[Federal Register Volume 68, Number 157 (Thursday, August 14, 2003)]
[Notices]
[Pages 48654-48656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20767]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48303; File No. SR-NASD-2003-120]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. to Establish a Revenue Sharing Program

August 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 August 1, 2003, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its subsidiary, The Nasdaq Stock 
Market, Inc. (``Nasdaq''), filed with 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 filed the proposal pursuant to Section 19(b)(3)(A)(ii) of the 
Act,\3\ and Rule 19b-4(f)(2) thereunder \4\ as one establishing or 
changing a due, fee or other charge imposed by the self-regulatory 
organization, 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\ 15 U.S.C. 78s(b)(3)(A).
    \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 establish a revenue sharing program. Nasdaq will 
implement the proposed rule change on August 1, 2003.
    The text of the proposed rule change is below. Proposed new 
language is in italics.\5\
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    \5\ Note that subsection (t) of Rule 7010 has been reserved for 
the rule change proposed in SR-NASD-2003-114 (July 22, 2003), which 
has been submitted for Commission approval pursuant to Section 
19(b)(2) of the Act, 15 U.S.C. 78s(b)(2).
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7000. CHARGES FOR SERVICES AND EQUIPMENT
7010. System Services
    (a)-(t) No change
    (u) Nasdaq Revenue Sharing Program.
    After Nasdaq earns total operating revenue sufficient to offset 
actual expenses and working capital needs, a percentage of all Market 
Participant Operating Revenue (``MPOR'') shall be

[[Page 48655]]

eligible for sharing with Nasdaq Quoting Market Participants (as 
defined in Rule 4701). MPOR is defined as operating revenue that is 
generated by Nasdaq Quoting Market Participants. MPOR consists of 
transaction fees, technology fees, and market data revenue that is 
attributable to Nasdaq Quoting Market Participant activity in Nasdaq 
National Market and SmallCap Market securities. MPOR shall not include 
any investment income or regulatory monies. The sharing of MPOR shall 
be based on each Nasdaq Quoting Market Participant's pro rata 
contribution to MPOR. In no event shall the amount of revenue shared 
with Nasdaq Quoting Market Participants exceed MPOR. To the extent 
market data revenue is subject to year-end adjustment, MPOR revenue may 
be adjusted accordingly.
* * * * *

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
    As part of an ongoing effort to reduce the costs incurred by market 
participants to use Nasdaq services, Nasdaq is implementing a general 
revenue sharing program based on The Cincinnati Stock Exchange's 
revenue sharing program, as adopted in 1999 and subsequently 
amended.\6\ The purpose of the proposed rule change is to provide an 
incentive for growth in member activity. To compete more effectively, 
Nasdaq proposes to reduce significantly the cost of doing business for 
Nasdaq Quoting Market Participants (as defined in Rule 4701) by means 
of a quarterly revenue sharing program, without diminishing the quality 
of the market, including regulatory quality.\7\
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    \6\ Securities Exchange Act Release No. 41082 (February 22, 
1999), 64 FR 10035 (March 1, 1999) (SR-CSE-99-02) (notice); 
Securities Exchange Act Release No. 41286 (April 14, 1999), 64 FR 
19843 (April 22, 1999) (SR-CSE-99-02) (approval order); Securities 
Exchange Act Release No. 46688 (October 18, 2002), 67 FR 65816 
(October 28, 2002) (SR-CSE-2002-14) (notice of filing and immediate 
effectiveness).
    \7\ See infra note 8.
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    The proposed rule change contemplates Nasdaq sharing with Nasdaq 
Quoting Market Participants (i.e., market makers and ECNs that 
participate in SuperMontage) all or a portion of Nasdaq's Market 
Participant Operating Revenue (``MPOR'') after operating expenses and 
working capital needs have been met. MPOR is defined as all operating 
revenue that is generated by Nasdaq Quoting Market Participants. MPOR 
consists of transaction fees, technology fees, and market data revenue 
that is attributable to Nasdaq Quoting Market Participant activity in 
Nasdaq National Market and SmallCap Market securities. All regulatory 
monies and investment income are excluded from MPOR.
    Under the proposal, Nasdaq's Board of Directors (acting through its 
Finance Committee or as a whole) would have the authority to determine 
on an ongoing basis the appropriate amount of MPOR to be shared with 
Nasdaq Quoting Market Participants. In making this determination, the 
Board would be guided by the need to balance the objective of sharing 
meaningful portions of MPOR with the objective of maintaining Nasdaq's 
financial integrity.\8\ To simplify the administration of the revenue 
sharing program and smooth out monthly expense fluctuations, the 
program will operate on a quarterly basis. In addition, to the extent 
that Nasdaq market data revenue is subject to a year-end adjustment, 
revenues distributed to Nasdaq Quoting Market Participants are subject 
to adjustment accordingly, to ensure that member receipts of market 
data revenue are consistent with the year-end true up procedures 
applied under the Nasdaq UTP Plan.
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    \8\ In particular, Nasdaq will not compromise its regulatory 
responsibilities by sharing revenue that would more appropriately be 
used to fund regulatory responsibilities. Nasdaq will be mindful of 
its regulatory responsibilities when determining its working capital 
needs. See, Securities Exchange Act Release No. 41286 (April 14, 
1999), 64 FR 19843, 19844 (April 22, 1999) (SR-CSE-99-02).
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    MPOR will be shared with Nasdaq Quoting Market Participants on a 
pro rata basis. After Nasdaq has accounted for operating expenses and 
working capital contributions, each Nasdaq Quoting Market Participant 
will receive a percentage of the MPOR to be shared that is equal to 
that firm's percentage contribution to MPOR. In no event will the 
amount of revenue shared with Nasdaq Quoting Market Participants exceed 
MPOR.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\9\ in general, and with 
section 15A(b)(6) of the Act,\10\ in particular, in that it is 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. Nasdaq believes that the proposed change will create 
an incentive for members to use Nasdaq systems, thereby increasing 
competition, which, in turn, will enhance the National Market System.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(6).
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    In addition, Nasdaq believes that the proposed rule change is 
consistent with section 15A(b)(5) of the Act,\11\ 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. Specifically, the proposal 
provides for revenue sharing with Nasdaq Quoting Market Participants, 
who are primarily responsible for Nasdaq's financial viability and 
growth.
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    \11\ 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 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 has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act \12\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\13\ because it establishes or changes a due, fee, or other 
charge imposed by the Association. 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

[[Page 48656]]

the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 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 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 the Association. All 
submissions should refer to file number SR-NASD-2003-120 and should be 
submitted by September 4, 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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-20767 Filed 8-13-03; 8:45 am]
BILLING CODE 8010-01-P