[Federal Register Volume 68, Number 125 (Monday, June 30, 2003)]
[Notices]
[Pages 38735-38736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16466]



[[Page 38735]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48070; File No. SR-NASD-2003-62]


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

June 20, 2003.

I. Introduction

    On March 31, 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''), 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 amend NASD Rule 5012 to enable access to the 
Primex Auction System (``Primex'') via the Internet and to amend NASD 
Rule 7010(r) to specify the fees that the NASD would charge for such 
access. NASD filed Amendment No. 1 to the proposal on May 16, 2003.\3\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on May 29, 2003.\4\ The Commission received no 
comments on the proposal. This order approves the proposed rule change, 
as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Amex filed a new Form 19b-4, which 
replaced the original filing in its entirety. See letter from Alex 
Kogan, Associate General Counsel, Nasdaq to Katherine A. England, 
Assistant Director, Division of Market Regulation, Commission, dated 
May 15, 2003.
    \4\ Securities Exchange Act Release No. 47906 (May 22, 2003), 68 
FR 32144.
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II. Description of Proposed Rule Change

    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.
    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''). 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.). The monthly logon fees that Nasdaq itself 
proposes to charge for Internet access to the Primex are also lower 
than the current logon fees for Primex access via a dedicated line.
    Nasdaq has represented 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. Further, Nasdaq has represented 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.
    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 be 
required to 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 has represented that it may, from time to time, change the 
enrollment/disenrollment requirements, methods and procedures and will 
advise the participating firms accordingly. Nasdaq has committed to 
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.\5\
    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. Nasdaq has represented that 
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.
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    \5\ Nasdaq has agreed to 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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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\6\ Specifically, the Commission finds that the proposal is 
consistent with the requirements of section 15A of the Act,\7\ in 
general, and section 15A(b)(6) of the Act,\8\ in particular, which 
requires that the rules of the NASD be designed to promote just and 
equitable principles of trade; to remove impediments to and perfect the 
mechanism of a free and open market and a national market system; and, 
in general, to protect investors and the public interest; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Commission believes that the proposal will 
enable additional market participants to access Primex, thereby 
enhancing the depth of the market represented in Primex.
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    \6\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition, and capital formation. See 
15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78o-3(b)(6).
    \8\ 15 U.S.C. 78o-3(b)(6).
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    Further, in finding the proposal consistent with section 15A(b)(6) 
of the Act,\9\ the Commission considered security issues involving 
Internet access to Primex. In this respect, the Commission believes 
that the procedures that NASD has represented it will implement for 
user enrollment for Internet access to Primex provide an acceptable 
level of security. In addition, the Commission notes that Nasdaq has 
represented that it 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.\10\
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    \9\ Id.
    \10\ See supra note 5.

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[[Page 38736]]

    Moreover, the Commission finds the proposal consistent with the 
provisions of 15A(b)(5) of the Act,\11\ 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 Commission 
believes that the proposed fees for Primex access over the Internet, 
which the Nasdaq represents are lower than the current fees for 
accessing Primex using existing technology, are reasonable and 
equitable.
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    \11\ 15 U.S.C. 78o-3(b)(5).
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    Furthermore, the Commission finds good cause for approving the 
proposed rule change and Amendment No. 1 thereto prior to the thirtieth 
day after the date of publication of the notice of filing thereof in 
the Federal Register.\12\ The proposed rule change, as amended by 
Amendment No. 1 has been published for public comment in the Federal 
Register as of May 29, 2003. The Commission has not received any 
comments on the proposal. The Commission is accelerating approval of 
the proposed rule change and Amendment No. 1 prior to the thirtieth day 
after the date of publication in the Federal Register because the 
Commission believes that adding the Internet access option will not 
alter the existing methods of accessing Primex, and that accelerated 
approval should impart immediate benefits to those participants that 
choose to access Primex over the Internet. Accordingly, the Commission 
believes that it is consistent with sections 15A(b)(6),\13\ 15A(b)(5) 
\14\ and 19(b)(2) \15\ of the Act, to approve the proposed rule change 
and Amendment No. 1 thereto on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ 15 U.S.C. 78o-3(b)(5).
    \15\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NASD-2003-62), as amended, 
be, and it hereby is, approved on an accelerated basis.
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    \16\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16466 Filed 6-27-03; 8:45 am]
BILLING CODE 8010-01-P