[Federal Register Volume 68, Number 103 (Thursday, May 29, 2003)]
[Notices]
[Pages 32144-32146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13447]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47906; File No. SR-NASD-2003-62]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, by National Association of 
Securities Dealers, Inc. To Allow Internet Access to the Primex Auction 
System and To Specify the Charges for Such Access

May 22, 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 31, 2003, the National Association of Securities Dealers, Inc. 
(``NASD''), through its subsidiary, the Nasdaq Stock

[[Page 32145]]

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 the 
Nasdaq. On May 16, 2003, the Nasdaq filed Amendment No. 1 to the 
proposal.\3\ 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 Alex Kogan, Associate General Counsel, 
Nasdaq to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated May 15, 2003 (``Amendment No. 
1''). In Amendment No. 1, the Nasdaq submitted a new Form 19b-4, 
which replaced the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Nasdaq proposes to amend NASD rules 5012 and 7010(r) to enable 
access to the Primex Auction System (``Primex'') via the Internet and 
to specify the charges for such access.
    The text of the proposed rule change, as amended, is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *

Rule 5012. Access

    (a) No change.
    (b) No change.
    (c) The Application may be made available [through Nasdaq-provided 
network(s) via]:
    (1) through Nasdaq-provided network(s) via Primex Auction System 
Workstation Service;
    (2) through Nasdaq-provided network(s) via an Application 
Programming Interface (``API''); [or]
    (3) through Nasdaq-provided network(s) via a FIX protocol 
interface[. Certain functionality of the Application also may be made 
available via Computer to Computer Interface (CTCI).]; or
    (4) over the Internet, using Nasdaq-provided user interface. 
Certain functionality of the Application may be made available through 
Nasdaq-provided network(s) via Computer to Computer Interface (CTCI).

Rule 7010(r). Nasdaq Application of the Primex Auction System

    (1) No change.
    (2) Monthly Access Fees

                                Software
------------------------------------------------------------------------
                                                                 Per
            Workstation license or unique logon              workstation
                                                                logon
------------------------------------------------------------------------
Stations/logons 1-10.......................................         $200
Stations/logons 11-25......................................         $100
Stations/logons 26 and above...............................          $50
------------------------------------------------------------------------


------------------------------------------------------------------------
               Proprietary interface license                 Per license
------------------------------------------------------------------------
API specification..........................................         $500
FIX (customized protocol)..................................         $500
------------------------------------------------------------------------


                                 Network
------------------------------------------------------------------------
                       Dedicated line                          Per line
------------------------------------------------------------------------
256K.......................................................       $1,781
64K with non-guaranteed 256K burst capacity................       $1,564
56K........................................................         $712
Installation/Uninstall.....................................   \1\ $1,000
Internet Access
    Logons 1-10 (per firm).................................          $50
    Logons 11 and up (per firm)............................         $25
------------------------------------------------------------------------
\1\ Per Nasdaq Staff site visit.

* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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
a. Overview
    Currently, any firm wishing to connect to Primex and take full 
advantage of its functionality must purchase an Auction Control Box 
(``ACB'') server and maintain a dedicated T1 circuit between its 
premises and the Primex system on Nasdaq's premises. To provide firms 
with a lower cost full-access alternative, Nasdaq intends to introduce 
the option of accessing Primex through the Internet. Interested firms 
would be able to connect to Primex via their existing Internet link and 
would not need either to purchase an ACB server or maintain a separate 
dedicated circuit between their own premises and Primex. The Internet 
access option is intended both to attract new participants to Primex 
and to provide additional flexibility of access for existing 
participants.
b. Internet Connectivity and Resulting Cost Savings
    A participant wishing to connect to Primex over the Internet would 
need to obtain Internet access from an Internet Service Provider 
(``ISP'') and a telecommunications circuit linking the participant's 
premises with the ISP's point of presence from a local 
telecommunications provider (``Telco''). Typically, a participant would 
use the same Telco circuit and ISP port for all of its Internet 
connectivity needs (including, but not limited to, connectivity with 
Primex). Consequently, the required bandwidth of the needed ISP port 
and Telco circuit, and the corresponding costs, would be dictated by 
each participant's specific overall Internet usage requirements, which 
includes applications unrelated to Primex (e.g., email, web access, 
etc.). However, Nasdaq expects that, at any given level of Primex 
usage, the cost of the portion of the total bandwidth of the ISP port 
and of the Telco circuit actually used for Primex access would be 
substantially lower than the cost of a dedicated line that would 
otherwise be required to link the participant's premises with the 
Primex server. The monthly logon fees that Nasdaq itself proposes to 
charge for Internet access to the Primex are also substantially lower 
than the current logon fees for Primex access via a dedicated line.
c. The Look and Feel Is Unchanged
    Nasdaq represents that Primex users that choose to access Primex 
over the Internet will generally enjoy the same ``look and feel'' 
experience as the users of the existing dedicated circuit mode of 
access. Nasdaq will provide to interested users compact discs with the 
user interface software required for Internet access. Before a 
connection with the Primex server can be established, the user would 
need to install the provided interface software and then run it. The 
interface software would, in turn, prompt the user for certain 
identifying information (ID and password). Once the identifying 
information is entered correctly, a full connection is established, and 
the user sees essentially the same screen display as he/she would see 
when using a dedicated connection. All other screen displays will also 
be essentially the same.

[[Page 32146]]

d. Same Functionality
    Nasdaq represents that Primex users that choose to access Primex 
over the Internet will also have access to the same functionality as 
they would over a dedicated circuit. In particular, Internet users will 
be able to enter orders, enter predefined relative indications 
(``PRIs''), respond to auctions, view orders, executions and PRIs, and 
withdraw PRIs. Once the Internet user's identity and authority to 
access the system is established, he/she should be able to take full 
advantage of Primex, while benefiting from the lower cost of the 
connection.
e. Security
    A firm that wishes to enable its employees to access Primex over 
the Internet will need to coordinate requests for user authorization 
with Nasdaq. Such a firm's designated security administrator will 
provide Nasdaq with written authorization and required enrollment 
information. Once Nasdaq has the needed information, it will enroll the 
user for Internet access to Primex and provide to the user, by a secure 
method, certain information required to enable such access. The firm's 
security administrator will also be expected to give Nasdaq timely 
notification to disenroll any previously enrolled user who is no longer 
eligible for (or no longer needs) Internet access to Primex.
    Nasdaq may, from time to time, change the enrollment/disenrollment 
requirements, methods and procedures and will advise the participating 
firms accordingly. Nasdaq will work with participating firms' 
designated security administrators to help implement user enrollment/
disenrollment and to assist with the security procedures related to 
accessing Primex over the Internet.\4\
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    \4\ Nasdaq will keep the Commission staff apprised of any 
modifications in or updates to Primex user enrollment-related 
procedures when such modifications or updates substantially affect 
the security of Internet access to Primex.
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f. Capacity and Connection Quality
    Nasdaq believes that, in its current configuration, Primex will at 
all times have adequate capacity to handle the expected volume of 
Internet connections and to accommodate a robust growth in volume with 
no degradation in the quality of service. Primex currently has the 
capacity to handle up to five times as many simultaneous connections 
over the Internet as Nasdaq's initial peak time estimates suggest may 
actually occur. Nasdaq is able to add further capacity, so as to meet 
any reasonably possible surge in demand, within a matter of days.
    The quality of any user's connection to Primex will, obviously, 
also depend on the quality of that user's Internet connection, 
including the nature and adequacy of the connection to the user's 
chosen ISP, the robustness of that ISP's network and interconnections, 
and the robustness of the interconnected networks. Nasdaq expects that 
the degree to which Primex participants choose to rely on Internet 
access would be consistent with the quality of Internet service such 
participants are able to obtain.
2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of section 15A of the Act,\5\ in general 
and with section 15A(b)(5) of the Act,\6\ in particular, which requires 
that the rules of the NASD provide for 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. The proposed modification to provide a lower-cost option for 
accessing the Primex Auction System supports efficient use of existing 
systems and ensures that the associated costs are allocated equitably. 
Nasdaq believes that the proposed fees, which are lower than the 
current fees for accessing the Primex Auction System, are reasonable 
and equitable.
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    \5\ 15 U.S.C. 78o-3.
    \6\ 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, as amended, 
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 on the proposed rule change were neither solicited 
nor received.

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 NASD consents, the Commission will:
    (A) By order approve such proposed rule change, as amended, or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, 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, 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 filings will also be available for inspection and 
copying at the principal office of the NASD. All submissions should 
refer to File No. SR-NASD-2003-62 and should be submitted by June 19, 
2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-13447 Filed 5-28-03; 8:45 am]
BILLING CODE 8010-01-P