[Federal Register Volume 68, Number 158 (Friday, August 15, 2003)]
[Notices]
[Pages 48975-48977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20907]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48316; File No. SR-NASD-2003-116]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Modify the Fees Paid by NNMS Order Entry 
Firms for Certain Order Executions Through Nasdaq's SuperMontage System

August 11, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4\2\ thereunder, notice is hereby given that 
on July 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'') the proposed rule change as 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 under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-
4(f)(2) thereunder.\4\ 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)(ii).
    \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 modify the fees paid by NNMS Order Entry Firms 
(``OE Firms'') for certain order executions through Nasdaq's 
SuperMontage system. Nasdaq implemented the rule change on August 1, 
2003.
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deleted language is bracketed.
* * * * *

7000. CHARGES FOR SERVICES AND EQUIPMENT

7010. System Services
    (a)-(h) No change.
    (i) Nasdaq National Market Execution System (SuperMontage).
    The following charges shall apply to the use of the Nasdaq National 
Market Execution System (commonly known as SuperMontage) by members:

Order Entry
Non-Directed Orders (excluding           No charge
 Preferenced Orders).
Preferenced Orders:
Preferenced Orders that access a Quote/  No charge
 Order of the member that entered the
 Preferenced Order).
Other Preferenced Orders...............  $0.02 per order entry
Directed Orders........................  $0.10 per order entry
Order Execution
Non-Directed or Preferenced Order that
 accesses the Quote/Order of a market
 participant that does not charge an
 access fee to market participants
 accessing its Quotes/Orders through
 the NNMS:
Charge to member entering order........  $0.003 per share executed (but
                                          no more than $120 per trade
                                          for trades in securities
                                          executed at $1.00 or less per
                                          share)

[[Page 48976]]

 
Credit to member providing liquidity...  $0.002 per share executed (but
                                          no more than $80 per trade for
                                          trades in securities executed
                                          at $1.00 or less per share)
Non-Directed or Preferenced Order that   $0.001 per share executed (but
 accesses the Quote/Order of a market     no more than $40 per trade for
 participant that charges an access fee   trades in securities executed
 to market participants accessing its     at $1.00 or less per share)
 Quotes/Orders through the NNMS.
Directed Order.........................  $0.003 per share executed
Non-Directed or Preferenced Order        No charge
 entered by a member [Nasdaq Quoting
 Market Participant] that accesses its
 own Quote/Order.
[Non-Directed Order entered by an NNMS   [$0.001 per share executed (but
 Order Entry Firm that accesses its own   no more than $40 per trade for
 Quote/Order].                            trades in securities executed
                                          at $1.00 or less per share)]
Order Cancellation
Non-Directed and Preferenced Orders....  No charge
Directed Orders........................  $0.10 per order cancelled
 

    (j)-(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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 12, 2003, the Commission approved \5\ on a permanent basis a 
proposed rule change to allow OE Firms \6\ to enter non-marketable 
limit orders into SuperMontage using the SIZE Market Participant 
Identifier (``SIZE'').\7\ The program had originally been approved on a 
90-day pilot basis, beginning on February 10, 2003.\8\
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    \5\ See Securities Exchange Act Release No. 47830 (May 12, 
2003), 68 FR 27126 (May 19, 2003) (SR-NASD-2003-37) (``May Approval 
Order'').
    \6\ As noted in the May Approval Order, Nasdaq interprets the 
term ``NNMS Order Entry Firm'' to encompass NNMS Market Makers to 
the extent that they do not make markets in particular stocks. In 
SuperMontage, such firms are treated the same as other OE Firms when 
placing orders into the system for stocks in which they do not make 
a market.
    \7\ SIZE is the anonymous market participant identifier 
(``MPID'') that represents the aggregate size of all Non-
Attributable Quotes and Orders entered by market participants in 
Nasdaq at a particular price level. Non-Attributable Quotes and 
Orders are not displayed in the Nasdaq Quotation Montage using the 
market participant's MPID.
    \8\ See Securities Exchange Act Release No. 47301 (January 31, 
2003), 68 FR 6236 (February 6, 2003) (SR-NASD-2002-173).
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    At the beginning of the 90-day pilot period, Nasdaq did not assess 
a charge (or provide a liquidity provider credit) when a market 
participant's non-directed or preferenced order executed against its 
own Quote/Order. Effective April 1, 2003, however, Nasdaq modified its 
SuperMontage fee schedule to provide that an OE Firm entering a non-
directed order that accesses a limit order that the OE Firm itself 
posted in SIZE would pay $0.001 per share executed (but no more than 
$40 per trade for trades in securities executed at $1.00 or less per 
share).\9\ In situations where a Quoting Market Participant's order 
executes against its own Quote/Order, however, the order execution 
remained free.
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    \9\ See Securities Exchange Act Release No. 47530 (March 19, 
2003), 68 FR 14730 (March 26, 2003) (SR-NASD-2003-30).
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    The discount for Quoting Market Participants is based, in part, on 
an expectation that, in its absence, many Quoting Market Participants 
would internalize a greater percentage of orders through their own 
proprietary crossing systems, rather than exposing them to the full 
market. Based on experience with the program for OE Firms' use of SIZE, 
however, Nasdaq has concluded that applying the discount to OE Firms' 
orders may also encourage OE Firms to expose a greater percentage of 
their orders through SuperMontage, in lieu of internalizing them or 
routing them to competing market centers. Accordingly, Nasdaq is 
eliminating the $0.001 fee applicable to order executions in which an 
OE Firm's non-directed order is matched with the same firm's order in 
SIZE.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act \10\ in general, and with 
Section 15A(b)(5) of the Act \11\ 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. Nasdaq states that the 
proposed rule change will result in an elimination of the fees payable 
by an OE Firm for non-directed orders that execute against orders 
entered by the OE Firm in SIZE. As a result, Nasdaq believes that the 
fees assessed on OE Firms and Quoting Market Participants for use of 
SuperMontage will now be identical in all respects.
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    \10\ 15 U.S.C. 78o-3.
    \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 and 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 foregoing rule change has become effective upon filing 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 self-regulatory organization. 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 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 proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange

[[Page 48977]]

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 Nasdaq. All 
submissions should refer to File No. SR-NASD-2003-116 and should be 
submitted by September 5, 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. 03-20907 Filed 8-14-03; 8:45 am]
BILLING CODE 8010-01-U