[Federal Register Volume 68, Number 152 (Thursday, August 7, 2003)]
[Notices]
[Page 47121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20125]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48279; File No. SR-NASD-2003-52]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change by the National Association of Securities Dealers, 
Inc. To Establish a Fee for Receipt of Mutual Fund Quotation Service 
Data by Distributors

August 1, 2003.
    On March 24, 2003, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with 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 establish a $1,000 per month distributor fee 
for receipt of mutual fund information through Nasdaq's Mutual Fund 
Quotation Service (``MFQS''). The fee would be assessed on all 
distributors, as defined in proposed NASD Rule 7090(e)--i.e., firms 
that receive the data and distribute it to third parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The proposed rule change was published for comment in the Federal 
Register on April 24, 2003.\3\ By letters dated, respectively, May 30, 
2003 and July 18, 2003, Nasdaq clarified the scope and purpose of the 
fee.\4\ The Commission received no comments on the proposed rule 
change.\5\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 47688 (April 17, 
2003), 68 FR 20199.
    \4\ See: letter from Eleni Constantine, Office of the General 
Counsel, Nasdaq to Katherine A. England, Assistant Director, 
Division of Market Regulation (``Division''), dated May 30, 2003 
(``first clarifying letter''); and letter from Eleni Constantine, 
Office of the General Counsel, Nasdaq to Katherine A. England, 
Assistant Director, Division, dated July 18, 2003 (``second 
clarifying letter'').
    \5\ Nasdaq has consented to an extension of time for Commission 
action on the proposal until August 1, 2003, under Section 
19(b)(2)(B) of the Act.
---------------------------------------------------------------------------

    The Commission has carefully reviewed the NASD's proposed rule 
change and finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities association and, in particular, the requirements of 
Section 15A of the Act \6\ and the rules and regulations thereunder.\7\ 
The Commission finds specifically that the proposed rule change is 
consistent with Section 15A(b)(5) of the Act \8\ because the fee will 
be assessed against all firms that receive the Nasdaq MFQS data and 
distribute it to third parties. In addition, Nasdaq represents that the 
amount of the fee is sufficient to compensate Nasdaq for services it 
provides to distributors and their subscribers by collecting and 
processing the mutual fund data feed, producing the data feed, and 
providing data quality services. At the same time, Nasdaq believes the 
amount of the fee will not discourage wide distribution of the data.\9\
---------------------------------------------------------------------------

    \6\ 15 U.S.C 78o-3.
    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \8\ Section 15A(b)(5) of the Act requires that the rules of 
national securities association 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 the 
association operates or controls. 15 U.S.C. 78o-3(b)(5).
    \9\ In its first clarifying letter, Nasdaq represented that 
mutual fund data is delivered through the legacy data feeds. Nasdaq 
stated that these products provide MFQS data, OTC Bulletin Board 
data and index data. Nasdaq represented that the legacy data feed 
products operate at a very substantial deficit without this new fee. 
In determining how to reflect these costs in the fee Nasdaq 
estimated the likely population of users. Its best estimate was that 
the population of users was probably similar to the firms that pay 
Nasdaq's index distribution fee. Nasdaq believed that it could most 
fairly spread the costs over the estimated population if the fee 
were set at $1,000.
---------------------------------------------------------------------------

    Finally, the Commission finds that the proposal is consistent with 
Section 15A(b)(6) of the Act \10\ because vendors are free to choose 
whether to receive the data, and the fee is uniformly charged to all 
firms that receive the data and distribute it to third parties; to the 
extent that Nasdaq.com chooses to so receive and distribute the data, 
it too will be assessed the fee.\11\
---------------------------------------------------------------------------

    \10\ Section 15A(b)(6) of the Act requires that the rules of an 
association not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. 15 U.S.C. 78o-3(b)(6).
    \11\ In this regard, in its second clarifying letter, Nasdaq 
represents that, before creation of the internal securities 
information processor (``SIP'') about a year ago, the Nasdaq 
proprietary data that comprises the mutual fund data was built into 
the feed that dealers were required to take. Nasdaq also represents 
that, with the creation of the internal SIP, the mutual fund data at 
issue has been separated out from the core SIP data and is provided 
over a feed that only contains Nasdaq proprietary data. Nasdaq 
states that this proposal enables vendors to choose whether to take 
the mutual fund data, without affecting their ability to take the 
required consolidated data through the SIP. Finally, Nasdaq states 
that, to the extent that vendors (including Nasdaq.com) choose to 
take this data and to gain value by redistributing it, Nasdaq will 
charge a fee for this data, which it incurs costs in compiling.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NASD-2003-52) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-20125 Filed 8-6-03; 8:45 am]
BILLING CODE 8010-01-P