[Federal Register Volume 69, Number 84 (Friday, April 30, 2004)]
[Notices]
[Pages 23844-23846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9794]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49603; File No. SR-NASD-2004-062]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. to Modify the Pricing for Trading Nasdaq-
Listed Securities on SuperMontage

April 22, 2004.
    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 9, 2004, 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. 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.
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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 pricing for trading Nasdaq-listed 
securities on Nasdaq's SuperMontage system. Nasdaq has designated this 
proposal as one establishing or changing a due, fee or other charge 
imposed by the self-regulatory organization under section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the rule effective upon Commission receipt of this 
filing. Nasdaq plans to implement the proposed rule change on April 15, 
2004.
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    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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    The text of the proposed rule change is below.\5\ Proposed new 
language is in italic; proposed deletions are in brackets.
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    \5\ The proposed rule change is marked to show changes from the 
rule as it appears in the electronic NASD Manual available at 
www.nasd.com, and also reflects the addition of NASD Rule 7010(i)(3) 
by SR-NASD-2004-048, which was filed on an immediately effective 
basis. See Securities Exchange Act Release No. 49576 (April 16, 
2004) (Notice of filing and immediate effectiveness of File No. SR-
NASD-2004-048).
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Rule 7010. System Services

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

Order Entry

    Non-Directed Orders (excluding Preferenced Orders)--No charge.
    Preferenced Orders: Preferenced Orders that access a Quote/Order of 
the member that entered the Preferenced Order)--No charge; 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:
    Average daily shares of liquidity provided through the NNMS by the 
member during the month: 400,000 or less--$0.003 per share executed 
(but no more than $120 per trade for trades in securities executed at 
$1.00 or less per share); 400,001 to 5,000,000--$0.0027 per share 
executed (but no more than $108 per trade for trades in securities 
executed at $1.00 or less per share); 5,000,001 or more--$0.002[5]6 per 
share executed (but no more than $10[0]4 per trade for trades in 
securities executed at $1.00 or less per share).
    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)].
    Average daily shares of liquidity provided through the NNMS by the 
member from April 15 to April 30, 2004, or during any month thereafter: 
20,000,000 or less--$0.002 per share executed (but no more than $80 per 
trade for trades in securities executed at $1.00 or less per share); 
20,000,001 or more--$0.0025 per share executed (but no more than $100 
per trade for trades in securities executed at $1.00 or less per 
share).
    Non-Directed or Preferenced Order that accesses the Quote/Order of 
a market participant that charges an access fee to market participants 
accessing its Quotes/Orders through the NNMS:
    Charge to member entering order:
    Average daily shares of liquidity provided through the NNMS by the 
member during the month: 400,000 or less--$0.001 per share executed 
(but no more than $40 per trade for trades in securities executed at 
$1.00 or less per share); 400,001 or more $0.001 per share executed 
(but no more than $40 per trade for trades in securities executed at 
$1.00 or less per share, and no more than $10,000 per month).
    Directed Order--$0.003 per share executed.
    Non-Directed or Preferenced Order entered by a member that accesses 
its own Quote/Order submitted under the same or a different market 
participant identifier of the member--No charge. Order Cancellation
    Non-Directed and Preferenced Orders--No charge; Directed Orders--
$0.10 per order cancelled
    (2)-(3) No change.
    (j)-(u) 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
    Nasdaq recently implemented reduced pricing for execution of Non-
Directed and Preferenced Orders in the Nasdaq National Market Execution 
System (``NNMS'' or ``SuperMontage''), by reducing order execution fees 
for members that provide significant liquidity through the NNMS.\6\ 
Under the fee schedule currently in effect, the per share fee charged 
to a member to access liquidity during a particular month depends on 
the extent to which such

[[Page 23845]]

member provided liquidity through the NNMS during that month. Liquidity 
provision is measured by adding the number of shares executed through 
transactions in which the member's Quote/Order was accessed by another 
market participant.\7\
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    \6\ See Securities Exchange Act Release No. 48972 (December 22, 
2003), 68 FR 75301 (December 30, 2003) (Notice of filing and 
immediate effectiveness of File No. SR-NASD-2003-185) (``December 
2003 Notice'').
    \7\ If a particular corporate entity has multiple market 
participant identifiers (``MPIDs'') associated with the Central 
Registration Depository (``CRD'') number under which it conducts 
business, Nasdaq aggregates shares of liquidity provided through all 
of its MPIDs. However, Nasdaq does not aggregate one corporate 
entity's trade reports with those associated with MPIDs assigned to 
subsidiaries or other affiliates with a different CRD number.
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    Thus, if a member provides a daily average of more than 5,000,000 
shares of liquidity through the NNMS during a month, the member 
currently pays $0.0025 per share executed in trades during that month 
in which the member accesses liquidity provided by a market participant 
that does not charge an access fee (i.e., in which the member's Non-
Directed or Preferenced Orders access the Quotes/Orders of other market 
participants).\8\ If a member provides a daily average of 400,001 to 
5,000,000 shares of liquidity during a month, the member pays $0.0027 
per share executed in trades executed during the month in which the 
member accesses liquidity provided by a market participant that does 
not charge an access fee.\9\ Finally, if a member provides a daily 
average of 400,000 or fewer trades during a month, the member pays 
$0.003 per share executed during the month.\10\ Nasdaq also currently 
provides a $0.002 per share credit to a member that provides the 
liquidity for an execution and does not charge an access fee.\11\
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    \8\ Transactions in a security priced under $1.00 (``low-priced 
trades'') are subject to fee caps applicable to trades in excess of 
40,000 shares. Accordingly, when the fee that the member pays is 
$0.0025, the maximum per transaction charge for a low-priced trade 
is $100.
    \9\ When the fee that the member pays is $0.0027, the maximum 
per transaction charge for a low-priced trade is $108.
    \10\ When the fee that the member pays is $0.003, the maximum 
per transaction charge for a low-priced trade is $120.
    \11\ The maximum credit for a low-priced trade is currently $80.
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    Similarly, the fee paid by a member to access the Quote/Order of a 
market participant that charges an access fee depends upon the shares 
of liquidity provided by the member during that month. If a member 
provides a daily average of more than 400,000 shares of liquidity 
during a month, the member will pay $0.001 per share executed for 
trades during the month in which the member accesses liquidity provided 
by a market participant that charges an access fee;\12\ however, the 
member's total charge for that month will be capped at $10,000. If a 
member provides a daily average of 400,000 shares of liquidity or less 
during a month, the member will also pay $0.001 per share, but no 
monthly cap will be applicable.\13\
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    \12\ The maximum per transaction charge for a low-priced trade 
is $40.
    \13\ The maximum per transaction charge for a low-priced trade 
is $40.
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    As Nasdaq noted in SR-NASD-2003-185,\14\ it believes that it is 
appropriate and equitable to allocate SuperMontage's operational and 
regulatory costs in a manner that takes account of the economies of 
scope and lower per share costs associated with higher volumes of 
liquidity provision. Nasdaq believes that the extent to which members 
provide liquidity through SuperMontage is the single most important 
factor in determining whether SuperMontage provides an attractive 
destination for routing orders, and in turn, whether SuperMontage will 
generate sufficient revenues to cover the costs of operating and 
regulating a market. According to Nasdaq, a member that offers 
significant liquidity at prices that establish, or that are near, the 
national best bid/best offer makes SuperMontage a more attractive 
destination for market participants seeking to access liquidity by 
enhancing the likelihood that they will be able to execute orders at 
favorable prices.
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    \14\ See December 2003 Notice, supra note 6.
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    Nasdaq notes that the costs of operating SuperMontage and 
regulating the Nasdaq market are largely fixed, rather than variable, 
costs. As SuperMontage's volume increases (i.e., as more and more 
liquidity is provided through SuperMontage), Nasdaq's costs, on a per 
share basis, decrease. Accordingly, Nasdaq believes that it is 
appropriate and equitable to allocate these costs in a manner that 
takes account of the lower per share costs associated with higher 
volumes of liquidity provision. Nasdaq believes that lower volumes 
would translate into higher per share costs for market participants; 
higher volumes reduce per share costs, and Nasdaq believes that the 
benefits of these reduced costs can and should be made available to 
those market participants that make the higher volumes possible in the 
first place. Moreover, Nasdaq believes that there are economies of 
scope associated with higher volumes of liquidity provision, because 
trades executed through SuperMontage also have market data revenue and 
(in some cases) trade reporting fees associated with them.
    Nasdaq notes that several of the electronic communications networks 
(``ECNs'') that compete with Nasdaq to offer liquidity have implemented 
increases in the credits they offer to major liquidity providers.\15\ 
Although Nasdaq had hoped that charging reduced fees for liquidity 
accessing to firms that provided significant liquidity would obviate 
the need to increase credits to liquidity providers, Nasdaq has now 
concluded that an increase in credits will be necessary to remain 
competitive. Accordingly, Nasdaq is proposing that during a month in 
which a member that does not charge an access fee provides a daily 
average of more than 20,000,000 shares of liquidity, the credit for 
transactions in which the member provided liquidity would be $0.0025 
per share executed.\16\ For firms providing lower levels of liquidity, 
the credit will remain $0.002 per share executed.\17\ Because the 
change is being implemented in the middle of a month, the higher credit 
will be provided for trades beginning on April 15, 2004, for firms with 
an average daily volume of more than 20,000,000 shares during the 
period from April 15 to April 30, 2004, and thereafter will be provided 
to firms with an average daily volume of more than 20,000,000 shares 
during a particular month.
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    \15\ See, e.g., www.island.com/prodserv/bd/fee/fee.asp. Nasdaq 
understands that another major ECN is also offering similarly higher 
credits to major liquidity providers on an ad hoc basis and 
therefore has not made details on these credits publicly available.
    \16\ When the credit is $0.0025, the maximum credit for a low-
priced trade would be $100.
    \17\ When the credit is $0.002, the maximum credit for a low-
priced trade would be $80.
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    In addition, effective April 15, 2004, Nasdaq will increase the 
liquidity-accessing fee for members providing a daily average of more 
than 5,000,000 shares of liquidity, from $0.0025 to $0.0026 per share 
executed in trades in which the member accesses liquidity provided by a 
market participant that does not charge an access fee.\18\ Thus, a firm 
providing an average daily volume of more than 5,000,000 shares during 
the month of April would pay $0.0025 per share for its liquidity 
accessing trades prior to April 15 and $0.0026 for its trades from 
April 15 through April 30. A firm providing an average daily volume of 
more than 5,000,000 shares during any subsequent month would pay 
$0.0026 for all of its trades during that month. In the proposed rule 
change, Nasdaq is also modifying the lead-in text of NASD Rule 7010(i) 
to make it clear that the rule applies to

[[Page 23846]]

trades in Nasdaq-listed securities through the NNMS. Although ITS 
Securities are now traded on SuperMontage, the fees for trades in these 
securities continue to be governed by NASD Rule 7010(d).
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    \18\ When the fee that the member pays is $0.0026, the maximum 
per transaction charge for a low-priced trade would be $104.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\19\ in general, and with 
section 15A(b)(5) of the Act,\20\ 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. According to Nasdaq, the 
proposed rule change bases the level of credits for providing liquidity 
through SuperMontage on the extent to which a member provides liquidity 
during the month, thereby taking account of the lower per share costs 
and the economies of scope associated with higher volumes of liquidity 
provision.
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    \19\ 15 U.S.C. 78o-3.
    \20\ 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.

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 pursuant to section 
19(b)(3)(A)(ii) of the Act \21\ and Rule 19b-4(f)(2) thereunder,\22\ 
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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    \21\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \22\ 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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment for 
(http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please 
include File Number SR-NASD-2004-062 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-062. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of NASD. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NASD-2004-062 
and should be submitted on or before May 21, 2004.

    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. 04-9794 Filed 4-29-04; 8:45 am]
BILLING CODE 8010-01-P