[Federal Register Volume 69, Number 102 (Wednesday, May 26, 2004)]
[Notices]
[Pages 29995-29997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11884]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49738; File No. SR-NASD-2004-072]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the National Association of Securities Dealers, Inc. To Establish Fees 
for the Use of the Nasdaq Workstation II Service by NASD Members via 
Digital Subscriber Lines

May 19, 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 26, 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 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by Nasdaq. 
The proposed rule change has been filed by Nasdaq as 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\ which renders the 
proposal effective upon filing. On May 4, 2004, Nasdaq filed Amendment 
No. 1 to the proposed rule change.\5\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
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).
    \5\ See letter from John M. Yetter, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation, SEC, dated May 3, 2004 (``Amendment No. 1''). 
Amendment No. 1 changes the implementation dates of the proposal 
(see discussion, infra, at I, II(A)).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to establish fees for NASD members using the Nasdaq 
Workstation II (``NWII'') service via Digital Subscriber Line (``DSL'') 
connections. Nasdaq will implement the proposed rule change on June 1, 
2004, when it will begin the process of connecting firms through DSL. 
Below is the text of the proposed rule change. Proposed new language is 
in italics.
* * * * *

[[Page 29996]]

7000. Charges for Services and Equipment

7010. System Services

    (a)-(e) No change.
    (f) Nasdaq WorkstationTM Service.
    (1)(A) The following charges shall apply to the receipt of Level 2 
or Level 3 Nasdaq Service via equipment and communications linkages 
prescribed for the Nasdaq Workstation II Service:

 
 
 
Service Charge       $2,035/month per service
                      delivery platform (``SDP'')
                      connected via T1 circuits.
                     $1,000/month per SDP connected
                      via Digital Subscriber Line
                      (``DSL''), plus $1,000 per
                      DSL early termination fee if
                      service is terminated within
                      60 days of installation.
Display Charge       $525/month per logon for the
                      first 150 logons.
                     $200/month for each additional
                      logon.
Additional Circuit/  $3,235/month.
 SDP Charge
PD and SDP
 Maintenance:
Monthly maintenance  $55/presentation device
 agreement            (``PD'') logon or SDP/month.
Hourly fee for       $195 per hour (two hour
 maintenance          minimum), plus cost of parts.
 provided without
   monthly
 maintenance
 agreement
 

    (B) A subscriber that accesses Nasdaq Workstation II Service via an 
application programming interface (``API'') shall be assessed the 
Service Charge for each of the subscriber's SDPs and shall be assessed 
the Display Charge for each of the subscriber's logons, including 
logons of an NWII substitute or quote-update facility. API subscribers 
also shall be subject to the Additional Circuit /SDP Charge.
    (C) A subscriber shall be subject to the Additional Circuit/SDP 
Charge when the subscriber has not maximized capacity on its SDP(s) by 
placing eight logons on an SDP and obtains an additional SDP(s); in 
such case, the subscriber shall be charged the Additional Circuit/SDP 
Charge (in lieu of the service charge) for each ``underutilized'' 
SDP(s) (i.e., the difference between the number of SDPs a subscriber 
has and the number of SDPs the subscriber would need to support its 
logons, assuming an eight-to-one ratio). A subscriber also shall be 
subject to the Additional Circuit/SDP Charge when the subscriber has 
not maximized capacity on its T1 circuits by placing eighteen SDPs on a 
T1 circuit; in such case, the subscriber shall be charged the 
Additional Circuit/SDP Charge (in lieu of the service charge) for each 
``underutilized'' SDP slot on the existing T1 circuit(s). Regardless of 
the SDP allocation across T1 circuits, a subscriber will not be subject 
to the Additional Circuit/SDP Charge if the subscriber does not exceed 
the minimum number of T1 circuits needed to support its SDP, assuming 
an eighteen-to-one ratio.
    (D) DSL service (i) shall be provided solely to NASD members 
without API logons, (ii) shall be provided to only one SDP per 
location, and (iii) may not be used in connection with SDP T1 circuit 
connections at the same location. A subscriber with an SDP connected to 
Nasdaq via T1 circuits that orders DSL on or before June 1, 2004 shall 
not be required to pay charges under Rule 7040 for initial 
disconnection of T1 circuits and installation of DSL. In addition, if 
such a subscriber cancels DSL service within 10 business days of its 
first date of DSL service, the subscriber shall not be required to pay 
the early termination fee or charges under Rule 7040 for disconnection 
of DSL and reinstallation of T1 circuits.
    (2) No change.
    (g)-(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 states that the NWII service allows market participants to 
access The Nasdaq Stock Market and other Nasdaq facilities, using 
either an ``NWII presentation device'' (a workstation and associated 
software provided by Nasdaq) or the subscriber's own workstation and 
software (often referred to as an ``application programming interface'' 
or ``API'' device). Each subscriber location has at least one service 
delivery platform (``SDP'') to which it connects the workstations used 
by its employees.
    Nasdaq represents that, in the past, the only option available for 
connecting a subscriber's SDP to Nasdaq has been the use of a dedicated 
T1 circuit pair, provided by Nasdaq's telecommunications service 
provider pursuant to a contract with Nasdaq. Nasdaq has concluded that 
this ``one-size-fits-all'' approach is unduly expensive for small firms 
that never use most of the bandwidth \6\ associated with T1 circuits. 
Accordingly, Nasdaq plans to offer subscribers the option of connecting 
through lower-bandwidth, lower-cost DSL service. Other market centers, 
including the New York Stock Exchange and the Archipelago Exchange 
facility of the Pacific Exchange, allow firms to connect to their 
trading systems through DSL.\7\
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    \6\ The term ``bandwidth'' refers to the amount of data that can 
be transmitted in one second. Specifically, 1.2 megabits per second 
of data can be transmitted over each of the T1 circuits used to 
support an SDP. A subscriber that regularly transmitted a much 
smaller quantity of data would not be utilizing the bandwidth 
inherent in its T1 circuits. Conversely, a subscriber that utilized 
most of its bandwidth would eventually be required to obtain an 
additional SDP to ensure that sufficient bandwidth was always 
available to it.
    \7\ See www.nyse.com/pdfs/anondotintroguide.pdf (describing 
internet access to NYSE's Anonymous SuperDOT system); 
www.tradearca.com/exchange/ realtick.asp (describing DSL access to 
Archipelago via RealTick[reg] product of Townsend Analytics, Ltd.).
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    Nasdaq states that it will use a certificate-based ``Virtual 
Private Network'' (``VPN'') architecture to provide the highest level 
of security currently available for internet traffic. Data transmitted 
through the VPN will be encrypted using Triple Data Encryption Internet 
Protocol Security (``3DES IPSec'') encryption, which is more robust 
than the encryption used by on-line banking and brokerage services.
    Nasdaq represents that it will also take steps designed to ensure 
that DSL connections generally support the same level of performance as 
small firm NWII

[[Page 29997]]

customers currently receive through their T1 circuits. Specifically, 
because API devices are frequently used to support high volume 
computer-generated transactions whereas NWII presentation devices must 
be operated by an individual and therefore transmit lower volumes of 
data, DSL connections will only be available to subscribers without API 
logons. In addition, Nasdaq will provide only one DSL connection per 
site and will not allow simultaneous use of DSL and T1 connections at 
the same site, because a firm with sufficient bandwidth needs to 
require more than one connection at a particular site would be better 
served by having one or more T1 connections. Finally, firms whose needs 
for simultaneous access to data about a significant number of 
securities is such that they would be in danger of exhausting the 
bandwidth available through a DSL connection will be advised to use a 
T1 connection.
    Nasdaq states that, prior to submitting this rule filing, it 
contacted 10 of the approximately 150 firms that Nasdaq believes may be 
interested in using DSL. Nasdaq represents that all of the firms that 
were contacted stated that they would be interested in trying DSL, and 
most expressed an interest in doing so as soon as possible. 
Accordingly, Nasdaq will begin taking orders for the new service during 
May 2004, and will begin the process of connecting firms that order the 
service in June 2004.
    Nasdaq states that the monthly charge for an SDP attached to a DSL 
line will be $1,000 per month, less than half the charge of $2,035 per 
month for a T1 connection, reflecting the lower cost of the lower 
bandwidth service. Firms wishing to switch from T1 to DSL would be 
required to pay the cost of disconnecting one line and connecting the 
other.\8\ A subscriber that cancels its service within 60 days of 
installation would be charged an early termination fee of $1,000 per 
terminated DSL. Nasdaq represents that, in order to encourage firms 
that may benefit from DSL usage to switch rapidly, however, it will 
waive the disconnection and connection charges for firms that order the 
new service by June 1, 2004. Moreover, firms ordering DSL by that date 
will be permitted to use it on a 10-day trial basis, and may return to 
T1 connections at the end of the 10-day period at no additional cost 
(i.e., Nasdaq will waive the associated disconnection, reconnection, 
and early termination fees).
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    \8\ See NASD Rule 7040 (authorizing charges for installation, 
removal, or relocation of NWII-related equipment).
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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,\9\ in general, and section 
15A(b)(5) of the Act,\10\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members. Nasdaq believes the proposed rule change will allow Nasdaq to 
charge small firms that use the NWII service fees that are more 
commensurate with the lower levels of bandwidth that they use.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 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 \11\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\12\ because it establishes or changes a due, fee, or other 
charge imposed by Nasdaq. 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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
    \13\ For purposes of calculating the sixty-day abrogation 
period, the Commission considers the period to have begun on May 4, 
2004, the date Nasdaq submitted Amendment No. 1. See 15 U.S.C. 
78s(b)(3)(C).
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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 form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2004-072 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-2004-072. 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 Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of Nasdaq. 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-2004-072 and should be submitted on or before June 
16, 2004.

    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. 04-11884 Filed 5-25-04; 8:45 am]
BILLING CODE 8010-01-P