[Federal Register Volume 68, Number 129 (Monday, July 7, 2003)]
[Notices]
[Pages 40315-40318]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17050]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48110; File No. SR-NASD-2003-97]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
National Association of Securities Dealers, Inc. Relating to Extension 
on a Pilot Basis of NASD Rule 7010(k) Relating to Fees for the Trade 
Reporting and Compliance Engine (TRACE)

June 30, 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 June 17, 2003, the National Association of Securities Dealers, Inc. 
(``NASD''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by NASD. 
NASD filed an amendment to the proposed rule change on June 27, 
2003.\3\ NASD has designated the proposed rule change as ``establishing 
or changing a due, fee, or other charge'' under section 19(b)(3)(A)(ii) 
of the Act \4\ and Rule 19b-4(f)(2) thereunder,\5\ which renders the 
proposal effective upon filing with the Commission. 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 Kosha K. Dalal, Assistant General Counsel, 
NASD, to Katherine A. England, Assistant Director, Division of 
Market Regulation, SEC, dated June 27, 2003 (Amendment No. 1). In 
Amendment No. 1, NASD moved the placement of a footnote marked for 
deletion in the rule filing to clarify that the footnote was part of 
the actual rule text and not simply a footnote to the rule filing.
    \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

    NASD is proposing to amend NASD Rule 7010(k) relating to fees for 
the Trade Reporting and Compliance Engine (``TRACE'') prior to the 
expiration of the pilot program for fees on June 30, 2003. NASD is 
proposing to extend the pilot program for TRACE fees to January 31, 
2004. NASD is not proposing any revisions to the current fee structure 
for TRACE as part of this rule filing. Therefore, as a result of the 
proposed rule change, the current fee structure would remain in effect 
to January 31, 2004. Below is the text of the proposed rule change. 
Proposed new language is italicized; proposed deletions are in 
brackets.
* * * * *

7010. System Services

    (a) through (j) No Change.
(k) Trade Reporting and Compliance Engine (TRACE)
    (Rule 7010(k) shall expire on [June 30, 2003] January 31, 2004, 
unless amended, extended, or permanently adopted by NASD pursuant to 
SEC approval at or before such date).
    The following charges shall be paid by participants for the use of 
the Trade Reporting and Compliance Engine (``TRACE''):

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             System fees                   Transaction reporting fees                 Market data fees
----------------------------------------------------------------------------------------------------------------
From 07/01/02 to 12/31/02:            From 07/01/02 to 12/31/02:            BTDS Professional Display--$60/month
Web Browser Access:                   Trades up to and including $200,000    per terminal, except
$85/month for 1 user ID;               par value--$0.50/trade;              For a period of one calendar month
$75/month for 2-9 user IDs;           Trades between $201,000 and $999,999   to be announced: Waiver of fee ($0)
$70/month for 2-10+ user, IDs,         par value--$0.0025 times the number
 except                                of bonds traded/trade;
If less than 25 trades per month, in  Trades of $1,000,000 par value or
 October, November, or December 2002-  more--$2.50/trade
 $25/month per user ID

[[Page 40316]]

 
From 01/01/03 to [06/30/03] 01/31/
 04: Level I Trade Report Only Web
 Browser Access--$25/month per user
 ID
Level II Full Service Web Browser
 Access--$85/month per user ID,
 except
For a period of one calendar month
 to be announced: Level II Full
 Service Web Browser Access--$25/
 month per user ID
From 01/01/03 to [06/30/03] 01/31/
 04: Trades up to and including
 $200,000 par value--$0.475/trade;
Trades between $201,000 and $999,999
 par value--$0.002375 times the
 number of bonds traded/trade;
Trades of $1,000,000 par value or
 more--$2.375/trade
CTCI--$25/month/line                  From 07/01/02 to 12/31/02:            BTDS Internal Usage Authorization--
                                      Cancel/Correct--$3/trade, except       $500/month per application/service.
                                      For October 2002--$1.50/trade
                                      For November 2002--$2.25/trade
                                      From 01/01/03 to [06/30/03] 01/31/
                                       04: Cancel/Correct--$1.50/trade
Third Party--$25/month                From 07/01/02 to 12/31/02:            BTDS External Usage Authorization--
                                      ``As of'' Trade Late--$3/trade,        $1,000/month per application/
                                       except                                service.
                                      For October 2002--$1.50/trade
                                      For November 2002--$2.25/trade
                                      From 01/01/03 to [06/30/03] 01/31/
                                       04: ``As of'' Trade Late--$3/trade
                                      Browse & Query--$0.05 after first     BTDS Non-Professional Display--$1/
                                       page                                  month per terminal.
----------------------------------------------------------------------------------------------------------------

    (1) System Related Fees. There are three methods by which a member 
may report corporate bond transactions that are reportable to NASD 
pursuant to the Rule 6200 Series. A member may choose among the 
following methods to report data to NASD: (a) a TRACE web browser; (b) 
a Computer-to-Computer Interface (``CTCI'') (either one dedicated 
solely to TRACE or a multi-purpose line); or (c) a third-party 
reporting intermediary. Fees will be charged based on the reporting 
methodology selected by the member.
(A) Web Browser Access
    (i) For the period commencing July 1, 2002 and ending December 31, 
2002, the charge to be paid by a member that elects to report TRACE 
data to NASD via a TRACE web browser shall be as follows: for the first 
user ID registered, a charge of $85 per month; for the next two through 
nine user IDs registered, a charge of $75 per month, per such 
additional user ID; and for ten or more user IDs registered, a charge 
of $70 per month, per user ID from two to ten or more. If a member 
reports less than 25 trades per month to the TRACE system in October, 
November, or December 2002, the charge to be paid by a member for the 
TRACE web browser shall be $25, per such month, per user ID.
    (ii) For the period commencing January 1, 2003 and ending [June 30, 
2003] January 31, 2004, the charge to be paid by a member that elects 
to report TRACE data to NASD via a TRACE web browser shall be as 
follows: $25 per month, per user ID for Level I Web Trade Report Only 
Browser Access and $85 per month, per user ID for Level II Full Service 
Web Browser Access. Notwithstanding the above sentence, following the 
effective date of increased bond data dissemination as approved by the 
SEC on January 31, 2003[\5\], NASD shall announce a period of one 
calendar month during which the charge for Level II Full Service Web 
Browser Access shall be $25 per month, per user ID.
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    \[5]\ [On January 31, 2003, the SEC approved amendments to NASD 
Rule 6250 of the TRACE rules that will allow NASD to begin 
disseminating transaction information on more than 4,000 qualifying 
Investment Grade corporate debt securities. See Securities Exchange 
Act Release No. 47302 (January 31, 2003), 68 FR 6233 (February 6, 
2003) (File No. SR-NASD-2002-174).]
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    (B) through (C) No Change.
    (2) Transaction Reporting Fees
    For each transaction in corporate bonds that is reportable to NASD 
pursuant to the Rule 6200 Series, the following charges shall be 
assessed against the member responsible for reporting the transaction:
(A) Trade Reporting Fee
    (i) For the period commencing July 1, 2002 and ending December 31, 
2002, a member shall be charged a Trade Reporting Fee based upon a 
sliding scale ranging from $0.50 to $2.50 per transaction based on the 
size of the reported transaction. Trades up to and including $200,000 
par value will be charged a $0.50 fee per trade; trades between 
$201,000 par value and $999,999 par value will be charged a fee of 
$0.0025 multiplied by the number of bonds traded per trade; and trades 
of $1,000,000 par value or more will be charged a fee of $2.50 per 
trade.
    (ii) For the period commencing January 1, 2003 and ending [June 30, 
2003] January 31, 2004, a member shall be charged a Trade Reporting Fee 
based upon a sliding scale ranging from $0.475 to $2.375 per 
transaction based on the size of the reported transaction. Trades up to 
and including $200,000 par value will be charged a $0.475 fee per 
trade; trades between $201,000 par value and $999,999 par value will be 
charged a fee of $0.002375 multiplied by the number of bonds traded per 
trade; and trades of $1,000,000 par value or more will be charged a fee 
of $2.375 per trade.
(B) Cancel or Correct Trade Fee
    For the period commencing July 1, 2002 and ending December 31, 
2002, a member shall be charged a Cancel or Correct Trade Fee of $3.00 
per canceled or corrected transaction. To provide firms with time to 
adjust to the new reporting system, the Cancel or Correct Trade Fee 
will not be charged until the later of October 1, 2002 or 90 days after

[[Page 40317]]

the effective date of TRACE. For the month of October 2002, the Cancel 
or Correct Trade Fee shall be $1.50 per canceled or corrected 
transaction. For the month of November 2002, the Cancel or Correct 
Trade Fee shall be $2.25 per canceled or corrected transaction. For the 
period commencing January 1, 2003 and ending [June 30, 2003] January 
31, 2004, a member shall be charged a Cancel or Correct Trade Fee of 
$1.50 per canceled or corrected transaction.
(C) ``As of'' Trade Late Fee
    For the period commencing July 1, 2002 and ending December 31, 
2002, a member shall be charged an ``As of'' Trade Late Fee of $3.00 
per transaction for those transactions that are not timely reported 
``As of'' as required by these rules. To provide firms with time to 
adjust to the new reporting system, the ``As of'' Trade Late Fee will 
not be charged until the later of October 1, 2002 or 90 days after the 
effective date of TRACE. For the month of October 2002, the ``As of'' 
Trade Late Fee shall be $1.50 per such transaction. For the month of 
November 2002, the ``As of'' Trade Late Fee shall be $2.25 per such 
transaction. For the period commencing January 1, 2003 and ending [June 
30, 2003] January 31, 2004, a member shall be charged an ``As of'' 
Trade Late Fee of $3.00 per canceled or corrected transaction.
    (D) No Change.
    (3) 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, NASD 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. NASD 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
Extension of Pilot Program for TRACE Fees
    NASD is proposing to extend and/or renew the pilot program for 
TRACE fees that is scheduled to expire on June 30, 2003 to expire on 
January 31, 2004. NASD believes the additional time will allow it to 
more fully reassess the overall impact of the TRACE fee structure. As a 
result of several changes to the TRACE fee structure during the pilot 
period, additional time to review and analyze the fee structure is 
necessary. NASD believes that the proposed fee structure for TRACE is 
reasonable. However, NASD remains committed to reviewing and 
reassessing the impact of the overall TRACE fee structure over time to 
ensure that the fees are reasonable and equitable for participants in 
the TRACE system. NASD expects to submit a rule filing to the SEC prior 
to the January 31, 2004 expiration date seeking approval of a permanent 
fee structure for TRACE.
Background
    On July 1, 2002, TRACE became effective. On June 28, 2002, the 
Commission approved proposed NASD fees relating to the operation of the 
TRACE system (Rule 7010(k)) on a pilot basis for a six-month period 
expiring on December 28, 2002.\6\ As part of that rule filing 
(Amendment No. 3 to SR-NASD-2002-63), NASD committed to review and 
reassess the proposed TRACE fees as soon as practicable and within six 
months after the effective date of TRACE.
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    \6\ See Securities Exchange Act Release No. 46145 (June 28, 
2002), 67 FR 44911 (July 5, 2002) (File No. SR-NASD-2002-63).
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    On November 15, 2002, NASD submitted a proposed rule change to the 
SEC to reduce certain TRACE fees for the fourth quarter of 2002 (i.e., 
the Web Browser Access Fee, the Cancel or Correct Fee, and the ``As 
of'' Trade Late Fee). These fees were reduced effective as of October 
1, 2002.\7\
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    \7\ On November 22, 2002, the Commission issued a notice that 
this proposed rule change had become effective upon filing with the 
Commission. See Securities Exchange Act Release No. 46893 (November 
22, 2002), 67 FR 72008 (December 3, 2002) (File No. SR-NASD-2002-
167).
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    On December 12, 2002, NASD submitted a proposed rule change to the 
SEC to extend the pilot program for TRACE fees to February 28, 2003 and 
to modify the pilot effective January 1, 2003.\8\ As of January 1, 
2003, NASD divided the Web Browser Access Fee into two service and fee 
levels--Level I with no access to real-time TRACE data, and Level II 
with access to real-time TRACE data. The fee for Level I Trade Report 
Only Web Browser Access is $25 per month, per user ID and the fee for 
Level II Full Service Web Browser Access is $85 per month, per user ID. 
A participant may register for a combination of Level I and Level II 
service based on its usage and needs.
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    \8\ On December 19, 2002, the Commission issued a notice that 
this proposed rule change had become effective upon filing with the 
Commission. See Securities Exchange Act Release No. 47056 (December 
19, 2002), 67 FR 79205 (December 27, 2002) (File No. SR-NASD-2002-
176).
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    As of January 1, 2003, NASD also reduced trade reporting fees by 5% 
for 2003 and reduced the Cancel or Correct Fee from $3.00 to $1.50 
effective January 1, 2003. The ``As of'' Trade Late Fee continued at 
$3.00 per trade.
    On February 27, 2003, NASD filed, for immediate effectiveness, a 
rule filing to extend the pilot program for TRACE fees to June 30, 
2003.\9\
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    \9\ See Securities Exchange Act Release No. 47444 (March 4, 
2003), 68 FR 11602 (March 11, 2003) (File No. SR-NASD-2003-25).
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\10\ which requires, among 
other things, that NASD's rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among members and issuers and 
other persons using any facility or system which NASD operates or 
controls. NASD is proposing to extend the pilot program for TRACE fees 
to January 31, 2004, to allow NASD greater time to analyze and reassess 
TRACE fees.
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    \10\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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, as amended.

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 proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \11\ and Rule 19b-4(f)(2) 
thereunder,\12\ because the proposal is ``establishing or changing a 
due, fee, or other charge'' imposed by NASD. The rule change has become 
effective upon filing pursuant to Section 19(b)(3)(A) of the Act and 
Rule 19b-4(f)(2) thereunder, and will be operational immediately.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of this filing, the Commission may 
summarily

[[Page 40318]]

abrogate this proposal 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.\13\
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    \13\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 
60-day abrogation period, the Commission considers the period to 
commence on June 27, 2003, the date that NASD 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 proposal 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 NASD. All submissions 
should refer to file number SR-NASD-2003-97 and should be submitted by 
July 28, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17050 Filed 7-3-03; 8:45 am]
BILLING CODE 8010-01-P