[Federal Register Volume 69, Number 149 (Wednesday, August 4, 2004)]
[Notices]
[Pages 47189-47192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17771]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50119; File No. SR-NASD-2004-113]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Modify Nasdaq Market Center Pricing

July 29, 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 July 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 
(``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 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. 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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[[Page 47190]]

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify the pricing for trading of Nasdaq-listed 
securities in the Nasdaq Market Center. Nasdaq plans to implement the 
proposed rule change on August 2, 2004.
    The text of the proposed rule change is below.\5\ Proposed new 
language is in italics; 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 NASD Manual available at www.nasd.com, and 
also reflects the proposed rule changes in SR-NASD-2004-076. See 
Securities Exchange Act Release No. 50074 (July 23, 2004).
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Rule 7010. System Services
    (a)--(h) No change.
    (i) Nasdaq Market Center order execution.
    (1) The following charges shall apply to the use of the order 
execution services of the Nasdaq Market Center by members for Nasdaq-
listed securities:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Order Entry:
  Non-Directed Orders (excluding         No charge.
   Preferenced Orders).
    Preferenced Orders:
      Preferenced Orders that access a   No charge.
       Quote/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 Nasdaq Market
     Center:
        Charge to member entering
         order:
            Average daily shares of
             liquidity provided through
             the Nasdaq Market Center
             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........  $0.0026 per share executed (but
                                          no more than $104 per trade
                                          for trades in securities
                                          executed at $1.00 or less per
                                          share).
        Credit to member providing
         liquidity:
            Average daily shares of
             liquidity provided through
             the Nasdaq Market Center
             by the member [from April
             15 to April 30, 2004, or]
             during [any] the month
             [thereafter]:
              [20]18,000,000 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]18,000,001 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 Nasdaq Market Center:
        Charge to member entering
         order:
            Average daily shares of
             liquidity provided through
             the Nasdaq Market Center
             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      No charge.
   entered by a member that accesses
   its own Quote/Order submitted under
   the same or a different market
   participant identifier of the member.
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.

[[Page 47191]]

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 for Nasdaq-listed securities in the 
Nasdaq Market Center, by reducing order execution fees and increasing 
liquidity provider credits for members that provide significant 
liquidity through the Nasdaq Market Center.\6\ Under the fee schedule 
currently in effect, the per share fee charged to a member to access 
liquidity and the credit for providing liquidity during a particular 
month both depend on the extent to which such member provided liquidity 
through the Nasdaq Market Center during that month. Thus, if a member 
provides a daily average of more than 5,000,000 shares of liquidity 
through the Nasdaq Market Center during a month, the member currently 
pays $0.0026 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).\7\ 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.\8\ Finally, if a member provides a daily 
average of 400,000 or fewer shares during a month, the member pays 
$0.003 per share executed during the month.\9\
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    \6\ Securities Exchange Act Release No. 49603 (April 22, 2004), 
69 FR 23844 (April 30, 2004) (SR-NASD-2004-062); Securities Exchange 
Act Release No. 48972 (December 22, 2003), 68 FR 75301 (December 30, 
2003) (SR-NASD-2003-185).
    \7\ 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 
$0.0026, the maximum per transaction charge for a low-priced trade 
is $104.
    \8\ When the fee that the member pays is $0.0027, the maximum 
per transaction charge for a low-priced trade is $108.
    \9\ When the fee that the member pays is $0.003, the maximum per 
transaction charge for a low-priced trade is $120.
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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;\10\ 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.\11\
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    \10\ The maximum per transaction charge for a low-priced trade 
is $40.
    \11\ The maximum per transaction charge for a low-priced trade 
is $40.
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    Finally, the credit provided to a member that provides the 
liquidity for an execution and does not charge an access fee also 
depends upon the shares of liquidity provided by the member during the 
month. Under the current fee schedule, 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 is $0.0025 per share executed.\12\ 
For firms providing lower levels of liquidity, the credit is $0.002 per 
share executed.\13\
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    \12\ When the credit is $0.0025, the maximum credit for a low-
priced trade is $100.
    \13\ When the credit is $0.002, the maximum credit for a low-
priced trade is $80.
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    During the course of 2004, the volume of trades in Nasdaq-listed 
securities through all venues that trade them has been steadily 
decreasing. Thus, marketwide volumes have decreased from an average 
daily volume of approximately 2.3 billion shares in January 2004, to 
approximately 1.9 billion shares in April, to 1.7 billion shares during 
the second week of July. As a result, it has become increasingly 
difficult for members to achieve the average daily volume requirement 
of more than 20 million shares required for the enhanced liquidity 
provider credit. In response, Nasdaq is proposing to change the 
threshold at which the $0.0025 per share credit becomes available from 
20,000,001 shares per day to 18,000,001 shares per day. Nasdaq is also 
deleting references to the last half of April 2004 in the current rule 
text, which were originally needed to allow the implementation of SR-
NASD-2004-062 during the middle of the month of April.\14\ Because SR-
NASD-2004-113 will take effect at the beginning of August 2004 and will 
therefore be in effect for an entire month, similar references are not 
needed.
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    \14\ See note 6, supra.
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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,\15\ in general, and with 
section 15A(b)(5) of the Act,\16\ 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 proposed rule change 
bases the level of credits for providing liquidity through the Nasdaq 
Market Center on the extent to which a member provides liquidity during 
the month, thereby taking account of the lower per share costs and 
enhanced revenue opportunities associated with higher volumes of 
liquidity provision. The change will adjust the level of liquidity 
provision at which an enhanced credit of $0.0025 per share is made 
available, to take account of a decrease in marketwide trading volumes.
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    \15\ 15 U.S.C. 78o-3.
    \16\ 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, as amended.

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 \17\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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

[[Page 47192]]

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-2004-113 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-2004-113. 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 the 
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-2004-113 and should be submitted on or before August 25, 2004. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-17771 Filed 8-3-04; 8:45 am]
BILLING CODE 8010-01-P