[Federal Register Volume 69, Number 169 (Wednesday, September 1, 2004)]
[Notices]
[Pages 53480-53482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-1986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50262; File No. SR-NASD-2004-118]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. To Introduce 
an Extranet Access Fee for Extranet Providers To Provide Direct Access 
Services for Nasdaq Market Data Feeds

August 25, 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 August 4, 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to add paragraph (v) to Rule 7010 to introduce an 
extranet access fee for extranet providers to provide direct access 
services for Nasdaq market data feeds. The text of the proposed rule 
change is set forth below. Proposed new language is in italics.\3\
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    \3\ The proposed changes are marked from Rule 7010 as it appears 
in the NASD Manual available at http://www.nasd.com. There are no 
pending rule filings that affect this rule filing.
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7010. System Services

    (a)-(u) No change.
    (v) Extranet Access Fee
    Extranet providers that establish a connection with Nasdaq to offer 
direct access connectivity to market data feeds shall be assessed a 
monthly access fee of $750 per recipient Customer Premises Equipment 
(``CPE'') Configuration. If an extranet provider uses multiple CPE 
Configurations to provide market data feeds to any recipient, the 
monthly fee shall apply to each such CPE Configuration. For purposes of 
this paragraph (v), the term ``Customer Premises Equipment 
Configuration'' shall mean any line, circuit, router package, or other 
technical configuration used by an extranet provider to provide a 
direct access connection to Nasdaq market data feeds to a recipient's 
site.
* * * * *

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 rule filing is to provide market data customers 
with more options for direct access connectivity \4\ to Nasdaq market 
data feeds.\5\ Currently, MCI, Inc. (``MCI'') is the sole provider of 
direct access connections to Nasdaq's market data feeds. The monthly 
fees for direct access connections are set forth in contracts between 
MCI and its direct access customers. MCI's monthly direct access fees 
depend on the customer's particular bandwidth needs.\6\ Nasdaq proposes 
to

[[Page 53481]]

establish connections with extranet providers who will also offer 
direct access connectivity to Nasdaq's market data feeds. Direct access 
customers will then be free to contract with such extranet providers 
instead of MCI to receive direct access connectivity.
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    \4\ A direct access connection means a connection through a 
private network provider where the provider transmits Nasdaq's 
market data feeds to the recipient but does not control the devices 
used to receive the market data feeds at the recipient's site.
    \5\ The proposed rule change applies to connectivity services 
for both Nasdaq's Securities Information Processor (``SIP'') and 
proprietary market data feeds. Nasdaq will not permit any extranet 
provider to obtain access to Nasdaq's SIP market data feeds until 
approval for such access is granted pursuant to the Unlisted Trading 
Privileges (``UTP'') Plan. Upon approval by the UTP Plan, Nasdaq 
would include its SIP market data feeds in the extranet access 
offering without additional charges.
    \6\ The term ``bandwidth'' refers to the amount of data that can 
be transmitted over a circuit in one second. Nasdaq's market data 
feeds have specific minimum bandwidth requirements. For example, 
Nasdaq's TotalView data feed requires a minimum of 4000 Kbs/feed. 
Thus, the more market data feeds a customer orders, the more 
bandwidth the customer will need to purchase from the direct access 
provider.
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    As noted above, MCI is the sole provider of direct access 
connections to Nasdaq's market data feeds. In order to comply with 
Nasdaq's market data integrity requirements, MCI first processes 
Nasdaq's market data feeds through its proprietary error correction 
system, the Republisher. This error correction system is necessary 
because gaps of information may be lost when a data feed is transmitted 
to a recipient's site. After MCI ``republishes'' the market data feeds, 
they are then transmitted across MCI's network. A republished data feed 
gives MCI's customers the ability to recover any gaps of information 
that may have occurred during transmission. The cost of this enhanced 
service is included in MCI's monthly direct access fees. MCI owns and 
is the exclusive operator of the Republisher for Nasdaq until December 
31, 2005. In 2006, Nasdaq plans to transition to its own error 
correction system to replace the Republisher.\7\
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    \7\ Nasdaq plans to invest in its own error correction system in 
order to gain more control over the quality of its market data 
feeds. Furthermore, some extranets have expressed their 
unwillingness to operate their own error correction system to meet 
Nasdaq's data integrity requirements because of cost considerations.
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    In order to monitor the transmission quality of its market data 
feeds, Nasdaq has an existing connection with MCI's Republisher that 
routes a copy of all republished market data feeds back to Nasdaq. 
Nasdaq proposes to permit extranets access to this connection in order 
for extranets to transmit republished market data feeds. Providing 
extranets with access to republished market data feeds from Nasdaq will 
enable extranets to supply the same quality market data feed services 
that vendors purchase today through MCI.
    Nasdaq proposes to charge extranet providers a monthly fee of $750 
per recipient Customer Premises Equipment Configuration for access to 
Nasdaq's republished market data feeds. The proposed fee will be used 
to support Nasdaq's costs associated with establishing and maintaining 
multiple extranet connections. These costs include the costs for 
republishing, increased network monitoring and maintenance costs, and 
new administrative and operational costs. The proposed access fee will 
not affect distributor or subscriber fees.\8\ Since MCI currently 
operates Nasdaq's network and republishes the market data feeds 
pursuant to a contract, it will not, by definition, be considered an 
extranet. In 2006, MCI will stop operating the current network and the 
Republisher for Nasdaq. At that time, MCI will become an extranet if it 
chooses to continue offering direct access connections to Nasdaq's data 
feeds.
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    \8\ Nasdaq distributor and subscriber fees apply when an entity 
seeks to use or repackage the content in a market data feed. The 
proposed extranet access fee shall apply when an entity seeks to 
connect to Nasdaq to transport market data feeds without repackaging 
or using the content of the data feed (i.e., offer direct access 
connections). A particular entity may, depending on the 
circumstances, be required to pay all three types of fees.
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    The proposed rule change will result in extranet providers 
competing not only amongst themselves, but also against MCI for direct 
access customers. Nasdaq believes that competition in the direct access 
market could potentially decrease the costs for direct access 
connections and may drive innovation in the direct access market, which 
may benefit Nasdaq's market data customers through improved network 
service offerings and lower prices.\9\ Lower connectivity costs and 
innovative service offerings could also result in more direct access 
customers and a wider distribution of Nasdaq market data feeds.
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    \9\ Nasdaq states that, indeed, in anticipation of extranets 
also offering direct access connections, MCI recently started 
offering new direct access packages at prices substantially lower 
than the prices for its older direct access packages.
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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,\10\ in general and with 
Section 15A(b)(5) of the Act,\11\ 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 association operates or controls. All users that 
establish an extranet connection with Nasdaq to access market data 
feeds from Nasdaq will pay the same fee, which will offset republishing 
costs, network monitoring and maintenance costs, and other 
administrative and operational costs.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 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

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 No. SR-NASD-2004-118 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-NASD-2004-118. 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

[[Page 53482]]

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. 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 No. SR-NASD-
2004-118 and should be submitted on or before September 22, 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. E4-1986 Filed 8-31-04; 8:45 am]
BILLING CODE 8010-01-P