[Federal Register Volume 68, Number 227 (Tuesday, November 25, 2003)]
[Notices]
[Pages 66150-66152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29413]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48809; File No. SR-NASD-2003-167]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Raise ACT Fees for Users of the Query 
Function During the Trade Comparison Process

November 19, 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 November 14, 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'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. Nasdaq has 
designated the proposed rule as one that establishes or changes a due, 
fee, or other charge imposed by the self-regulatory organization under 
Section 19(b)(3)(A)(ii) of the Act,\3\ which renders the rule effective 
upon the Commission's receipt of the filing. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend certain fees on its Automated Confirmation 
Transaction Service (``ACT'') and implement the new fees on November 
17, 2003. The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets:
    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          Fee per side for transaction
         transaction reports for          reports of SuperMontage
         SuperMontage Transactions        Transactions to which such
         during the month to which a      participant is a party:
         participant is a party:
        0 to 9,999.....................  $0.029
        10,000 or more.................  $0.00
    Other reports for transactions in    $0.00
     Nasdaq National Market and
     SmallCap Market securities not
     subject to comparison through ACT.
    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' portion 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 charges
                                          associated with its NWII
                                          terminal(s) during that
                                          period.)
 


[[Page 66151]]

    (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 
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, the OTC 
Bulletin Board, and other over-the-counter markets. 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.
    When ACT was first implemented over a decade ago, the majority of 
firms transacted Nasdaq securities via non-automated means, such as 
over the telephone. The trade comparison process was extremely 
cumbersome given the lack of a standard, automated means for two 
trading partners to match the details of a trade, such as the number of 
shares traded or the price of the security. ACT helped alleviate this 
problem by providing all NASD members with an automated, centralized, 
rule-based trade matching system. Once a trade was matched within ACT, 
it was then forwarded to the National Securities Clearance Corporation 
(``NSCC'') for clearance and settlement. In the majority of cases, 
these ACT matches took place via the ACT ``browse/query'' and ``accept/
decline'' functions.
    In a typical transaction, two parties agree to transact with one 
another over the telephone. The reporting party, typically the selling 
market maker, enters its version of the trade details, including the 
contra party's identity, into the ACT system for 90-second trade 
reporting. This record is now classified as ``open'' until the contra 
party takes action to lock-in the transaction. To locate the open 
trade, the contra party scans its trade records in the specified 
security via the ACT ``browse/query'' function. Once located, the 
contra party reviews the trade details to ensure the accuracy of the 
information (e.g., number of shares and execution price). If the contra 
party agrees with the trade details entered by the reporting party, it 
then ``accepts'' the transaction. If the contra party disagrees with 
the trade details, it ``declines'' the transaction. When most firms 
traded with one another over the telephone, the majority of ACT 
reported trades were reported, compared, and locked-in in this manner.
    In the above example, the ACT billing process generally has three 
steps. First, ACT assesses a fee to the contra party that performed the 
``browse/query'' action. Second, ACT assesses a fee to both the 
reporting and contra party for locking-in the transaction via the 
``accept/decline'' function. Third, ACT reverses the fee for the contra 
party's accept/decline action. As a result, each side of the trade pays 
an equal fee for the trade even though their system usage differed.
    ACT usage and pricing have changed dramatically in recent years. 
Initially, the browse/query and accept/decline process was one of the 
few options available to firms for reporting and locking-in trades; 
therefore, it was deemed more equitable to equalize the fees paid by 
each side of the trade. Since this process constituted a significant 
proportion of overall ACT usage, it was possible for Nasdaq to 
implement this process while still adequately covering ACT operating 
costs.
    Today firms have a wide range of options for reporting and locking-
in trades, and less than one-half of one percent of all ACT records are 
locked-in via the browse/query and accept/decline functions. The 
increase in trading volumes and use of external execution systems such 
as SuperMontage and electronic communication networks (``ECNs'') allow 
firms to automatically lock-in participants for trade reporting and 
clearing, bypassing the manual comparison process in ACT. Firms have 
also adopted new reporting arrangements whereby one participant 
automatically locks-in its trading partner by reporting on its behalf. 
Recent pricing changes have eliminated ACT fees for the majority of 
these locked-in trades in Nasdaq securities.
    Nasdaq is currently in the process of migrating many of its 
services, including ACT, onto a new, more efficient internal billing 
platform. The billing process for each ACT service would transfer 
seamlessly onto this new platform except for the fee reversal described 
as step three of the process described above. In light of the sharply 
reduced usage of this functionality, it would be impractical and 
expensive to duplicate the third step in the new billing system. Doing 
so would raise the overall costs of the system, which would then have 
to be passed on to other users. Therefore, Nasdaq has determined that 
it is more equitable for the small number of users who continue to use 
this functionality to pay the actual costs associated with each step of 
the process. As noted above, there are numerous ways for a broker-
dealer to report trades in ways that would avoid these charges 
altogether.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
Section 15A of the Act \4\ in general and with Section 15A(b)(5) of the 
Act \5\ 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 rationale for not charging members for certain system 
usage in order to equalize the costs between trading contra parties is 
no longer compelling in light of the myriad of new options members have 
for locking in trades. Members who elect to continue to use the browse/
query and accept/decline functions will pay the incremental cost 
associated with this type of system usage or can choose to avoid the 
incremental cost by reporting trades in other ways.
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    \4\ 15 U.S.C. 78o-3.
    \5\ 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 would 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

    Nasdaq asserts that the proposed rule will become effective on 
November 14,

[[Page 66152]]

2003, pursuant to Section 19(b)(3)(A)(ii) of the Act \6\ and 
subparagraph (e) of Rule 19b-4 thereunder \7\ in that it establishes 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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    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \7\ 17 CFR 240.19b-4(e).
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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 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 
NASD. All submissions should refer to File No. SR-NASD-2003-167 and 
should be submitted by December 16, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29413 Filed 11-24-03; 8:45 am]
BILLING CODE 8010-01-P