[Federal Register Volume 68, Number 105 (Monday, June 2, 2003)]
[Notices]
[Pages 32788-32791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13607]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47919; File No. SR-NASD-2003-86]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Regarding Fees for the Reporting of 
SuperMontage Transactions through the Automated Confirmation 
Transaction Service (``ACT'')

May 23, 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 May 22, 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. 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\ 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 Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend the fee schedule associated with the use 
of

[[Page 32789]]

ACT.\5\ Nasdaq will implement the proposed rule change on June 1, 2003.
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    \5\ 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. Proposed new 
language is italicized; proposed deleted language is [bracketed].
* * * * *

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 executed   [$0.029/side (subject to waiver
     through SuperMontage (or any other   under paragraph (2) below)]
     transaction execution system that
     makes use of SuperMontage's
     functionality to report
     transactions) (``SuperMontage
     Transactions'').
        Average daily volume of          Fee per side for transaction
         transaction reports for          reports of SuperMontage
         SuperMontage Transactions        Transactions to which such
         during the month to which a      participant is a party
         participant is a party.
            0 to 9,999.................     $0.029
            10,000 or more.............     $0.00
    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 Transactions to in
         Covered Transactions during      which such participant is a
         the month in which a             party
         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  $0.029/side.
     not 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).
    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.\***\
 
\*\ 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.

    [(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

[[Page 32790]]

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.]
    (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.
    As part of an ongoing effort to reduce the costs incurred by market 
participants to use Nasdaq services, Nasdaq filed a proposal,\6\ 
effective as of April 1, 2003, to waive the usual $0.029 per side ACT 
fee for transactions executed through SuperMontage and other systems 
that use SuperMontage's functionality to report trades (collectively, 
``SuperMontage Transactions'') during any month in which a member: (i) 
Executed an average daily volume of 10,000 or more transactions through 
SuperMontage; (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.
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    \6\ Securities Exchange Act Release No. 47621 (April 2, 2003), 
68 FR 17418 (April 9, 2003) (SR-NASD-2003-56).
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    Nasdaq is now proposing to simplify the pricing for ACT reports of 
SuperMontage Transactions by basing the applicable fee on the average 
daily volume of ACT transaction reports for SuperMontage Transactions 
in which an ACT participant is identified as either the reporting party 
or the contra-party during the month.
    Effective June 1, 2003, the basic ACT reporting fee of $0.029 per 
trade per side will be waived for all SuperMontage Transactions if an 
ACT participant is party to an average daily volume of 10,000 or more 
ACT transaction reports for SuperMontage Transactions during the month. 
Nasdaq represents that the price applicable to reports of SuperMontage 
Transactions will be directly related to the extent of such reports. 
Nasdaq represents that it must compete with other market centers that 
currently offer free trade reporting services, or that effectively 
share market data revenue in exchange for trade reports.\7\ By 
associating the availability of free trade reporting with a firm's 
volume of trade reporting, Nasdaq hopes to ensure adequate funding for 
ACT, either through a member's direct payment of the standard ACT trade 
reporting fee, or by the member achieving a high volume of trade 
reporting that translates into other revenue sources. Specifically, 
when a firm achieves a high volume of trade reporting, Nasdaq 
represents that it receives the market data revenue associated with the 
trade reports and a high volume of transaction execution fees, and is 
also more likely to earn revenues from providing ancillary services to 
the firm, such as ACT trade comparison and ACT browse/query. Thus, 
Nasdaq believes that the proposed ACT fee schedule recognizes not only 
the economies of scale associated with higher volumes of trade 
reporting activity, but also the economies of scope and increased 
revenue streams associated with providing a range of related services 
to the firm.
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    \7\ See, e.g., Securities Exchange Act Release No. 47331 
(February 10, 2003), 68 FR 7635 (February 14, 2003) (SR-NASD-2003-
09) (eliminating trade reporting fees associated with the NASD's 
Alternative Display Facility); 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).
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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,\8\ in general and with 
section 15A(b)(5) of the Act,\9\ 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. The Nasdaq believes that 
the proposal bases the fees applicable to ACT reports of SuperMontage 
Transactions on the number of such reports to which a member is a 
party, and thereby recognizes the economies of scale and scope 
associated with higher volumes of such reports.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 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 has become effective upon filing pursuant 
to section 19(b)(3)(A)(ii) of the Act \10\ and subparagraph (f)(2) of 
Rule 19b-4 thereunder,\11\ 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,

[[Page 32791]]

or otherwise in furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \11\ 17 CFR 240.19b-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 Nasdaq. 
All submissions should refer to File No. SR-NASD-2003-86 and should be 
submitted by June 23, 2003.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-13607 Filed 5-30-03; 8:45 am]
BILLING CODE 8010-01-P