[Federal Register Volume 68, Number 79 (Thursday, April 24, 2003)]
[Notices]
[Pages 20189-20191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10097]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47693; File No. SR-NASD-2003-50]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To 
Modify Fees for Computer-to-Computer Interface Lines Used by NASD 
Members and Non-Members To Provide Service Bureau Functionality

April 17, 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 24, 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 the 
proposed rule change as described in Items I, II, and III below, which 
Nasdaq has prepared. On March 28, 2003, the NASD submitted Amendment 
No. 1 to the proposed rule change. The Commission is publishing this 
notice to solicit comments from interested persons on the proposed rule 
change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to establish a service bureau distributor fee for 
bandwidth enhancements of Computer-to-Computer Interface (``CTCI'') 
lines that are used to provide service bureau functionality.\3\ If the 
Commission approves the proposal, Nasdaq proposes to implement the rule 
change retroactively as of April 1, 2003. The text of the proposed rule 
change is below. Proposed new language is in italics.\4\
---------------------------------------------------------------------------

    \3\ The proposed rule change is applicable to both NASD member 
and non-members.
    \4\ The text is marked to show changes from the language of the 
rule as amended by SR-NASD-2003-43 (March 19, 2003) and SR-NASD-
2003-46 (March 19, 2003).
---------------------------------------------------------------------------

7000. CHARGES FOR SERVICES AND EQUIPMENT

    Rule 7010. System Services
    (a)-(e) No change.
    (f) Nasdaq WorkstationTM Service
    (1) No change.
    (2) The following charges shall apply for each CTCI subscriber:

[[Page 20190]]



------------------------------------------------------------------------
                Options                               Price
------------------------------------------------------------------------
Option 1:                                $1275/month
    Dual 56kb lines (one for
     redundancy) and single hub and
     router.
Option 2:                                $1600/month
    Dual 56kb lines (one for
     redundancy), dual hubs (one for
     redundancy), and dual routers (one
     for redundancy).
Option 3:                                $8000/month
    Dual T1 lines (one for redundancy),
     dual hubs (one for redundancy),
     and dual routers (one for
     redundancy). Includes base
     bandwidth of 128kb.
    Option 1, 2, or 3 with Message       Fee for Option 1, 2, or 3
     Queue software enhancement.          (including any Bandwidth
                                          Enhancement Fee and Service
                                          Bureau Distributor Fee) plus
                                          20%
Disaster Recovery Option:                $975/month
    Single 56kb line with single hub
     and router. (For remote disaster
     recovery sites only.).
    Bandwidth Enhancement Fee (for T1    $600/month per 64kb increase
     subscribers only).                   above 128kb T1 base
    Service Bureau Distributor Fee (for  $3,400/month per 64kb increase
     T1 subscribers only).                above 128kb T1 base for lines
                                          used for service bureau
                                          functions
    Installation Fee...................  $2000 per site for dual hubs
                                          and routers
                                         $1000 per site for single hub
                                          and router
    Relocation Fee (for the movement of
     TCP/IP- $1700 per relocation
     capable lines within a single
     location).
------------------------------------------------------------------------

    (g)(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 had 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
    Nasdaq's CTCI network is a point-to-point dedicated circuit 
connection from the premises of brokerages and service providers to 
Nasdaq's Trumbull, Connecticut processing facilities. Through CTCI, 
firms are able to enter trade reports into Nasdaq's Automated 
Confirmation Transaction Service (``ACT''), orders into Nasdaq's 
transaction execution systems, and mutual fund pricing data into 
Nasdaq's Mutual Fund Quotation Service. The CTCI network operates over 
the Enterprise Wide Network II (``EWN II'') and provides connectivity 
over powerful 56kb and T1 data lines. In addition, the CTCI network 
uses the industry-standard Transmission Control Protocol/Internet 
Protocol (``TCP/IP''), a transmission protocol that Nasdaq describes as 
robust, efficient, and well known among the technical community.
    Separately, Nasdaq has submitted filings to reduce the fee for CTCI 
bandwidth enhancements \5\ from $4,000 to $600 per month for each 64 
kilobit (``kb'') increment of additional bandwidth provided over a T1 
CTCI line (above the base level of 128 kb).\6\ Nasdaq believes, 
however, that this price reduction should not be applied to T1 lines 
that are used to provide service bureau functionality. A service bureau 
is a firm (which may or may not be an NASD member) that connects to the 
systems of Nasdaq and other market centers and then offers its 
customers the ability to route orders to those market centers, in 
addition to providing the customers various order management, risk 
management, and regulatory compliance services. It is Nasdaq's 
understanding that service bureaus generally pass on the costs of 
connecting to Nasdaq and other market centers to their own customers. 
Nasdaq believes that, because a service bureau may use a single T1 line 
pair to provide market access to numerous customers, a service bureau 
is able to spread the costs of access across its entire customer base. 
In Nasdaq's view, the service bureau in effect acts as a distributor of 
access services. Accordingly, Nasdaq believes that an NASD member that 
accesses the Nasdaq market through a service bureau has generally paid 
a much lower price for connectivity than a member that connects 
directly to Nasdaq through T1 circuits.\7\ To help address this 
disparity, Nasdaq is proposing to establish a service bureau 
distributor fee, which would be applicable to additional bandwidth 
provided over T1 lines that are used for service bureau functionality. 
The proposed fee would be $3,400 for each 64 kb increase in bandwidth 
above the 128 kb base, and would be in addition to the bandwidth 
enhancement fee of $600 for each 64 kb increase.\8\ Accordingly, lines 
used for service bureau functionality would continue to be charged fees 
that are equivalent to those charged under the price schedule that has 
been in effect since 2001.\9\ The fee would be assessed

[[Page 20191]]

on a line-by-line basis. Thus, a firm that used some lines to provide 
service bureau functionality while using other lines for its own use 
would identify its service bureau lines and would pay the fee only with 
respect to those lines.
---------------------------------------------------------------------------

    \5\ The term ``bandwidth'' refers to the amount of data that can 
be transmitted over a CTCI line in one second. Accordingly, 
bandwidth enhancements allow a CTCI subscriber to send and receive a 
greater volume of data over a line.
    \6\ See SR-NASD-2003-43 (March 19, 2003) (NASD members) and SR-
NASD-2003-46 (March 19, 2003) (non-members).
    \7\ For example, prior to the merger of Nasdaq Tools Inc. into 
Nasdaq, Nasdaq charged Nasdaq Tools Inc. for the use of CTCI lines 
in accordance with the pricing schedule contained in NASD Rule 
7010(f), yet by spreading these costs among its customers, Nasdaq 
Tools Inc. was able to charge a pass-through fee of $265 per 
subscriber per month to users of its Tools Plus service bureau 
product. Following the merger of Nasdaq Tools Inc. into Nasdaq, 
Nasdaq continues to charge Tools Plus users this same price. 
Securities Exchange Act Release No. 46973 (December 9, 2002), 67 FR 
77305 (December 17, 2002) (SR-NASD-2002-164). Nasdaq believes that 
other service bureaus pass on CTCI costs to their subscribers in a 
similar manner. Nasdaq also notes that because the cost of lines 
used for service bureau functionality will not change, a change in 
Tools Plus CTCI pricing is not warranted at this time. See id. at 
77308-09.
    \8\ Nasdaq believes that its proposal to charge a distributor 
fee is analogous to the proposed rule change that the Commission 
approved in Securities Exchange Act Release No. 45102 (November 26, 
2001), 66 FR 59830 (November 30, 2001) (SR-NASD-2001-59), in which 
Nasdaq adopted a fee schedule for firms acting as distributors of 
historical market data that was higher than the fee schedule for 
persons purchasing the data without a license to redistribute it.
    \9\ Securities Exchange Act Release No. 43821 (January 8, 2001), 
66 FR 3627 (January 16, 2001) (SR-NASD-00-80); Securities Exchange 
Act Release No. 44144 (April 2, 2001), 66 FR 18332 (April 6, 2001) 
(SR-NASD-00-81).
---------------------------------------------------------------------------

    Even after the implementation of this proposed rule change, it is 
likely that service bureau customers would pay less for connectivity to 
Nasdaq than firms that connect directly. Accordingly, Nasdaq will 
closely monitor connectivity costs and may make additional pricing 
modifications in the near future.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\10\ particularly subsection 
15A(b)(5),\11\ because 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 the NASD operates or 
controls. Nasdaq believes that the proposed rule change would help to 
address an existing disparity between the charges paid by market 
participants for direct CTCI connections to Nasdaq and the much lower 
charges paid by market participants for access through service bureaus.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

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

    Nasdaq neither solicited nor received written comments with respect 
to the proposal.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. In particular, the Commission 
requests comment on Nasdaq's proposal to implement the proposed rule 
change retroactively as of April 1, 2003. The Commission notes that the 
retroactive implementation of the proposed fee change would enable 
Nasdaq to charge for services that it has already rendered.
    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-2003-50 and should be 
submitted by May 15, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-10097 Filed 4-23-03; 8:45 am]
BILLING CODE 8010-01-P