[Federal Register Volume 69, Number 160 (Thursday, August 19, 2004)]
[Notices]
[Pages 51502-51504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18979]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50190; File No. SR-NSX-2004-09]


Self-Regulatory Organizations; National Stock Exchange; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change and 
Amendment No. 1 To Amend NSX's SOR and Tape B Market Data Revenue 
Sharing Programs

August 12, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 28, 2004, National Stock Exchange (the ``Exchange'' or 
``NSX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change, as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The NSX 
filed an amendment to the proposed rule change on August 10, 2004.\3\ 
The Exchange filed the proposal pursuant Section 19(b)(3)(A)(ii) of the 
Act \4\ and Rule 19b-4(f)(2) \5\ thereunder, which renders the proposal 
effective upon filing with the Commission. 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\ See letter from James Yong, Senior Vice President (``SVP''), 
Regulation and General Counsel of the Exchange, to Nancy Sanow, 
Assistant Director (``AD''), Division of Market Regulation 
(``Division''), Commission, dated August 9, 2004 and attachment 
(``Amendment No. 1''). Amendment No. 1 replaced and superceded the 
original filing in its entirety. In Amendment No. 1, the Exchange 
provided additional clarification regarding its proposed changes and 
made a technical correction to the proposed rule text. For purposes 
of calculating the 60-day abrogation period, the Commission 
considers the period to have commenced on August 10, 2004, the date 
the NSX filed Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NSX is proposing to amend its specialist operating revenue 
(``SOR'')

[[Page 51503]]

revenue sharing program set forth in Exchange Rule 11.10(A)(j) as well 
as its Tape B revenue sharing program set forth in Exchange Rule 
11.10(A)(k). NSX will implement the proposed change on July 1, 2004.
    The text of the proposed rule change is below.\6\ Proposed new 
language is italicized; proposed deletions are in brackets.
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    \6\ The language in Exchange Rule 11.10(A)(k) has been drafted 
based on the presumption that SR-NSX-2004-08 has already become 
effective. See Securities Act Release No. 50146 (August 4, 2004), 69 
FR 49927 (August 12, 2004) (approving SR-NSX-2004-08).
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* * * * *
CHAPTER XI
Trading Rules
* * * * *
Rule 11.10 National Securities Trading System Fees
A. Trading Fees
    (a)-(i) No change.
    (j) Revenue Sharing Program. After the Exchange earns total 
operating revenue sufficient to offset actual expenses and working 
capital needs, a percentage of all Specialist Operating Revenue 
(``SOR'') shall be eligible for sharing with Designated Dealers. SOR is 
defined as operating revenue [which] that is generated by specialist 
firms. SOR consists of transaction fees, book fees, technology fees, 
and market data revenue [which] that is attributable to specialist firm 
activity. SOR shall not include any investment income or regulatory 
monies. The sharing of SOR shall be based on each Designated Dealer's 
pro rata contribution to SOR in excess of $75,000 per quarter. In no 
event shall the amount of revenue shared with Designated Dealers exceed 
SOR. To the extent market data revenue is subject to [year-end] any 
adjustment, SOR revenue may be adjusted accordingly.
    (k) Tape ``B'' Transactions. Except as provided in Paragraph 
(A)(e)(4) above, the Exchange will not impose a transaction fee on 
Consolidated Tape ``B'' securities. In addition, Members will receive a 
50 percent pro rata transaction credit of gross Tape ``B'' revenue; 
provided that, however, calculation of the transaction credit will be 
based on net Tape ``B'' revenues in those fiscal quarters where the 
overall revenue retained by the Exchange does not offset actual 
expenses and working capital needs. To the extent market data revenue 
from Tape ``B'' transactions is subject to [year-end] any adjustment, 
credits provided under this program may be adjusted accordingly.
    (l)-(r) No change.
B. No change.
C. 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, the Exchange included statements 
concerning the purpose of, and the 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. The Exchange 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 Exchange is proposing to amend its SOR revenue sharing program 
to provide that only specialists that contribute more than $75,000 in 
quarterly SOR will be eligible to participate in the allocation of the 
SOR.\7\ In addition, the first $75,000 in quarterly SOR contributed by 
a specialist will be excluded from the firm's pro rata percentage 
contribution calculation. Currently, there are no such limitations on 
SOR participation. In no event will the amount of revenue shared with 
specialist firms exceed SOR. The Exchange believes that the 
implementation of this minimum contribution requirement is reasonable 
and ensures that each member pays an equitable share of the costs 
associated with operating the Exchange.
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    \7\ SOR is defined as operating revenue that is generated by 
specialist firms. SOR consists of transaction fees, book fees, 
technology fees, and market data revenue attributable to specialist 
firm activity. SOR does not include any investment income or 
regulatory monies. Exchange Rule 11.10(A)(j).
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    Through this filing, NSX is also proposing to make amendments to 
its SOR revenue sharing program \8\ and Tape B market data revenue 
sharing program \9\ to provide that to the extent market data revenue 
is subject to any adjustments, not just year-end adjustments as the 
rule text currently provides, credit provided under the respective 
programs may be adjusted accordingly.
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    \8\ Exchange Rule 11.10(A)(j).
    \9\ Exchange Rule 11.10(A)(k).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and with Section 6(b)(4) 
of the Act,\11\ in particular, in that it is designed to provide for 
the equitable allocation of reasonable dues, fees, and other charges. 
The NSX believes the proposed rule change is also consistent with 
Section 6(b)(5) of the Act \12\ in that it is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest. The 
Exchange believes that the proposed change will create incentives for 
members to use the Exchange trading system, thereby increasing 
competition, which, in turn, will enhance the National Market System.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that, as a national securities exchange, NSX 
has an obligation to maintain the resources necessary to adequately 
conduct its surveillance, examination, and other regulatory 
responsibilities.\13\ The Exchange has acknowledged to the Commission 
that it remains mindful of its regulatory responsibilities and will not 
compromise those responsibilities by sharing revenue that would more 
appropriately be used to fund its regulatory responsibilities.\14\
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    \13\ See Securities Exchange Act Release No. 41286 (April 14, 
1999), 64 FR 19843, 19844 (April 22, 1999) (reminding the Cincinnati 
Stock Exchange, Inc., the precursor to the NSX, of its regulatory 
responsibilities when considering its SOR program).
    \14\ Telephone conversation between James Yong, SVP, Regulation 
and General Counsel of the Exchange and Katherine England, AD, 
Division, Commission, on July 13, 2004 (regarding operation of the 
Exchange's SOR program and the need for the Exchange to remain 
mindful of its regulatory responsibilities).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received in connection with 
the proposed rule change.

[[Page 51504]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \15\ and subparagraph (f)(2) of Rule 19b-
4\16\ thereunder, because it involves a member due, fee, or other 
charge. At any time within 60 days of the filing of such 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
    \17\ See 15 U.S.C. 78s(b)(3)(C). See also footnote 3, supra 
(regarding calculation of the abrogation period).
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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-NSX-2004-09 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 No. SR-NSX-2004-09. 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 the Exchange. 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-NSX-2004-09 and should be submitted on or before September 9, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to the delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-18979 Filed 8-18-04; 8:45 am]
BILLING CODE 8010-01-P