[Federal Register Volume 68, Number 134 (Monday, July 14, 2003)]
[Notices]
[Pages 41668-41671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17709]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48138; File No. SR-NASD-2003-71]


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 Automated Confirmation 
Transaction Service

July 8, 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 April 14, 2003 the National Association of Securities Dealers, Inc. 
(``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed a proposed rule change with the Securities and 
Exchange Commission (``SEC'' or ``Commission''). On April 22, 2003, 
Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ On May 28, 
2003, Nasdaq filed Amendment No. 2 to the proposed rule change.\4\ On 
June 19, 2003, Nasdaq filed Amendment No. 3 to the proposed rule 
change.\5\ The proposed rule change is 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 Nasdaq under Section 19(b)(3)(A)(ii) of the 
Act,\6\ and Rule 19b4 thereunder, which renders the proposal effective 
upon filing with the Commission. 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\ See letter from John M. Yetter, Assistant General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation (``Division''), Commission dated April 21, 2003. 
In Amendment No. 1, Nasdaq replaced its proposed rule change in its 
entirety.
    \4\ See letter from Mary M. Dunbar, Vice President and Deputy 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division, Commission dated May 27, 2003. In Amendment No. 
2, Nasdaq replaced its proposed rule change in its entirety.
    \5\ See letter from Mary M. Dunbar, Vice President and Deputy 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division, Commission dated June 18, 2003. In Amendment No. 
3, Nasdaq altered its original notice of a proposed rule change to 
re-designate it as effective upon filing pursuant to Section 
19(b)(3)(A)(ii) of the Act (15 U.S.C. 78s(b)(3)(A)(ii)). See n. 22 
infra.
    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).

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[[Page 41669]]

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

    Nasdaq proposes to eliminate certain fees associated with the use 
of the Automated Confirmation Transaction Service (``ACT'').\7\ The new 
fee schedule will be implemented beginning on July 1, 2003. The text of 
the proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in [brackets].\8\
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    \7\ This filing applies to usage of ACT by NASD members. The 
usage of ACT by non-members is governed by NASD Rule 6120.
    \8\ The text is marked to show changes from the language of the 
rule as amended by Securities Exchange Act Release No. 47919 (May 
23, 2003), 68 FR 32788 (June 2, 2003) (SR-NASD-2003-86), which was 
effective immediately upon filing.
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* * * * *

7000. CHARGES FOR SERVICES AND EQUIPMENT

7010. System Services

    (a)--(f) No change.
    (g) Automated Confirmation Transaction Service.
    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 through SuperMontage (or any 
other transaction execution system that makes use of SuperMontage's 
functionality to report transactions) (``SuperMontage Transactions'')

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Average daily volume of transaction  Fee per side for transaction
 reports for SuperMontage             reports of SuperMontage
 Transactions during the month to     Transactions to which such
 which a participant is a party:.     participant is a party:
0 to 9,999.........................  $0.029
10,000 or more.....................  $0.00
Other reports [Reporting of all      $0.00
 other] for 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      Covered Transactions to which such
 Transactions during the month in     participant is a party:]
 which a 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[*] (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).
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)[**] (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.)
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' position of No/Was
                                      transaction, paid by reporting
                                      side;
                                     $0.25/Break, Decline transaction,
                                      paid by each party
ACT Workstation....................  $525/logon/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 charge
                                      associated with its NWII
                                      terminal(s) during that period.)
------------------------------------------------------------------------
[* 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.]


[[Page 41670]]

    (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 the 
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.
    Nasdaq recently filed proposed rule changes to reduce ACT fees for 
(i) reports for transactions in Nasdaq National Market and SmallCap 
Market securities submitted to ACT by a market participant directly or 
through Nasdaq's Primex system,\9\ and (ii) reports of transactions 
that are executed through SuperMontage (or any other transaction 
execution system that uses SuperMontage's functionality to report 
transactions).\10\ According to Nasdaq, however, based on input 
received from members, Nasdaq has concluded that these price reductions 
may not be sufficient to allow Nasdaq to compete effectively for the 
orders of certain members.
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    \9\ See Securities Exchange Act Release No. 47661 (April 10, 
2003), 68 FR 19045 (April 17, 2003) (SR-NASD-2003-51).
    \10\ SR-NASD-2003-86 (May 22, 2003); see Securities Exchange Act 
Release No. 47621 (April 2, 2003), 68 FR 17418 (April 9, 2003) (SR-
NASD-2003-56).
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    Nasdaq states that it faces competition from market centers that 
are willing to offer market participants free trade reporting 
services,\11\ and that effectively share market data revenue associated 
with transactions in Nasdaq-listed securities by ``mutualizing'' 
revenues with certain members,\12\ notwithstanding the Commission's 
Order of Summary Abrogation (the ``Order'') regarding market data 
revenue sharing programs.\13\ Nasdaq asserts that by mutualizing 
revenues, a competitor with a comparatively small number of market 
participants can seek to attract the trade reporting activity of large 
firms, because a substantial percentage of the revenues associated with 
a new participant's trade reports will end up being shared with that 
participant. Nasdaq believes that, by contrast, a similar program 
instituted by Nasdaq would be competitively ineffective and 
administratively impractical, because Nasdaq's revenues must support a 
broader range of market and regulatory programs and because revenues 
would have to be shared across a broader base of market participants. 
Nasdaq believes that the resulting competitive environment is 
fundamentally unfair, because Nasdaq can neither share information 
revenues directly nor engage in mutualization of revenues. Nasdaq 
states that it can cut its fees to zero, but certain of its competitors 
can pay for trade reports. Moreover, Nasdaq believes that market 
centers that seek to use mutualization as a means of enticing trade 
reports also benefit from regulatory programs and systems funded 
predominantly by Nasdaq, and therefore profit from an inequitable 
apportionment of regulatory costs.\14\
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    \11\ 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).
    \12\ See 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 general revenue sharing program).
    \13\ See Securities Exchange Act Release No. 46159 (July 2, 
2002), 67 FR 45775 (July 10, 2002).
    \14\ See Securities Exchange Act Release No. 47849 (May 14, 
2003), 68 FR 27722 (May 20, 2003).
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    Accordingly, Nasdaq has sought to compete through wide-ranging 
price reductions across multiple services.\15\ Nasdaq states that its 
goal in designing the ACT price reductions, however, was to ensure that 
a member's ACT activity continued to have actual costs associated with 
it. Accordingly, for non-SuperMontage reports, Nasdaq adopted a 
graduated fee schedule, in which the price paid for ``marginal'' trade 
reports decreased from $0.029 to zero as trade reporting volume 
increased, but in which each participant would still be assessed a 
charge for a substantial number of its trade reports each month. Nasdaq 
asserts that it has also made SuperMontage reports free in some cases, 
but only if a member's volume of SuperMontage transaction reports is 
sufficiently high to allow Nasdaq to conclude that the loss of ACT 
revenue for SuperMontage reports would be at least partially offset by 
transaction execution revenue, market data revenue, and fees for value-
added ACT services, such as trade comparison and browse/query.
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    \15\ See SR-NASD-2003-86 (May 22, 2003) and Securities Exchange 
Act Release No. 47621 (April 2, 2003), 68 FR 17418 (April 9, 2003) 
(SR-NASD-2003-56) (reporting of SuperMontage trades); Securities 
Exchange Act Release No. 47661 (April 10, 2003), 68 FR 19045 (April 
17, 2003) (SR-NASD-2003-51) (other trade reports for Nasdaq National 
Market and SmallCap Market securities); Securities Exchange Act 
Release No. 47648 (April 8, 2003), 68 FR 17972 (April 14, 2003) (SR-
NASD-2003-53) and Securities Exchange Act Release No. 47612 (April 
1, 2003), 68 FR 17137 (April 8, 2003) (SR-NASD-2003-54) (Nasdaq 
Testing Facility); Securities Exchange Act Release No. 47637 (April 
7, 2003), 68 FR 17849 (April 11, 2003) (SR-NASD-2003-47) and 
Securities Exchange Act Release No. 47679 (April 15, 2003), 68 FR 
19593 (April 21, 2003) (SR-NASD-2003-48 (March 28, 2003) (NWII 
logons); Securities Exchange Act Release No. 47608 (April 1, 2003), 
68 FR 17134 (April 8, 2003) (SR-NASD-2003-43) and Securities 
Exchange Act Release No. 47607 (April 1, 2003), 68 FR 17136 (April 
8, 2003) (SR-NASD-2003-46) (computer-to-computer interface pricing); 
and Securities Exchange Act Release No. 47300 (January 31, 2003), 68 
FR 6234 (February 6, 2003) (SR-NASD-2003-10) (quotation update 
fees).
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    As noted above, however, Nasdaq has now concluded that these price 
reductions may not be adequate to allow Nasdaq to compete effectively. 
Accordingly, Nasdaq is proposing to completely eliminate the ACT charge 
for non-SuperMontage reports of transactions in Nasdaq National Market 
and SmallCap Market securities that are not subject to comparison 
through ACT. Thus, the current graduated fee schedule--which applies to 
all reports in Nasdaq National Market and SmallCap Market securities 
submitted to ACT by a market participant directly or through Nasdaq's 
Primex system, including reports submitted pursuant to ``automated 
give-up'' (``AGU'') and Qualified Service Representative (``QSR'') 
arrangements,\16\ as well as internalized trades and Primex trades--
would be eliminated.\17\
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    \16\ AGU and QSR arrangements allow a participant to report 
trades executed with other brokers with whom they have entered into 
a contractual arrangement.
    \17\ In this filing, Nasdaq is also proposing to move the text 
of the footnotes to NASD Rule 7010(g) into the text of the rule, to 
improve the rule's presentation in the NASD Manual, and is also 
making minor modifications to the existing rule text to enhance its 
clarity.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the

[[Page 41671]]

provisions of Section 15A of the Act,\18\ in general, and Section 
15A(b)(5) of the Act,\19\ 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 proposed rule change will 
result in a significant reduction in the fees paid by all ACT 
participants.
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    \18\ 15 U.S.C. 78o-3.
    \19\ 15 U.S.C. 78o-3(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 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 were neither solicited nor received.

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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \20\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\21\ because it establishes or changes a due, fee, or other 
charge imposed by Nasdaq. At any time within 60 days after 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, or otherwise in furtherance of the purposes of the Act. For 
purposes of calculating the 60-day abrogation period, the Commission 
considers the proposed rule change to have been filed on June 19, 2003, 
when Amendment No. 3 was filed.\22\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 17 CFR 240.19b-4(f)(2).
    \22\ See n. 5, supra.
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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, 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, as 
amended, 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 at 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 the File No. SR-NASD-2003-71 and should be 
submitted by August 4, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17709 Filed 7-11-03; 8:45 am]
BILLING CODE 8010-01-P