[Federal Register Volume 69, Number 125 (Wednesday, June 30, 2004)]
[Notices]
[Pages 39531-39532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14813]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49905; File No. SR-NASD-2004-077]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change and Amendment No. 1 Thereto to Eliminate Certain 
Transaction Charges for ITS Securities

June 23, 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 29, 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. Nasdaq has 
filed this proposed rule change pursuant to 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 with the Commission. On June 18, 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 Edward S. Knight, Executive Vice President, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated June 17, 2004. Amendment No. 1 
clarifies the proposed rule text and the statutory basis of the 
proposed rule change, and replaces the proposed rule change in its 
entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 7010(d)(2) (``Computer Assisted 
Execution Service'') to modify certain transaction charges and credits 
related to the trading of Intermarket Trading System (``ITS'') 
securities on the Nasdaq market center. In particular, Nasdaq proposes 
to eliminate transaction charges for the trading of all securities 
listed on the American Stock Exchange LLC (``Amex''), except for 
Exchange Traded Funds (``ETFs'').
    The text of the proposed rule change appears below. New language is 
in italics. Deleted text is in brackets.
* * * * *

7010. System Services

    (a) through (c) No change.
    (d) Computer Assisted Execution Service
    The charges to be paid by members receiving the Computer Assisted 
Execution Service (CAES) shall consist of a fixed service charge and a 
per transaction charge plus equipment related charges.
    (1) No change.
    (2) Transaction Charges and Credits
    (A) [Orders to buy or sell securities listed on the New York Stock 
Exchange: no charge and no credit.]
    [(B)] Orders to buy or sell Exchange Traded Funds [securities not] 
listed on the American Stock Exchange [New York Stock Exchange]:

Average daily share volume executed in   Fee per share executed for
 CAES or through the ITS/CAES linkage     orders enetered into CAES or
 during a month (both NYSE & AMEX         commitments sent through the
 listed securities):                      ITS/CAES linkage if such an
                                          order or commitment is
                                          executed in whole or in part:
    0 to 499,999.......................  $0.0027, with a maximum of $75
                                          per execution.
    500,000 or more....................  $0.0025, with a maximum of $75
                                          per execution.
Average daily share volume executed in   Liquidity rebate per share
 CAES or through the ITS/CAES linkage     executed for orders/quotes
 (both NYSE & AMEX listed securities):    posted into CAES, if such an
                                          order/quote is executed in
                                          whole or in part:
    1 or more..........................  $0.002, with a maximum of
                                          $37.50 per execution.
 


    The term ``Exchange Traded Funds'' shall mean Portfolio Depository 
Receipts, Index Fund Shares, and Trust Issued Receipts as such terms 
are defined in Rule 4420 (i), (j), and (l), respectively.
    (B) There shall be no charge or credit for orders to buy or sell 
all other listed securities.
    (C) There shall be no charge for an order entered by a member that 
accesses its own Quote/Order submitted under the same or a different 
market participant identifier of the member.
    (e) through (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
    The purpose of this proposed rule change is to eliminate 
transaction charges under NASD Rule 7010(d) for the trading of all ITS 
securities, except ETFs listed on the Amex. According to Nasdaq, the 
elimination of these charges will encourage members to make greater use 
of the Nasdaq market center to trade exchange-listed securities, 
thereby increasing competition in this market segment, and benefiting 
members as well as the investing public. Nasdaq is

[[Page 39532]]

also proposing to eliminate the liquidity provider credit under NASD 
Rule 7010(d), since there will be no transaction charges for ITS 
securities. Under the proposed rule change the current transaction 
charges for Amex-listed ETFs will remain the same. Nasdaq expects that 
the proposal will make the Nasdaq market center more economically 
feasible for members and encourage greater use of these systems for the 
trading of ITS securities.
2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of Section 15A of the Act,\6\ in general 
and with Section 15A(b)(5) of the Act,\7\ in particular, which requires 
that the rules of the NASD provide 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 believes that the market for trading listed 
securities, other than Amex-listed ETFs, has favored the elimination of 
transaction fees to remain competitive with other markets with similar 
fee structures.\8\ Nasdaq seeks to eliminate transaction fees for ITS 
securities to increase competition in this market segment, and to 
encourage its members to use Nasdaq's systems to trade exchange listed 
securities, thereby increasing liquidity. According to Nasdaq, the 
trading of Amex-listed ETFs in electronic venues, such as Nasdaq, is 
more prevalent than the trading of other exchange-listed securities. 
Nasdaq believes that its current fee schedule is already competitive 
with other markets that trade Amex-listed ETFs. Therefore, Nasdaq is 
retaining the current fee schedule for Amex-listed ETFs. In addition, 
Nasdaq believes that the proposed pricing structure is equitable and 
reasonable because it offers to all market participants a competitive 
pricing option in the trading of ITS securities.
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    \6\ 15 U.S.C. 78o-3.
    \7\ 15 U.S.C. 78o-3(b)(5).
    \8\ For example, according to Nasdaq, Inet ATS, Inc.'s pricing 
structure does not assess any execution fees for the trading of New 
York Stock Exchange, Inc. and Amex-listed securities, other than 
Amex-listed ETFs. See Inet ATS, Inc. Fee Schedule available at 
http://www.inetats.com/prodserv/bd/fee/fee1504.asp (visited on June. 
16, 2004).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change, as amended, 
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 proposed rule change has become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act \9\ and Rule 19b-4(f)(2) 
thereunder,\10\ 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 the 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.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
    \11\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on June 18, 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 for (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2004-077 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-2004-077. 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 the 
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-2004-077 and should be submitted on or before July 21, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14813 Filed 6-29-04; 8:45 am]
BILLING CODE 8010-01-P