. 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.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
    \18\ For purposes of determining the effective date of the 
filing and calculating the 60-day abrogation period, the Commission 
considers the period to commence on March 27, 2003, the date that 
Nasdaq filed Amendment No. 1.
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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, as amended, 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 Nasdaq. All submissions should refer to File No. 
SR-NASD-2003-56 and should be submitted by April 30, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-8632 Filed 4-8-03; 8:45 am]
BILLING CODE 8010-01-P